Company Risk Analysis
You are part of the internal audit team for a large corporation. The CEO has come to your team about a potential acquisition of a publicly traded company, Shoe Carnival. The company is outside your industry, but the CEO thinks it may be a good purchase. The CEO wants your team to gather information and conduct a risk analysis of the potential acquisition target. If the CEO decides to move forward with the potential acquisition, another team along with outside advisors will complete the due diligence and a recommendation on the price to pay for the target’s shares.
You will assess the risks that your target faces. The CEO mentioned something about the basic business risk model being a good place to start your analysis. The CEO wants you to capture who the current auditors are along with the amount of audit fees paid. The CEO also wants you to check for the type of opinion given for both the financial statements and ICFR. The CEO casually mentioned that the target’s CEO and CFO may be overpaid and wants you to review their compensation. Since the target is in an unfamiliar industry, the CEO wants information on how the target compares to industry averages and competitors on key financial ratios and operating metrics.
You later talked with the CFO and were told to include a brief company profile that includes the history of the company, major products/segments and any related party transactions or high-risk projects. Any global supply chain issues and recent developments or news concerning the company are another area of interest for the CFO. The CFO is also concerned about the current inflationary environment and the impact on future profits.
You will provide an eight-to-ten-page double spaced report (not including exhibits) to the CEO. The report will be analyzed for thoroughness, accuracy, coherent structure, grammar, and analysis. The CEO has assigned several internal audit teams to the same target and will be comparing the reports in setting your overall compensation (grade) for next year.