The Client

Our client was a large publicly traded company that manufactures and markets consumer, business, and technology products.

Project Summary

Stout prepared internal controls documentation for the company’s multiple reporting units as part of its annual impairment testing.

Client Challenge

As a public company, our client is required to test goodwill for impairment at least annually, and between annual tests whenever there is an indication of impairment (i.e., upon a triggering event).

Based on the nature of the work, Stout’s familiarity with the company’s operations (Stout having performed valuation and other acquisition support historically), and the limited bandwidth by company personnel to complete the work internally, Stout was able to assist.

Additionally, the company’s auditor required an unusually significant amount of detail for goodwill impairment control work.

Our Solution

We prepared internal controls documentation for the company’s multiple reporting units. While the type of work was consistent with work prepared in prior years, the documentation around the various assumptions or the specific controls identified in any given year (or for a specific reporting unit) can vary.

Stout worked to align with management and the audit team on the key assumptions and testing approach, held multiple discussions with the audit team to resolve questions, and ultimately delivered controls workbooks with supporting schedules.

Our work was subsequently reviewed and included in the company’s audit workpapers, as well as being reviewed as part of the auditor’s (and company’s) PCAOB review of the company’s audit.

When the company shifted from three reporting units to two reporting units, we began documenting a subset of the controls under the new structure. As a result of our historical and ongoing work, we built a strong relationship with the auditor.

Client Outcome

Our detailed documentation process resulted in a successful PCAOB review for the company, with no comments on the controls documentation. Aside from the technical aspect, our controls work provides strategic value to the company, particularly in terms of their finance, forecasting, and budgeting processes.

The process we took to support the impairment controls documentation required detailed conversations around the company’s operations, its revenue and expense forecasts, and challenges underlying assumptions, ultimately supporting management’s assertion that goodwill is not impaired as detailed in the company’s financial statements.