due diligence Flashcards
due diligence is
an acitivity in which an organisation requires intelligence
because they may lack that particular intelligence
or
may lack time
when can DD pe performed
new customer
new supplier
new product
new company acquisiton
new premises
what happens in DD assignment
expert will evaluate the subject matter
along with limited assurance
wordings in limited assurance vs reasonable assurance
limited assurance:
based on our review nothing was found that leads us to believe that misstatement exists
reasonable assurance:
in our opinion FS presents true and fair view in all material aspects
why is limited assurance given in DD
cuz its related to future which is uncertain
diff between audit and DD
audit is financial info, DD may be non financial as well
historic vs futue data
reasonable vs limited assurance
benefits of DD
evaluation of subject matter, SWOT, useful when lacking expertise
valuation of subject matter, identification of off bal sheet assets (intangibles, contingentcies) and liabilities, reduced risk of over valuation
limited assurance, raised confidence, risk reduced
matters to consider when performing DD
key customers
key employees
product lifecycle management
legal cases
debts
cost structure
applicable laws
remaining life of assets
exam Q approach
1.5 marks for each matter evaluated
for each matter identify what we will consider and explain how that impacts our investment
+1 mark for procedure on how to verify the matter
customer leaving
investigate reason
loss of revenue
it will affect valuation of company
new competitor
loss of customers, revenue, valuation
loss of customer who we used to sell unique products to
identify these products
may lie in inventories
obsolence
impairment
decrease value
benefit of cistomer leaving
cost of servicing this customer may be saved
company has land but there are restricitons to whom it can be sold
what are these restricitons
will it be part of sale or not
will affect value
3/5 directors are owners of the co
will they keep working after acquisition
review service contract
review structure of company
how will we manage without them
