How do you prepare for an intangible asset audit?
Short Answer
Prepare by documenting all intangible assets on the balance sheet, maintaining valuation reports with clear methodology, ensuring assumptions are supportable, and having sensitivity analysis ready for auditor review.
Full Explanation
Auditors scrutinise intangible asset valuations closely because they involve significant judgement and can materially affect reported earnings. To prepare effectively, companies should ensure the following are in order. Documentation: maintain complete valuation reports for all recognised intangible assets, including the identification basis, methodology selected, key assumptions, and data sources. Each assumption (discount rate, growth rate, attrition rate, royalty rate) should be supported by external evidence or documented management reasoning. Consistency: ensure that assumptions used in intangible asset valuations are consistent with those used elsewhere in the financial statements — for example, revenue growth rates in the PPA should align with business plan projections used for goodwill impairment testing. WARA reconciliation: have the weighted average return on assets analysis available, demonstrating that asset-level discount rates reconcile to the WACC. Sensitivity analysis: prepare sensitivity tables showing the impact of varying key assumptions, as auditors will test boundary conditions. Subsequent measurement: for finite-life intangibles, ensure amortisation schedules are being correctly applied and useful life estimates remain appropriate. For indefinite-life intangibles and goodwill, ensure annual impairment testing has been performed with current assumptions. Triggering events: be prepared to explain whether any events since the last valuation (customer losses, technology changes, market shifts) could indicate impairment. The most effective preparation is maintaining an ongoing relationship with valuation specialists who can provide real-time support during the audit process.
Try It Yourself
Related Glossary Terms
Related Questions
UK companies claim R&D tax relief on qualifying R&D spend through their corporation tax return. Under the merged scheme the expenditure credit is 20% ...
Goodwill impairment testing compares the carrying amount of a cash-generating unit to its recoverable amount (higher of fair value less costs to sell ...
The AICPA Practice Aid provides authoritative guidance on identifying intangible assets, selecting valuation methods, applying the MPEEM, determining ...
Further Reading
What is the IAS 38 revaluation model for intangible assets?
IAS 38 permits revaluation of intangible assets to fair value if an active market exists, but this is rarely used in practice because active markets for most intangible assets do not exist.
Read more →Want to see these concepts in action?
See how Opagio Intangibles runs asset-level valuations across your full portfolio.