You are auditing the financial statements of Austin Software Company, which is a fast-growing software development company. As part of the company’s strategy, management has been aggressively pursuing acquisitions of other companies. Some of the prior acquisitions resulted in the recording of goodwill.
During your review of income and expense accounts, you noted a material goodwill
impairment charge associated with the company’s acquisition of Longhorn Software,
Inc.
As part of your audit, consider each of the following:
a. What are the underlying accounting standards requirements that are relevant to your evaluation of the company’s charge for the impairment of goodwill?
b. What types of evidence would be relevant to your evaluation of whether manage-
ment’s impairment charge is fairly stated?
c. How might the use of a business valuation specialist be helpful in this year’s audit?
