In verifying the amount of goodwill recorded by a client, the most convincing evidence which an auditor can obtain is by comparing the recorded value of assets acquired with the
A. Seller’s book value as evidenced by financial statements.
B. Appraised value as evidenced by independent appraisals.
C. Insured value as evidenced by insurance policies.
D. Assessed value as evidenced by tax bills.
Answer:B
B is correct because identifiable assets acquired in a "purchase" business combination should be recorded at their appraised values.
A is incorrect because the seller’s book value is not relevant to the value at which the purchaser should record the assets.
C is incorrect because for valid business reasons a firm may insure its assets for other than their cost.
D is incorrect because assessed tax values may deviate from the value to be recorded under generally accepted accounting principles.