ACCA · Question 3 · Other Assignments

SECTION B - ADVISORY REPORT

You are a manager in the advisory department of TechAssure LLP. Your client, QuantumLogix Co, a highly successful software development firm, is planning to acquire 'SentinelByte', a rapidly growing cybersecurity startup.

QuantumLogix has requested your firm to perform a combined engagement:

1. A financial due diligence review of SentinelByte.
2. An examination of SentinelByte's Prospective Financial Information (PFI), specifically a profit forecast for the next three years, which SentinelByte's founders have prepared to justify their high asking price.

SentinelByte operates a subscription-based model for its cloud security software. The PFI shows revenue tripling over the next three years. The founders claim this is based on securing two major government contracts currently out for tender, and an assumption of a 98% customer retention rate.

Requirements:
(a) Discuss the specific matters to be considered and the risks involved before TechAssure LLP accepts this combined due diligence and PFI engagement. (8 marks)
(b) Evaluate the key assumptions management is likely to have made in preparing the revenue forecast for SentinelByte, and explain the professional skepticism required by the practitioner. (9 marks)
(c) Recommend the specific examination procedures to be performed on SentinelByte's revenue forecast. (8 marks)