Billy's Beats Inc Case Solution

The case also mentions Rock out Inc., another wholly owned subsidiary of Billy beats, which has grown rapidly in previous years through acquiring other guitar manufacturing companies. Management of Rock out Inc. made a change and revised the accounting estimate of economic life of customer lists, one of its major intangible asset, because they believed the new estimate will better reflect the pattern in which economic benefit from the customer lists will be utilized. The change was applied only to the newly acquired customer lists.

2. Answer

The audit engagement team was assigned the task to perform adequate substantive procedures in order to give an opinion about the appropriateness of management’s assumptions. Substantive procedures include applying adequate analytical procedures and testing details, but the engagement team failed to do so. While addressing the issue of estimate of useful life of acquired assets the audit team only discussed it with plant manager and documented that discussion in audit working papers which clearly wasn’t sufficient. Their responsibility entailed that they should have checked the competency of plant manager that whether he had the required skill and expertise to determine the useful life of assets. Secondly they should have determined the objectivity of plant manager that whether he was being influenced by upper management or not in his decision making. Lastly, the team should have asked the management to provide a detailed basis for assuming same useful life estimates as determined by acquired company.