Novelis, Incorporated is the worlds leading rolledaluminum products producer. Items 1. through 3. below provide descriptions of

Novelis, Incorporated is the world’s leading rolledaluminum products producer. Items 1. through 3. below provide descriptions of issues involving asset impairments derived from the company’s footnote disclosures.

1. In connection with the decision to close and sell our plant in Borgofranco, Italy, we recognized an impairment charge of $5 million to reduce the net book value of the plant’s fixed assets to zero. We based our estimate on third-party offers and negotiations to sell the business.
2. We recorded an impairment charge of $65 million to reduce the carrying value of the production equipment at two facilities in Italy to their fair value of $56 million. We determined the fair value of the impaired assets based on the discounted future cash flows of these facilities using a 7% discount rate.
3. We announced that we would cease operations in Falkirk, Scotland. We designated certain production equipment with a nominal carrying value for transfer to our Rogerstone facility.

We reduced the carrying value of the remaining fixed assets to zero, which resulted in an $8 million impairment charge. Complete the first four steps of the seven-step framework for professional decision making introduced in Chapter 4 by answering the following questions:

a. What difficulties will the auditor of Novelis face when deciding whether the impairment charges that Novelis incurred are reasonable?
b. What are the consequences of the auditor’s decisions in evaluating impairments?
c. What are the risks and uncertainties associated with Novelis’s estimation?
d. What types of evidence should the auditor gather to evaluate the reasonableness of management’s estimates? Recall that the framework is asfollows:

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T. Structure the audit problem 2. Assess consequences of deciston 3. Assess risks and uncertointes of the audit problem 4. Evoluate Information/audit evidence gathering alternatives 5. Conduct sensitvity andlysls 6, Gather Information/audit evidence 7. Make decision about audlt problem