In 2008, driven by a passion for the world of data, Vishal and Vikas founded Excellent Data Ltd. (EDL). Today, after over 15 years, EDL is more than an organization; it's a tight-knit community of enthusiasts united by o

CS Professional · Internal and Forensic Audit · PYQS · June 2024
In 2008, driven by a passion for the world of data, Vishal and Vikas founded Excellent Data Ltd. (EDL). Today, after over 15 years, EDL is more than an organization; it's a tight-knit community of enthusiasts united by one thing-the passion to tackle real-world challenges with data. Growth story of Data science, data analytics in future is going to be big and keeping this aspect in mind, EDL management is considering acquiring other companies in the same field to increase its reach, competitiveness, diversification and customer base. Investment in and acquisition of companies engaged in providing AI services is also on the cards. The following companies were shortlisted for considering the acquisition : (i) Latest Technologies Ltd. (engaged in Master Data Management, Data lineage/Metadata, Data Archival, Data masking, Data quality and Data Security. (ii) CBF Technologies (engaged in providing AI solutions). EDL knows that these types of decisions have long term impacts on the company, so decided to have forensic audit conducted of the proposed companies to be acquired from a qualified professional. Accordingly, EDL has approached you to help them by conducting thorough investigation and highlighting the important aspects to be considered. (Approval for investigation has been taken from the stakeholders of both the proposed companies). Considering your experience and reputation of business investigations, management has instructed you to keep the following things in mind while submitting the report : Considering the presence of porposed acquiree's in African countries, money laundering activities possibility cannot be ruled out. Assurance required that no such possibility exists by examining the relationship between company and shell companies, if any. Go beyond the conventional financial measures to consider qualitative factors relevant for evaluating the performance and prospects of the company. Include in the report, statement to show the trend as well as changes that have taken place in the financial position of the company. Mention separately cash generated from business only. Considering the above information, answer the following: From which document will you be able to retrieve the cash generated from business operations and how will you analyze the same ?

Answer & Explanation:

The cash-flow statement shows the movement of cash in a business. The cash-flow statement has three components: cash flows from operating activities, from financing activities and from investing activities. The statement also mentions the current cash holding of the business. What need to check in the data is whether flows from operating activities are positive or not. If they are positive, it means that the company is able to generate cash from its operations. If they are negative, it means that the company is losing money. While it may show profits in its P&L statement, negative flows from operations should ring an alarm. Cash flows from financing activities show the money raised for the company's operations or the money paid towards debt repayment. The former will be a positive number on the statement, while the latter will be a negative number. Cash flows from investing activities capture the cash used in investments. For instance, a business that has generated surplus cash may park it in a bank fixed deposit. Next year it may withdraw cash from that FD. The former will be a negative number on the statement, while the latter will be a positive number.

Topics: Forensic Audit

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