Економічні науки/7. Облік та аудит

PhD, Associate Professor Bulkot A.V., Master of Science Shevtsova A.L.

State Higher Educational Establishment «Kyiv National Economic University named after Vadym Hetman», Ukraine

METHODICAL BASIS FOR AUDIT OF GOODWILL

Nowadays a wide range of clients, qualified staff and the reputation of the company only increase its value.

Goodwill is the value formed as a result of the integrated management of the attractive force, quality, relations with partners, reputation management, financial results, social responsibility, which are all sources of increase in the value of the company [1].

According to British researchers, the excess value of intangible assets, such as know-how, patents, goodwill, copyrights, brand, that are not reflected in the balance sheet, is for «Coca-Cola», for IBM - 83%,for British Petroleum - 71% of the market price of these companies. Therefore, we can determine that goodwill represents a significant share of the market value of modern companies, especially when intangible assets are the main part of the companies’ assets.

The purpose of an independent auditor is to obtain sufficient and appropriate auditing evidences, so that to form auditor’s opinion. However, obtaining auditing evidence for assets such as goodwill is quite problematic for an auditor, as this type of checking is quite complicated.

While checking the procedures of acquisition, merging or consolidation of the companies, it is necessary to determine the general nature of their activities:

a) sphere of activity of the acquired company;

b) profitability of the company;

c) projected results of its activity;

d) usefulness of the object;

e) possibility of the excess of acquisition over the fair value of the object.

The main differences in the reflection of business association according to international and national accounting standards are that IFRS 3 [2] provides recognition of business association only as acquisition (NAS19 [4] determines two methods of accounting: acquisition and merger) and regular checking of goodwill for impairment (NAS 19 [4] provides positive goodwill depreciation) [5].

Following the procedures stated above, it is necessary to consider the legality and possible effectiveness of business operations for each agreement separately, that is for acquisition and consolidation of companies.

The objectives of the verification procedure of acquisition and results of the company are:

a) process of purchasing the object by the buyer;

b) procedure for liquidation of the objects purchased by the buyer;

c) procedure for reflection of goodwill or negative goodwill in auditing;

d) whether purchased shares (share capital) are reflected in financial investments;

f) whether acquired facilities are reflected in the amount of paid cash or cash equivalents;

f) whether purchased identifiable assets and liabilities are valued at their fair value;

g) whether original (book) value of goodwill is reduced monthly in equal parts during the time of its use[3].

Particular attention should be paid to useful life of goodwill. This rate is influenced by:

a) estimated period of the enterprise activity;

b) regulations or contracts that influence useful life;

c) changes in demand for products (services) of the company, etc. [4].

It is also necessary to determine the objectives of auditing merger of the companies. In the process of auditing merger of the companies you should check:

a) whether costs connected with merger of enterprises (registration, information, consulting, etc.) have been allocated for expenses in the period in which they were made;

b) whether financial statements figures of merged companies were reflected in the financial statements in the period of merger and the previous period;

c) whether the assets are stated at their carrying value to reflect changes in accounting policy of merged company;

d) whether internal liabilities and results of operations are included in financial statements of merged venture [3].

Therefore, to obtain full and relevant information about the goodwill in the company it is necessary to conduct qualitative independent auditing. The result of the audit should be reflected in the appropriate auditing report, which will be useful for managers of the entity during the process of taking decisions.

References:

1. Koshevets V. V. Formuvannia poniatiyno-kategorialnogo aparatu systemy upravlinnia goodvilom pidpryemstva / V. V. Koshevets // Visnik Sumskogo derzhavnogo universytetu. Ser. : Ekonomika. - 2012. – №. 4. - P. 102-106.

2. IFRS 3 “Business Combinations”,International Financial Reporting Standards.Part I, 1278 p.

3. Ogiychuk M. F. Audit: organizatsiia i metodyka: navchal’nyy posibnyk dlia vuziv / M. F. Ogiychuk, I. T. Novikov, I. I. Ragulina. - K.: Alerta, 2010. - 584 p.

4. P(S)BO 19 “Ob’ednannia pidpryemst”, zatverdzhene nakazom Ministerstva finansiv Ukrainy vid 07.07.99 r. № 163

5. Tomashevska I.L. Ob’ekty buhgalterskogo obliku pry prydbanni pidpryemstv / I.L. Tomashevska // Problemy teorii ta metodologii buhgalterskogo obliku, kontroliu i analizu. Mizhnarodnyy zbirnyk naukovyh prats. / Ser.: Buhgalterskiy oblik, kontrol i analiz. – 2007. – №.3(9). - P. 172-178.