E6 Due Diligence

Question 1

Different levels of assurance

Answer 1

*Reasonable assurance
- not 100% assurance
- present fairly
*Limited assurance
- Independent review
*No assurance
- due diligence
- environmental audits

Question 2

Define special investigations

Answer 2

Special investigations are the investigation by practitioners for clients in terms of other
information than financial statements.
Like:
– Due diligence (DD) investigations: To determine the reasonableness
of information in financial statements, contracts etc.
– Investigation for mergers: reasonableness of information in
financial statements
– Compliance of contracts: if the terms have been complied with

Question 3

Define due diligence

Answer 3

Due diligence investigations comprise of special investigations to provide specific findings to the parties involved in a transaction.

Question 4

Procedures to follow (4)

Answer 4

1. Pre-engagement activities
   - Consider acceptability of the engagement.
   - Special attention to the requirement of knowledge and competency.
   - If accepted, documents the conditions of the engagement in an engagement letter.
2. Planning
   Plan the work and the areas to cover:
   * Assets and liabilities
   * Contingencies / Contingent liabilities
   * Income and expenses
3. Perform the investigation
   - Normal procedures of inspection, observation, enquire and confirmations.
   - Such investigations will probably meet the requirements of an agreed upon engagement.
   - Document the procedures, evidence obtained and findings.
4. Reporting
   - Such investigations will probably meet the requirements of an agreed upon engagement. Thus, the procedures performed, and the findings
   thereof, will be described in the report, without assurance being
   expressed.

Question 5

In terms of what should due diligence be performed?

Answer 5

Advisable to perform DDs in terms of ISRS4400

Question 6

Procedures of ISRS4400?

Answer 6

Procedures
– Procedures will be pre-determined and agreed upon
– For instance – Compare the physical assets to the asset register and report
on any missing assets
– Can also use an expert where deemed necessary and agreed upon

Question 7

Objectives of ISRS4400

Answer 7

Objectives of ISRS4400:
– agree the procedures to be performed with engaging party
– Perform the procedures
– Communicate findings