In 2010, Nelson Communications purchased a controlling interest in Telnetco that resulted in goodwill in the 2010 consolidated financial statements of $4,500,000. There are no other intangible assets. Telnetco continues to be listed on NASDAQ. Near the end of 2011, Nelson estimated that the fair market value of Telnetco was $50,500,000 based on the present value of its future cash flows. Using the assistance of a professional appraisal firm, the fair market value of its net tangible assets was determined to be $46,900,000, resulting in a goodwill write down of $900,000.
a. Describe the inherent risks to the write down.
b. Describe the audit evidence needed to evaluate the fairness of this write down.
c. How might a specialist be of help?