A Manufacturing Organization Is Considering a Merger with a Similar

question 98

Multiple Choice

A manufacturing organization is considering a merger with a similar firm, and requests that the chief audit executive (CAE) perform a due diligence audit. During the preliminary survey, the CAE notes that inventory management is a high risk area. In consultation with the external auditors and legal advisors, the CAE learns that they share those concerns. Which of the following is the CAE's best course of action?

• A) Perform an independent audit of the merging firm's inventory management practices to verify the concerns and to provide relevant and reliable results to management for their consideration and action.
• B) Advise management that internal audit, external audit, and legal advisors all have concerns about inventory management and, given the high materiality of inventory, management should not proceed with the merger.
• C) Coordinate a review of inventory management with external auditors and legal advisors and ensure each group focuses on their area of expertise to ascertain the extent of the problems, if any.
• D) Coordinate with the merging firm's internal audit department to better understand the inventory management function and whether the concerns are well-founded.

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Definitions:

Dietary Fiber

Indigestible parts of plant foods that help move food through the digestive system, assisting in digestion and helping to maintain bowel health.

Amino Acids

Organic compounds that combine to form proteins and are used in the body to perform various biological functions.

Glycogen

A stored form of glucose found in the liver and muscles, used for short-term energy.

Whole Grain

Grain that contains all parts of the seed (bran, germ, and endosperm), providing more nutrients and fiber compared to refined grains.