A2 Auto Corporation

1445 words 6 pages
A2 Auto Corporation is one of the world’s largest manufacturers and distributors of automobiles and automobile ancillary parts. In its Form 10-K, filed with the SEC, the following information was disclosed.
First, on the basis of assumptions underlying the acceleration of the Company’s strategy refocus, management projects a decline in the net cash flows for the A2 Americas segment. As a result, in the third quarter of 2010, management has tested the long-lived assets of this segment for recoverability. They recorded a pretax impairment charge of $1.76 billion in cost of sales.
Secondly, during the third quarter of 2010, management also reviewed their business plan for the Alpha and Beta operating units. These units
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Section 360-10-35-28 of the Code states that an impairment loss for an asset group shall reduce only the carrying amount of the fixed asset of the group. That loss shall be allocated to the fixed asset on a pro-rata basis using the carrying values of those assets, except that the loss allocated to the individual assets of the group shall not reduce the carrying values of that asset below its fair value whenever that fair value is measured without undue cost and effort.

Au Section 150.02 Field Work standard No 2
The auditor must obtain a sufficient understanding of the entity and its environment, including its internal control, to assess the risk of material misstatement of the financial statements whether due to error or fraud, and to design the nature, timing and extent of further audit procedures.
Section 360-10-35-26 of the Code states that goodwill shall not be included in a lower-level asset group that includes only part of a reporting unit. It also states that estimates of future cash flows used to test that lower-level asset group for recoverability shall not be adjusted for the effect of excluding goodwill from the group.
Section 360-10-35-20 of the Code states that if an impairment loss is recognized, then the adjusted carrying value of the fixed asset becomes its new cost basis. Additionally, restoration of a previously recognized impairment loss is prohibited.


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