The guidance for auditing ability is similar to that for auditing intent. When management classifies a debt security as held to maturity, the auditor gathers evidence that will either corroborate or conflict with the entity s ability to hold that security until maturity. 81 lists several factors auditors should consider when evaluating ability, such as whether existing operating and cash flow projections or forecasts provide relevant information about ability. Auditors are not required to create projections or forecasts if none exist. However, auditors exercising their professional judgment might ask management to prepare such prospective financial information.
Fair value is significantly below cost.
The decline in fair value is attributable to specific adverse conditions affecting a particular investment. The decline in fair value is attributable to specific conditions, such as conditions in an industry or in a geographic area. Management does not have both the intent and the ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in fair value. The decline in fair value has existed for an extended period of time. A debt security has been downgraded by a rating agency.