Page 341 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori
perpetrator, the frequency and extent of manipulation, the degree of collusion involved, the relative size of
manipulated amounts, and the seniority of the individuals involved.

Effectiveness of Audit Procedure
Detection of Fraud depends upon the effectiveness of Audit Procedure: However, it’s crucial to note that
detection risk can only be reduced, not eliminated, emphasizing the limitations of an audit in detecting fraud.

(CNO—INTG.180) Investigation on behalf of an Individual or Firm Proposing to Buy a Business
Investigation for Business Purchase
- Objective & Methodology
- Scope of Investigation: The aim and the approach for the prospective buyer.
- General Investigation Approach: How it aligns with share valuation.

- Key Considerations for Proprietary Concerns or Partnerships (A)
- Business Transition Impacts:
- Reasons for Sale & Effect: Implications of the sale and any change in ownership.
- Managerial Continuity: Age of the managerial staff and prospects under new ownership.
- Assets & Liabilities:
- Lease Details: Terms and future prospects of property leases.
- Patent Period: Status of patents held by the business.
- Goodwill Valuation: Evaluation of goodwill's worth.
- Customer & Profitability Dynamics:
- Customer Dependency: Reliance on a small customer base and its impact.

- Key Considerations for Limited Companies (B)
- Share Acquisition:
- Acquisition Method: How the buyer will acquire the vendor's interest.
- Financial Structure & Valuation:
- Company Capital: Insight into the company's capital structure.
- Uncalled Liability: On shares, if any.
- Share Classes & Rights: Different share classes and their specific rights.
- Dividend History: Past payouts and any arrears.
- Share Price Evaluation: Assessment of the offered share price.
- Assets & Commitments:
- Asset Mortgages/Charges: Checking for any encumbrances on company assets.

(CNO—INTG.200) Investigation in connection with review of Profit/Financial Forecasts
Profit Reports in Investigations: Profit reports are needed during investigations into the purchase of a
business.
Bank & Financial Institution Appraisals: Banks and financial institutions review cash flow and profitability
for loan application appraisals.
Nature and Uncertainty: Forecasts depend on the business nature and its uncertainties. They differ from
financial statements of a completed accounting period.
Special Review Situations: Such situations depart from the auditor’s traditional role of reviewing past events.

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