Company: APT
Filing Date: 2025-03-12
Form Type: 10-K
Source: 0001437749-25-007218
Chunk: 23

Company: ALPHA PRO TECH LTD
Filing Date: 2025-03-12
Form: 10-K
Item: Item 7A
Chunk 23
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 below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.

Equity Investment in Unconsolidated Affiliate

As more fully described in Notes 2 and 6 to the consolidated financial statements, the Company holds a noncontrolling equity investment in a foreign entity which produces and sales certain products to the Company. As a global organization with an international affiliate, the Company needs to properly value its noncontrolling equity basis investment.

Auditing the Company’s noncontrolling equity investment in a foreign entity was complex and required significant auditor judgement due to the complexities inherent with a foreign domiciled investment with related party transactions, foreign currency translation adjustments, and the potential of impairment.

Our testing of the Company’s noncontrolling equity investment in a foreign entity included, among other procedures, testing data for the foreign entity, evaluating and testing the significant assumptions and operating data used to eliminate intercompany transactions, and evaluating management’s method for accounting for the foreign currency transactions. We also visited the factories in India to test the existence of the factories, equipment, and inventory, and to observe operations of the affiliated entity.

24

Provision for Income Taxes

As more fully described in Note 10 to the consolidated financial statements, the Company’s net deferred income tax liabilities were $503,000 as of December 31, 2024, and income tax expense was $1,091,000 for the year ended December 31, 2024. As a global organization, the Company files income tax returns in the U. S. federal jurisdiction and various state and foreign jurisdictions.

Auditing the Company’s provision for income taxes was complex and required a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence relating to (i) management's assessment of complex tax laws and regulations as it relates to determining the provision for income taxes, (ii) management's assessment of the realizability of deferred tax assets, specifically related to available tax planning strategies and (iii) evaluating whether the data utilized in the calculations of the provision for income taxes, and deferred tax assets and liabilities were appropriate and consistent with evidence obtained in other areas of the audit.

Our testing of the Company’s provision for income taxes included, among others (i) testing the accuracy of the provision for income taxes, which included the effective tax rate reconciliation and permanent and temporary differences, (ii) evaluating whether the data utilized in the calculations of the provision for income taxes and deferred tax assets and liabilities were appropriate and consistent with evidence obtained in other