Question

You are the audit manager of Overseas Explorer Ltd (OEL), which acquired the small proprietary company Local Pty Ltd (Local) on 30 June 2018. The price of the acquisition was agreed at $5 million, on the condition that OEL is satisfied with the financial records of Local. As Local is a small proprietary company, it has not prepared statutory financial reports or undergone an audit since its incorporation in 2016. However, Local has agreed to allow your firm, which is the auditor of OEL, to access its books and records. The CEO of OEL, Wendy Champion, has requested that your firm provide assurance on the following three items:

 The management accounts for the year ended 30 June 2017

 All transactions occurring from the date negotiations commenced until the settlement date, to ensure that all transactions were within the normal course of operations

 The financial report prepared at the acquisition date of 30 June 2018

In order to clarify your responsibilities, you requested that OEL indicate the level of assurance that they require for each item. Wendy replied that the financial report as at acquisition date is very important, as are the transactions since negotiations commenced, but that she is willing to have less work done on the previous year’s management accounts.

Required: Indicate the type of engagement that will most likely be undertaken for each of the three tasks and the level of assurance to be provided. Explain your selections. (10 marks, maximum 250 words)

Answer 1

ANSWER:-

• If there should be an occurrence of review the board represents year finished June 30, 2017 -

1. This will be considered as review commitment where inspectors ought to sum up all data picked up for Local Pty Ltd. as far as checking whether the equalizations recorded by the organization is right dislike Trade receivables, Fixed resources, payables, Tax counts Equity.
2. By doing this we will guarantee the substance is effectively esteemed as far as business mix standards and any reasonable worth modifications are required.

• For exchanges happening from date of arrangement until settlement, We as a reviewer needs to perform "Seller due determination", which will give us solace of operational parts of Local Pty Ltd. This spread significantly if there are any lawful inadequacies, any immediate or circuitous duty cases pending, some other extraordinary obligation, Projections for income by examination of request book.
• By doing this Buyer and merchant can concede to the terms of settling the obligation and showing up proper price tag.

1. To get re.ady money related report of obtaining as of June 30, 2018, evaluator needs to take part in getting ready "Price tag change (PPA)" report.This report will give a separation of price tag and any reasonable worth alteration required in figuring of generosity and intangibles procured on business blend.
2. In the event that there are any working capital modifications or unforeseen thought is included, it will be chosen by this report.

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