Mega Manufacturing Company (Mega)is thinking about acquiring Localized Small Producer Inc.(LSP),a small manufacturing company that produces related products.Mega has examined the financial statements of LSP,which show only a small profit in the last five years.Management of LSP has taken reasonable salaries,and cost of goods sold is higher than the industry average for LSP.Mega believes that it will be able to introduce operational efficiencies at LSP,improving the profitability of the small company,if acquired.
Required:A)What type of engagement should be conducted to assess the operational efficiencies of LSP? Justify your response.B)Who should be engaged to conduct the engagement? C)What major problems might the auditors encounter when conducting the audit and writing the report?

Question

Quizplus · Accepted Answer

The Answer of Mega Manufacturing Company (Mega)is thinking about acquiring Localized Small Producer Inc.(LSP),a small manufacturing company that produces related products.Mega has examined the financial statements of LSP,which show only a small profit in the last five years.Management of LSP has taken reasonable salaries,and cost of goods sold is higher than the industry average for LSP.Mega believes that it will be able to introduce operational efficiencies at LSP,improving the profitability of the small company,if acquired.
Required:A)What type of engagement should be conducted to assess the operational efficiencies of LSP? Justify your response.B)Who should be engaged to conduct the engagement? C)What major problems might the auditors encounter when conducting the audit and writing the report?

Mega Manufacturing Company (Mega)is Thinking About Acquiring Localized Small Producer