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Hello Kim,
I am reading answer for audit evidence for the acquisition of Craig, and I am confused on the below:
1. A review of any due diligence report received pertaining to the acquisition, detailing the value of assets purchased, and the consideration paid.
Does “the consideration paid” in the above audit procedure indicate purchase consideration for acquiring Craig?
If so, why the purchase consideration for acquiring Craig is included in the due diligence report? I thought due diligence report is for disclosing the facts of the target company (Craig).
2. A copy of any legal agreement pertaining to the acquisition, including the date that control passes to Clooney Co.
I think it would be more appropriate to include the purchase consideration in the above procedure, and it should be amended as follows:
“A copy of any legal agreement pertaining to the acquisition, including the date that control passes to Clooney, the number of shares acquired and the purchase consideration.”
Please correct me if I am wrong.
Thank you.
Regards,
MarthewIn answer to your first Q – yes. At the time the due diligence report was prepared it would have included information about the value of the assets [to be] purchased and the consideration [to be] paid. Now, post-acquisition, the report includes information about the value of the assets [that were] purchased and the consideration [that was] paid.
Obviously how much information will be found in a DD report will depend on the specific assignment and, as you say will consider the facts, but the [proposed] consideration could be relevant to the report (e.g. if the target company needs cash the purchase consideration will need to include cash rather than a share-for-share exchange or perhaps some of the purchase consideration should be deferred to take account of uncertainty about the value of certain assets).
The examiner’s answer is showing that reference to legal agreement to confirm date control passes is sufficient to earn 1 mark (because this date is fundamental to consolidation). To reference consideration paid in this point, as you suggest, rather than in the due diligence report would be fine.
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