Requirement (b) was the main part of the question, and asked candidates, for 16 marks, to identify and explain the matters that the due diligence review would focus on, and to recommend the additional information needed. The answers provided to this requirement were extremely mixed in quality.

There were some exceptionally sound answers, explaining relevant matters in sufficient depth, and using the financial information provided to come up with reasonable points. These answers also provided relevant requests for additional information.

However, the majority of answers were unsatisfactory. Most candidates picked up at least a few marks by identifying some of the matters that the review would focus on, but as in Question One, many candidates let themselves down by failing to explain the matters that they had identified in any real depth.

It was common for answers to simply contain a list of bullet points with very little explanation at all, and only a limited amount of marks can be awarded to answers of this type. 
Some points were better dealt with, including the following:

• Most answers picked up on the fact that Mizzen Co used premises owned by the venture capitalist company, and the fact that this arrangement would probably cease on the acquisition. 
• Many candidates realised that the two founders of Mizzen Co were crucial to the company’s success and that without them the acquisition would probably be pointless. 
• Many candidates used the financial information to some extent, though sometimes only in a very limited way, but most picked up on the fact that Mizzen Co was paying finance charges, and so information would be needed to understand what those charges relate to. 
• Many answers considered that revenue recognition would be a matter to focus on due to the relatively complex nature of the company’s revenue streams. 
• Some answers performed a little analytical review on the financial information to reveal that expenses were not increasing in line with revenue, and that this would need to be investigated.

The answers that were unsatisfactory, as well as containing inadequately explained points as mentioned above, also tended to focus too much on financial reporting matters, for example giving very lengthy discussions on the calculation of goodwill.

While the accounting treatment of some items certainly was relevant to the answer, just focussing on these matters meant that candidates did not provide a broad enough range of comments to score well.

Another factor leading to poor marks for this requirement was that many candidates simply failed to recommend any additional information at all that would be needed in the review. Many candidates missed out on marks here, for example for recommending that a statement of financial position, management accounts and cash flow forecasts would be needed.

Some candidates supplied a lengthy discussion of matters relating to the acceptance of the due diligence assignment, such as agreeing fees and clarifying deadlines, which was not asked for.