Assume that in 2013, Nelson Communications purchased a controlling interest in Telnetco that resulted in goodwill in

Question:

Assume that in 2013, Nelson Communications purchased a controlling interest in Telnetco that resulted in goodwill in the 2013 consolidated financial statements of $4,500,000. There are no other intangible assets. Telnetco continues to be listed on NASDAQ. Near the end of 2014, Nelson estimated that the FMV of Telnetco was $50,500,000 based on the present value of its future cash flows.

Using the assistance of a professional appraisal firm, the FMV of its net tangible assets was determined to be $46,900,000, resulting in a goodwill write-down of $900,000.

a. Describe the inherent risks to this write-down.

b. Describe the audit evidence needed to evaluate the fairness of this write-down.

c. How might a specialist be of help?

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