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CA Final · Advanced Auditing, Assurance and Professional Ethics · Due Diligence, Investigation & Forensic Accounting

Kiran & Associates, a firm of Chartered Accountants, is engaged by a private equity fund to perform financial due diligence on Vasudha Foods Ltd before a proposed acquisition. The fund asks the firm to also certify in its report that the acquisition price of Rs 240 crore is fair. Which is the most appropriate response of the firm?

The firm should report its due diligence findings on financial, tax and operational matters and not certify price fairness within that engagement. Fairness of price is a valuation opinion, which needs a separately agreed scope and basis. Due diligence is fact-finding, not a price conclusion.

  1. AAgree, because a due diligence report must always conclude on the purchase price
  2. BDecline to opine on fairness of price as part of due diligence findings, and report factual findings on financial, tax and operational matters, while any valuation opinion would need a separate engagement with its own scopeCorrect
  3. CAgree only if the target's management approves the wording of the conclusion
  4. DRefuse the entire engagement because due diligence and valuation cannot be done by a CA

Explanation

Due diligence is a fact-finding exercise that reports on the condition and risks of the target; price fairness is a valuation judgement requiring a separate scope and basis. Option A wrongly treats the price conclusion as mandatory. Option D is wrong because CAs can perform both kinds of engagement.

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