Independent advice is of great importance to the robustness and supportability of most material transactions and the same is true of financial statement reporting. One of the areas of key subjectivity in any audit is valuation - as there are often no directly observable transactions in the asset or liability in question and therefore the suitability of the model, data and assumptions adopted in any valuation work, as well as the experience of the preparer has to be tested appropriately.
This has been highlighted in the latest news from the FRC (the UK regulator of auditors, accountants and actuaries) where a 'Big 4' audit firm has been sanctioned for historically failing to audit the carrying value of goodwill appropriately for one of its clients.
As a valuer who sees these circumstances on a daily basis, we understand the complexities involved and provide robust assistance to clients who need this specialist support.
It is clear the FRC consider that the level of goodwill held on a company balance sheet is an important aspect of the financial statements and appropriate measures need to be implemented by clients and auditors to undertake the impairment testing and auditing of that analysis.
We foresee that as a result of this case, there will be an increased focus by auditors over the next few periods to ensure that goodwill and other indefinitely-lived intangible assets will be appropriately tested for impairment.
Deloitte, partner fined and sanctioned over Mitie audit