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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 Textiles Ltd to carry out a due diligence review of a target company, Kaveri Spinners Pvt Ltd, before an acquisition. The client asks the firm to state in its report that the target's financial statements 'give a true and fair view'. Which response is most appropriate for the firm?

The firm should decline to give a true and fair view opinion. Due diligence is a scoped review that supports a transaction decision, not an audit of financial statements, so the report presents findings and observations within the agreed terms of engagement rather than an audit opinion.

  1. AAgree, because due diligence is an audit of the target's financial statements and must conclude on true and fair view
  2. BDecline to give an audit-type opinion, as due diligence is a review of specified aspects for a transaction decision and the report is based on agreed scope and findingsCorrect
  3. CAgree, provided the client bears the responsibility for the opinion in writing
  4. DGive the opinion only on the balance sheet and not on the statement of profit and loss

Explanation

Due diligence is a purpose-specific review of commercial, financial, legal or tax aspects to support a transaction decision. It is not a statutory audit, so the report reports findings within the agreed scope rather than a true and fair opinion. Shifting responsibility to the client or limiting to one statement does not change the nature of the engagement.

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