Company: HFFG
Filing Date: 2025-03-17
Form Type: 10-K
Source: 0001680873-25-000006
Chunk: 13

Company: HF Foods Group Inc.
Filing Date: 2025-03-17
Form: 10-K
Item: Item 7A
Chunk 13
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 (ii) design and maintain effective ITGCs for certain information systems relevant to the preparation of the financial statements, and (iii) design and maintain effective controls over financial reporting.

We identified a critical audit matter over the completeness and accuracy of the consolidated financial statements. The ineffective control environment, including the ineffective ITGCs resulted in several material weaknesses. Designing the appropriate procedures and evaluating audit evidence to ensure the completeness and accuracy of the consolidated financial 

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statements, including higher risk areas, with an ineffective control environment, required especially challenging and subjective auditor judgment due to the increased extent of audit effort including the need to modify the nature and extent of audit evidence obtained.

The primary procedures we performed to address this critical audit matter included:

•Performing incremental procedures over material financial statement accounts such as revenue and receivables by i) increasing the sample sizes to perform certain audit procedures and ii) lowering the testing thresholds and by expanding the types of journal entries to be tested. 

•Evaluating the impact of improper segregation of duties and designing incremental procedures over disbursements.

•Manually testing the completeness and accuracy of information provided by the Company and increasing the extent of our testing for items to be selected and agreed to source documents.

Goodwill Impairment – Valuation of Reporting Unit

As disclosed in Notes 2 and 8 to the consolidated financial statements, the Company’s consolidated goodwill balance was $38.8 million as of December 31, 2024.  Goodwill is tested for impairment at the reporting unit level at least annually, or whenever events or changes in circumstances indicate that goodwill might be impaired.  In the valuation of goodwill, management must make assumptions regarding estimated future cash flows to be derived from the Company’s business.  A change in underlying assumptions could cause a change in the results of the impairment test and, as such, could cause fair value to be less than the carrying amount and result in an impairment of goodwill in the future.  In connection with the impairment tests completed as of September 30, 2024 and December 31, 2024 using the quantitative goodwill impairment assessment, the Company determined the fair value of its one reporting unit, using an average of the income approach, specifically, the discounted cash flow method, and market approaches, specifically, the comparable public company analysis and comparable acquisition analysis methods.  The income approach uses a discounted cash flow model that reflects management significant assumptions that mainly related to revenue growth rates, gross profit margins, distribution, selling & administrative (DS&A) expenses and a