Business Ethics Case Study: Auston Matthews Construction Cases

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Individual Assignment
Auston Matthews Construction Case

2.1. Part A: Understanding internal audit’s role in due diligence engagements A1. The due diligence process is identifying and confirming or disconfirming the business reasons for a proposed transaction. The role of internal auditors in the pre-acquisition and post-acquisition due diligence processes is to assess all risks, develop strategic plans, and what value is added to make the deal before the gain of KPC to AMC. In the case, the due diligence team was determining a fair value for KPC and working out payment terms for the various members of the controlling family. They also looked at KPC’S net assets and the backlogs of revenue that was to be expected. In the post-acquisition
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AMC’s pre-acquisition due diligence review of the KPC purchase involved a small team that consisted of personnel from the finance, accounting, and legal departments. The due diligence team did assess the effectiveness of internal controls and the overall corporate governance and reputation of KPC. They focused on the valuation of KPC’s net assets and assessed the value of the backlog revenue upon the board approving the acquisition of KPC. The role of the internal audit group in the pre-acquisition review of the KPC purchase was not provided as the acquisition had happened near year end, no support was given. The internal audit was busy with evaluating and testing internal controls and assisting the external auditors with the annual …show more content…
Since they did not look into the further detail of KPC, they only focused on negotiating value based on positive feedback from KPC’s current contracts. They failed to see the issues and risks that were happening and tolerated these contracts with low risk. The impact of overlooked risks on the decision to purchase KPC was the P3 contracts that involved both infrastructure and development and services because AMC wanted to return on their investment and based KPC’s awards and upcoming projects led them to gain the acquisition.
C2. For future pre-acquisition due diligence reviews, it is recommended that they overlook the company internally and externally by looking into contracts, current employees, financial statements, and revenue. If they looked into the contracts they could have seen how many delays and costs were being involved with KPC, acquiring information of employees could give them a rough background of where these workers are from and how they would still benefit the company. They did not look into the employees in which they found out they were outsourcing employees. Actual revenue should have been provided instead of backlogs of revenue expected to be earned. The delays in the construction delays with the revenue which may take years to earn. During the pre-acquisition review, the legal issues about the contracts should have been mentioned before the

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