Company: ADP
Filing Date: 2025-08-06
Form Type: 10-K
Source: 0000008670-25-000037
Chunk: 87

Company: AUTOMATIC DATA PROCESSING INC
Filing Date: 2025-08-06
Form: 10-K
Item: Item 8
Chunk 87
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 capital used by management to estimate the fair value contributed by the next-gen platform included the following, among others:

•We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of the fair value of the reporting unit within the Employer Services reportable segment, such as controls related to management’s forecasts of future revenue and operating margin and the selection of the weighted average cost of capital.

•With the assistance of our fair value specialists, we evaluated the reasonableness of the valuation models, methodology, and significant assumptions used by the Company, specifically the weighted average cost of capital including:

◦Testing the mathematical accuracy of the Company’s calculation of the weighted average cost of capital.

◦Developing a range of independent estimates and compared to the weighted average cost of capital selected by management.

•We evaluated management’s ability to accurately forecast future revenue and operating margin by comparing actual results to management’s historical forecasts. Due to the limited historical data for the next-gen platform, we evaluated the reasonableness of management’s revenue and operating margin forecasts by comparing the forecasts to (1) the historical operating results of the Company’s similar existing platforms, (2) the limited operating results to date of the next-gen platform, (3) internal communications to management and the board of directors, and (4) external communications made by management to analysts and investors.

Client Funds Obligations - Refer to Note 5 to the financial statements

Critical Audit Matter Description

Client funds obligations represent the Company's contractual obligations to remit funds to satisfy clients' payroll, tax and other payee payment obligations and are recorded as a liability at the time that the Company impounds funds from clients (i.e., money movement). The Company has reported client funds obligations as a current liability in the consolidated financial statements totaling $31,343.3 million as of June 30, 2025. This money movement activity involves significant amounts of client funds being impounded and remitted to third parties and results in a high volume of transactions. 

To validate the accuracy and completeness of the client funds obligations reported as of period end, the Company performs complex data extracts in order to reconcile the transactional data to the client funds obligations and funds held for clients balances reported at period end. Given the significant volume of data used in the reconciliation, the complexity of the data extraction, and the reconciliation of the data extracts to the client funds obligations balance reported, auditing the client funds obligations is complex and requires the involvement of data specialists to independently reperform the reconciliation and assist with