Page 345 - CA Final PARAM Digital Book.

• Apart from the above areas, the other factors relating to the management, skilled labour, etc.
May also be covered in the investigation.
Author’s Note
If question is on due diligence on proprietary business, then give answer for financial due diligence i.e
QNO 623.000 and if it is on investigation of prop business answer as per QNO 643.050.

QNO Special issues in investigation Old Course- (N16M, M21E, N23R)
644.020 TITANIUM CNO – INTG.060
Milk Ltd. is engaged in the business of manufacturing and distribution of various milk products like
cheese, curd, paneer, etc. Government made certain changes in rules and regulations relating to this
sector, consequently management decided to go for expansion. Management was looking for some
financial investor, who can fund some part of the proposed expansion. Mr. X is interested in the venture
and appoints you to act as an advisor to the proposed investment in the business of Milk Ltd. You have
to investigate the audited financial statements and ensure that the valuation of shares of the company

on the basis of audited financial statements is appropriate. What process will be used for checking and
whether you can put reliance on already audited statement of accounts?
OR
You have been appointed to investigate the accounts of a company and informed that the accounts have
already been audited. Discuss whether you can put reliance on such already audited statement of
accounts for the purpose of investigation.
Answer Process used for checking and reliance on already audited statement of accounts -
Following process may be carried out-

1. If the statements of account produced before the investigator were not audited by a qualified
accountant, then of course there arises a natural duty to get the figures in the accounts properly checked
and verified.

2. However, when the accounts produced to the investigator have been specially prepared by a
professional accountant, who knows or ought to have known that these were prepared for purposes of the
investigation, he could accept them as correct relying on the principle of liability to third parties.

3. Nevertheless, it would be prudent to see first that such accounts were prepared with objectivity and that
no bias has crept in to give advantage to the person on whose behalf these were prepared.
Whether the investigator can put reliance on the already audited statement of account
- If the investigation has been launched because of some doubt in the audited statement of account, no
question of reliance on the audited statement of account arises. However, if the investigator has been
requested to establish value of a business or a share or the amount of goodwill payable by an incoming
partner, ordinarily the investigator would be entitled to put reliance on audited materials made available
to him unless, in the course of his test verification, he finds the audit to have been carried on very
casually or unless his terms of appointment clearly require t o test everything afresh.

QNO Investigator taking assistance of expert Old Course-- (SM21)
644.030 TITANIUM CNO – INTG.060
XYZ Ltd. has bought a land in Nagpur for setting up a manufacturing unit in the year 2018 at a price of Rs.
10 crores. In the year 2019, one of the directors of company raised suspicion on the price and
transactions related to purchase of land. Therefore, an investigation was ordered by the management

and PV Associates were appointed to investigate the matter and submit their report accordingly. PV
Associates were of the view that they need to take an expert’s opinion on the price of land. Whether PV
Associates is authorized to take assistance of expert? If yes, what is the process they need to follow?
If PV Associates feels the necessity of obtaining views and opinions of experts in various fields to properly
conduct the investigation, they are allowed to do so.
It would be therefore, proper for the investigator to get the written general consent of his client, to refer
special matters for views of different experts at the beginning of investigation and he should settle the
question of costs for obtaining the views and other related implications.

Author’s Note:
ICAI has drafted big question, but relevant answer given is of 3 to 4 lines which is sufficient for 2 marks
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