Trueblood Case

SUBJECT Deciding the becharm Extent of Audit Performed for billy goats Beats for Asset rating Billys Beats Inc. , an SEC registrant, is a new take stock leaf node with a fiscal year-end of celestial latitude 31, 2010. Billys is a manufacturer of musical instruments. Billys acquired littler Drummer son Inc. in 2010 for $575 million in cash. Significant summations acquired include property, plant, and equipment marrowing $865 million and separate assets contributeing $145 million. The useful lives assigned to the property, plant, and equipment acquired were 30 eld for the plant and 15 days for the equipment.The useful lives for the plant and equipment already owned by Billys are 20 years and 10 years. Other included assets of acquired client lists, were assigned a useful life of 15 years. To rivulet the useful lives of the operating assets, the interest team asked wariness why the descend of years assigned to the plant and equipment acquired differed from the years assi gned to the assets which Billys had already owned. attention stated that the useful lives for the acquired assets were the amounts used by petty Drummer before the acquisition.The engagement team discussed the useful lives of the acquired property, plant, and equipment with the plant manager of Little Drummer. The plant manager stated that 30 years and 15 years for the plant and the equipment, respectively, were the useful lives used before the acquisition. This discussion was documented in the audit working papers. The paygrade specialist allocated the plant fair comfort of $865 million to severally asset class based on the office of the sellers total original cost applicable to each asset class. These percentages were provided by management of Little Drummer and relied on by the military rating specialist.The engagement team compared the percentage of total costs to a client prepared spreadsheet listing each asset class, asset ID, and percentage of total cost. zero(prenomin al)errors were noted and, accordingly, no further testing of the client-prepared spreadsheet was performed by the engagement team. In addition to its drum manufacturing business, Billys also entirely owns RockOut Inc. , which is the largest manufacturer of guitars in the United States. RockOut grew through the acquisition of other guitar companies and finished five acquisitions durng 2012, eight acquisitions during 2009, and four acquisitions during 2008.As a result of the acquisitions, RockOut reported just about $90 million, which was 15 percent of total assets and 60 percent of total intangible assets, of customer lists as of December 31, 2010. RockOut pay offs its customer lists on a straight-line basis over 25 years, which management believes reflects the pattern in which the scotch benefits of the customer lists are used up. During 2010, management revised its estimate of the customer list economic life, and began assigning an amortization period of 15 years to newly acq uired national customer lists.Amortization expense for the year ended December 31, 2010, was $3 million. To test the economic lives of the customer lists, the engagement team asked management what the reasoning was for the diverge in the assumed economic life this year. Management provided a memorandum that discussed the rationale for using the 25-year economic life to amortize the various customer lists, as well as the rationale for the current-year change in managements estimate of the newly acquired national customer lists lives.According to IAS 16, The cost of an item of property, plant and equipment comprises, its purchase price, including import duties and non-refundable purchase taxes, later on deducting trade discounts and rebates, any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management, and the initial estimate of the costs of pull down and removing the item and r estoring the site on which it is located, the obligation for which an entity incurs either when the item is acquired or as a consequence of having used the item during a particular(prenominal) period for purposes other than to produce inventories during that period. Because this in not how the company intractable on the value and useful lives of the assets in question they should have follows IAS 36 to determine if there was an impairment. The audit procedures for determining if there was a valuation problem could also be addressed using FASB Statement No. 142.