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

Sundaram & Co., a firm of Chartered Accountants, is engaged by Veda Pharma Ltd to carry out a financial due diligence on Nexa Labs Pvt Ltd, a target the client intends to acquire. The engagement letter limits the work to agreed procedures on revenue and working capital, and the client wants no opinion on the overall fairness of the deal price. Which statement best describes the nature of the firm's report?

The firm should issue a report of factual findings limited to the agreed areas, revenue and working capital, without an assurance conclusion on price or overall valuation. Due diligence is not an audit and cannot guarantee future profitability or be filed as a statutory report.

  1. AIt should be an audit opinion stating that Nexa Labs' financial statements give a true and fair view
  2. BIt should be a factual findings report on the scoped areas, with no assurance conclusion on the deal price or overall valuationCorrect
  3. CIt should be a certificate guaranteeing that the acquisition will be profitable to Veda Pharma
  4. DIt should be a statutory report filed with the Registrar of Companies

Explanation

A due diligence on a limited scope is a service where the practitioner reports findings on the areas agreed with the client. It does not carry a true and fair audit opinion, nor does it guarantee future profits or the price. Option A is wrong because no audit is being performed, and filing with the Registrar is not required.

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