Ch. 22 - Due Diligence

Question 1

What is due diligence

Answer 1

a review of analysis of a company’s organization, business, operations and finances to learn as much as possible about the company

Question 2

common scenarios when you would use a due diligence engagement

Answer 2

1. acquisition
2. tax transaction
3. joint venture opportunities

Question 3

Due Diligence - at the beginning of the engagement:

Answer 3

1. obtain an understanding of the nature and report to be issued
2. create a risk assessment

Question 4

While due diligence engagements are customized, certain parts will always be reviewed:

Answer 4

1. financial review
2. operational analysis and review
3. tax areas of concern / investigation

Question 5

Due Diligence Engagements - Financial Review

Answer 5

similar to an audit (risks, procedures, reporting)

Question 6

Due Diligence Engagements - Operational Analysis (things to look at)

Answer 6

1. earnings sustainability
2. synergies across the acquirer and acquiree
3. compatibility of employee base
4. owner involvement

Question 7

Due Diligence Engagements - Tax Review (things to look at)

Answer 7

1. form of entity (corp, partnership, proprietorship)
2. missing or late tax returns
3. asset values
4. loss carryforwards