Question

For an organization going through an acquisition, would involvement by the internal audit function be considered an assurance or consulting activity? Is the internal audit function allowed to provide both types of service at the same time? Explain your answer.

Answer 1

Today Company find acquisition to achieve their strategy and its future goal to expand its operation.Today large company acquired small company through acquisition or merger. The company going through acquisition need to have due diligence ,its books of accounts need to be checked, its internal process are evaluated, financial statements are review ,internal audit can provide assurance and consulting activity during acquisition.

The internal audit function in acquisition is as follows:-

• The internal auditors developed a good acquisition strategy, it gives clear pictures what the company will gain from acquisition, the company business lines, and will it deliver profit after acquiring. It just likes consulting process before taking any steps of acquisitions.
• The internal auditors determine the potential of target companies .The internal auditors check the target companies their profit margins last few year, its Debt ,location ,market share and customer base. It just likes giving assurance to the company before putting money into acquisition process.
• The internal auditors do the work of consulting meeting or contacting with one or more companies that meet its criteria and offer value. It like window shopping and once one company like the offer of acquisition, the internal auditor’s seat for negotiations and changes in Acquisition and discussion about terms and condition, process of acquisition need to be completed.
• After conversation and meeting gone well, the internal auditors ask the target company to provide information about their business both in financial term and non-financial term to analysis the value and see the worth of the company. Is the target company is the worth of the money offer to them.
• After valuation analysis done and it seems good the internal auditors the main things is Negotiation ,its complex task in the process because lots of things need to be negotiated in money to assets .If everything ok with both the company they can process with the next steps.
• The Internal auditors check the target company its due diligence in financial aspects, assets and liabilities ,they also help in financial strategy how the asset will be move from target company to purchasing company, who will seat in board of directors after purchase and sales agreement has been signed.
• Once the acquisition deals is signed and the process is completed the internal job is finished in acquisition part, but they will supervisors the internal books of accounts, guide them day to day operations regularly.

Yes internal audit function allowed both function to operate at a same time. Because this function goes hand in hand, as you can see above duties of internal auditors where an internal auditors provide consulting services as also assurance to the company to carry out the acquisition process. The internal job is not restricted to acquisition its board term and they are internal pillar of the organization.