Ethics and Intangibles
Response to the following problem:
You are auditing the financial records of a company, and you are aware that it has grown quickly in the last few years by acquiring other companies. You look up the disclosure in last year's annual report, which states, "The company amortizes its intangibles over periods ranging from 3 to 15 years." As you review the company's records, you find that the company made an acquisition of a "high-tech" company three years ago and has not recognized any impairment on the related goodwill. In the last six years, the company has made five other acquisitions and has not recognized any impairment related to them. Included in the acquisitions are several patents that are amortized over nine years and some intangibles with indefinite lives.
Required:
From financial reporting and ethical perspectives, discuss the issues raised by this situation.