CTA Due Diligence & Forensic Analysis in Turnaround

Question 1

What is the primary purpose of conducting due diligence in a turnaround situation?

Accepted Answer

To assess risks, verify financial information, and identify root causes of distress

Answer

To determine the historical profitability of the company over the past decade

Answer

To complete regulatory filings required by the SEC during distressed periods

Answer

To negotiate with creditors on initial debt restructuring terms

Question 2

Which document is most critical to review first when conducting financial due diligence on a distressed company?

Accepted Answer

Cash flow statements and near-term liquidity projections

Answer

Marketing materials and recent press releases

Answer

Senior executive employment and severance contracts

Answer

Long-term strategic plans and investor presentations

Question 3

In forensic accounting for a distressed company, what is 'channel stuffing'?

Accepted Answer

A fraudulent practice of inflating revenue by forcing excess inventory onto distributors

Answer

A method to organize distribution channels more efficiently during restructuring

Answer

A legitimate sales strategy to push products through multiple distribution channels

Answer

A technique to reduce accounts receivable aging by accelerating collections

Question 4

What is the purpose of an accounts receivable aging analysis in turnaround due diligence?

Accepted Answer

To identify overdue invoices and assess collection risks and liquidity quality

Answer

To calculate the company's net present value for restructuring negotiations

Answer

To determine the appropriate discount rate for future cash flow projections

Answer

To negotiate better payment terms with key suppliers

Question 5

When a turnaround professional discovers evidence of potential fraud during due diligence, what should be the immediate first step?

Accepted Answer

Confer with legal counsel before taking any further action

Answer

Immediately notify all creditors and stakeholders of the discovery

Answer

Prepare a public press release announcing the discovery of fraud

Answer

Terminate all employees who may be implicated in the scheme

Question 6

What does 'management due diligence' primarily assess in a turnaround situation?

Accepted Answer

The capabilities, integrity, and depth of the management team

Answer

The company's current marketing strategies and brand equity value

Answer

Executive compensation benchmarking relative to industry peers

Answer

The company's IT infrastructure and systems capabilities

Question 7

What is a 13-week cash flow forecast primarily used for in turnaround due diligence?

Accepted Answer

To assess near-term liquidity and identify potential cash crises requiring immediate action

Answer

To project long-term quarterly profitability over a three-month outlook period

Answer

To track weekly key operating performance metrics for management

Answer

To satisfy annual audit committee reporting requirements