"MATTERS TO CONSIDER''

Here’s what I’ve just written in reply to Amelia’s question on due diligence

It’s not absolutely aimed at your question, but there’s enough similarity in my comments for you to be able easily to adapt them

Her question concerned question 2 from December 2013

“Well, I’m not going to comment on 23 pieces of further information that are suggested in the printed solution and I’m finding it difficult to know what you want with reference to the focus points

However, your question asks how to adapt to such a question

The only thing / approach that I can suggest is that you mentally transport yourself into a meeting with the personnel at Baltimore and establish what it is that they hope to achieve by this potential acquisition

Now, if this were you looking to take over another company, what would YOU like to know about the potential victim?

Obviously (I believe it’s obvious, anyway) I think that you would want to know about the owners and the management of Mizzen and particularly the skills and ambitions of the personnel that we’re hoping to use to write our website

But then, having started the ball rolling in your mind, you need to generate more questions about matters that you could do with knowing more about before investing a substantial amount of cash into the acquisition

Patents, premises, personnel,

contracts, leases, value of assets and completeness of disclosure of obligations,

accounting policies (depreciation, development expenditure, leasing, borrowing, revenue recognition ….), progress invoicing,

corporate governance, ethics (how do you find that out???) of the management, sophistication, efficiency and effectiveness of internal controls

What else would you want to know? Put it in your list

You asked for “how to adapt”

In my view, it comes down to an ability to put yourself mentally in the position where you ask yourself “What would I do?” or “What would I expect?” or “How would I do this?”

It’s the ability to make the question / situation come to life

That’s how I would adapt my approach

Hope that helps”

My general recommendation about how to approach a “What matters would you consider?” problem is to put yourself there, in the audit manager’s head or the mind of the senior in charge, and think to yourself “How can I confirm this?”, “What should I be looking for as evidence here?”, “Is it material?”, “Has it been correctly accounted for?”, “Is the evidence so far on file sufficient and appropriate?”, “If things don’t change, am I going to have to think about a qualified opinion?”, “Is this something to be discussed with the audit committee?”

So many questions – many, many more not mentioned by me in that list – but they need to be thought of by you and aimed at the particular scenario in the exam question. Tailor your answer, and make it real. Bring it to life and use your imagination

OK?

You’re welcome