(a)

Jacob Co can know Locke Co’s financial position such as assets, liabilities and other information. With
this information, Jacob Co can assess whether Locke Co is going to profitable in the future and can
determine the appropriate consideration to be paid in order to acquire Locke Co. additionally, Jacob Co
may can assess their financial planning in the near future and their types of funding.

Jacob Co can know Locke Co’s current performance and business plan. With this information, Jacob Co
can know undergoing plan of Locke Co whether Locke Co is in expansion. Jacob Co can also consider
whether they have expertise in order to run this business of Locke Co if the owner of Locke Co decide to
step out from the board members shortly after acquisition taken place.

By having a due diligence review, it gives the company to have information on whether there is any
operational issues within the target company. The company would be aware on the issues that it needs
to settle with once it acquires the target company. In this case, there is a legal issue that is still on going
relating to the complaint made by a famous actor in which the case is known to the public. Jacob Co
could consider on its decision to acquire Locke Co since there is possibility that the legal case faced by
Locke Co could be worsen and may tarnish the image of Jacob Co as well.

Save time for management

External due diligence review will help management to save time in making decision either to acquire or
not. This is because the reviewer is more qualified and has experience in giving out advices on the
potential acquire plans. It will help in the information gathering process.

From the situation, the acquisition will be the first time performed by Jacob Co. This means they have
lack of experience and knowledge to acquire. By having the external due diligence review, Jacob Co does
not need to spend more time on gathering information of Locke Co, so they can focus more on the
current management and operational of their company.

Jacob knows about the liquidity of Locke Co - significant loan – rely on overdraft facilities – assist Locke
in the future -

It is noted that Locke Co has grown rapidly and decided to make an expansion on its company in which
there is a significant bank loan to finance the expansion. A due diligence review could enable the
company to have information on the recent changes of the company so that they could estimate
whether it could benefit from the changes made by the target company. Jacob Co may predict by
planning its cash flow to ensure they afford to pay the interest payable and loan repayment resulting
from the expansion of its target company once the businesses combined.

(b)
An audited financial statement to provide Locke Co’s financial position and profit and loss to Jacob Co
for them to make an assessment on the current year performance and asset and liabilities. Along with
this, Jacob Co can perform calculation on the Locke Co’s profitability ratio, liquidity ratio and gearing
ratio of Locke Co. + liquidity position, accounting policies + value of assets

A correspondence with lawyer of Locke Co and the famous actor to assess the probability of the
payment to determine whether the on-going case should be recognised as liability.+ timescale/timeline ,
amount

Resume of Austin Co, assess Austin Co to confirm on the reliability of the accounting and tax services.

Purchase document + planning permission non current asset register of the newly bought land.
This is for auditor to gain further information on the land to consider the value and also the future use of
it. Whether to proceed with the expansion or not.

Detailed information of the bank loan from loan agreement to understand the terms and conditions
attached, the amount of loan and interest rates. This document needs to be obtained since it would
affect to a high gearing level of Jacob Co after the acquisition and whether it may have breach any other
loans that they have made.