Fair Value Measurement: Practical Guidance and Implementation, 2nd Edition

APPENDIX THIRTEEN A

Auditing a Business Combination or a Step 2 Impairment Test

This appendix includes examples of issues auditors may consider in the audit of the analysis of fair value measurements in either a business combination or a Step 2 impairment test. The questions are grouped by general questions and valuation approaches.

GENERAL

1. How is the industry defined and what is the relevant SIC/NAICS Code? Where other industries were considered?

2. Is the entity/industry young or mature? In what life cycle stage is the entity/industry?

3. Is the entity cyclical in nature? How does the current economic outlook impact the entity's operating outlook?

4. Are any nonoperating or nonrecurring items included in the entity's historic financial statements? Are there any discontinued operations?

5. What type of transaction structure was assumed in the analysis and how was the conclusion about the assumption reached? Is the assumption of a stock transaction or asset purchase consistent with the client's projected financial information?

6. Were there any assets considered but not ultimately valued? If so, provide the rationale for not ascribing value to these assets.

7. Were any assets acquired that management does not intend to use? If so, were any of these assets deemed to be defensive assets?

8. If management represents the fair value of the fixed assets and approximates the carrying value, how was this assumption determined?

9. Are third party appraisals available for material fixed ...