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

Zephyr Capital, a private equity house, engages Marlow & Co to perform financial due diligence on Targo Ltd, a potential acquisition. Marlow & Co is asked to report its findings only to Zephyr Capital. Which statement best describes the nature of this engagement?

Financial due diligence is a specific engagement whose scope and report are agreed with the client, usually an advisory or agreed-upon procedures style report restricted to that client. It is not a statutory audit and gives no true and fair opinion unless the terms separately provide for one.

  1. AIt is a statutory audit of Targo Ltd, so the auditor must give a reasonable assurance opinion on the financial statements
  2. BIt is an agreed-upon procedures or advisory type engagement whose report is restricted to the client and carries no audit opinion unless separately agreedCorrect
  3. CIt is a review engagement under ISRE 2400 that must give negative assurance on Targo Ltd
  4. DIt is an engagement that requires a true and fair opinion because the report will be used for an acquisition

Explanation

Due diligence is a specific, non-statutory engagement. Its scope, procedures and reporting are set by the engagement letter, and it normally produces a findings report for the client rather than an audit opinion. A statutory audit opinion or automatic negative assurance is not required.

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