Other Engagements

Question 1

A due diligence engagement is used for

Answer 1

• acquisition
• tax transaction
• joint venture
• a specific part of a business (such as a particular contract, customer or supplier)

The report can be issued in the form of a Section 9100 report, a formal written report or even a PowerPoint presentation

Question 2

Practitioner obligation in a due diligence engagement

Answer 2

The practitioner reaches a general understanding with the client as to the nature of the engagement, the type of report to be issued and any restrictions on the distribution of the report

Perform an overall risk assessment to determine where the greatest risks may be.

An overall engagement strategy will be determined, taking these risks into consideration.

Throughout the engagement, procedures will be developed and performed to address the risks identified.

Question 3

Three common areas targeted by due diligence reviews

Answer 3

• financial review
• operational review and analysis
• tax areas of concern / investigation

Question 4

Financial review risks

Answer 4

Existence and valuation of AR
Completeness and accuracy of liabilities
Completeness of litigation accruals
Occurrence and cutoff of revenues
Completeness, cut-off and accuracy of expenses

Question 5

Operational review and analysis risks

Answer 5

Earnings on the statements may not be sustainable given market conditions/trends

Redundant departments where synergies can be found

Existing employee base may not be compatible or unionized

Production may be inefficient

owner involvement may be a key success factor

Question 6

Tax review risk

Answer 6

The form of the organization may not be desirable or compatible

Tax returns may not have been filed or filed incorrectly

The value used for the transfer of assets may be inadequate

loss carryforwards upon acquisition may not be available of insufficient