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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Specific assignments

Zenith Advisory is engaged by Orla Holdings to perform financial due diligence on Brightwave Ltd, a potential acquisition target. Which statement best describes the nature of this engagement?

Financial due diligence is a specialist engagement for the acquirer with a scope agreed in the engagement letter. The firm reports findings to its client on matters such as earnings quality and net assets, and does not give an audit opinion or a review conclusion on Brightwave's financial statements.

  1. AIt is an audit of Brightwave's financial statements giving reasonable assurance under ISAs
  2. BIt is a review engagement giving negative assurance under ISRE 2400
  3. CIt is a specialist advisory engagement for the acquirer, where the scope is agreed with the client and findings are reported to it, not an opinion on financial statementsCorrect
  4. DIt is an engagement for the benefit of Brightwave's shareholders to confirm the fair presentation of its results

Explanation

Financial due diligence is a bespoke advisory or agreed-scope engagement for the acquirer. Scope and procedures are set by the engagement letter, and the output is a report of findings to the client rather than an audit opinion. Describing it as an audit or review is wrong because no assurance opinion on the financial statements is being given.

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