问题详情

SectionB–TWOquestionsONLYtobeattempted
YouareamanagerintheassurancedepartmentatRaphael&Co,afirmofCharteredCertifiedAccountants.YourfirmhasbeenappointedbySanzioCotoperform.aduediligencereviewofapotentialacquisitiontarget,TitianTyresCo.Aspartoftheduediligencereviewandtoallowforconsiderationofanappropriateofferprice,SanzioCohasrequestedthatyouidentifyandvaluealltheassetsandliabilitiesofTitianTyresCo,includingitemswhichmaynotcurrentlybereportedinthestatementoffinancialposition.
SanzioCoisalarge,privatelyownedcompanyoperatingonlyinthiscountry,whichsellssparepartsandaccessoriesforcars,vansandbicycles.TitianTyresCoisanationalchainofvehicleservicecentres,specialisingintherepairandreplacementoftyres,althoughthecompanyalsooffersacompleterangeofengineandbodyworkservicesaswell.Iftheacquisitionissuccessful,themanagementofSanzioCointendstoopenaTitianTyresservicecentreineachofitsstores.
OneofthereasonsforTitianTyresCo’ssuccessistheirinternallygeneratedcustomerdatabase,whichrecordsallcustomerservicedetails.Usingtheinformationcontainedonthedatabasesoftware,thecompany’soperatingsystemautomaticallyinformspreviouscustomerswhentheirvehicleisdueforitsnextserviceviaemail,mobilephonetextorautomatedletter.Italsoinformsacustomerserviceteamtotelephonethecustomeriftheyfailtobookaservicewithintwoweeksofreceivingthenotification.AccordingtothemanagementofTitianTyresCo,repeatbusinessmakesupover60%ofannualsalesandmanagementbelievesthatthisisadistinctcompetitiveadvantageoverotherservicecentres.
TitianTyresCoalsorecentlypurchasedalicencetodistributeanew,innovativetyrewhichwasdesignedandpatentedintheUnitedStates.Thetyreismadeof100%recycledmaterialsand,duetoanewmanufacturingprocess,ismorehardwearingandthereforeneedsreplacinglessoften.TitianTyresCopaid$5millionforthelicenceinJanuary2015andthecompanyiscurrentlythesole,licenceddistributorinthiscountry.
DuringabriefreviewofTitianTyresCo’sfinancialstatementsfortheyearended30June2015,younoticeacontingentliabilitydisclosureinthenotesrelatingtocompensationclaimsmadeafterthefittingoffaultyenginepartsduring2014.ThemanagementofTitianTyresCohasstatedthatthefaultlieswiththemanufacturerofthepartandthattheyhavemadeaclaimagainstthemanufacturerforthetotalamountsoughtbytheaffectedcustomers.
Required:
(a)Describethepurposeofaduediligenceassignmentandcomparethescopeofaduediligenceassignmentwiththatofanauditofhistoricalfinancialstatements.(6marks)
(b)(i)Recommend,withreasons,theprincipaladditionalinformationwhichshouldbemadeavailabletoassistwithyourvaluationofTitianTyresCo’sintangibleassets.
(ii)ExplainthespecificenquiriesyoushouldmakeofTitianTyresCo’smanagementrelevanttothecontingentliabilitydisclosedinthefinancialstatements.
Note:Thetotalmarkswillbesplitequallybetweeneachpart.(14marks)


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