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When we perform procedures on due diligence on behalf of client, i have some questions below
Firstly, how do Leopard & Co actually know the forecast of Zebra Co ? do they publish the forecast in the annual report by management ? Leopard & Co isn’t an auditor of Zebra Co so how do Leopard & Co can access to such forecast information ?
Secondly, for recommending procedures on due diligence, we must only recommend procedures as if external party is conducting a research for a particular company ?
therefore e.g “review board minutes to confirm their future plan to re-gain the 5%sales and their contingency plan for the future, and review legal documents of the land to confirm the restrictions on the use land”
are not acceptable since this kind of board minute information is only available to auditors ?
1. Noooo. C is interested in acquiring Z. Z provides C with lots of information to assist C with its due diligence – this information includes profit forecasts. Z will know that C has engaged L to undertake a due diligence review.
2. It’s not as remote as that. The management of Z would be accommodating in providing C with whatever information they require relevant to their due diligence. But the procedures are essentially enquiry and analytical procedures. So you just ask what are the consequences of the loss of the customer. Restrictions on use/transferability of land will obviously be very relevant to C’s proposed acquisition of Z – and the purchase price. Z would no doubt provide C with information about the gift (most likely some sort of title deed) so a starting point for L to investigate the matter further would, as you suggest, be to confirm the details.