Grifco Inc (GFCI)

[cyofish]

It sounds like the purpose of the combination is so B can become a trading company. Let's say if A's financial information is all bogus, B can technically write-off all of it and only show B's financial information.

Typically a scam operation would cook their books by overstating the assets and/or understating it's liability. These accounts can be verified (Cash, receivables, inventory, investments, property, equipment, etc.) by going from the financial statement to the source document (bank statements, credit sales invoice, physical inventory count, investment account/contract, property purchase agreement, equipment purchase invoice (+ physical inspection). If it can not be corroborated B would write off the discrepancy (assets do not exist). The liability (payables, notes payable, accrued expenses etc.) review vendor invoice, receiving report, payment schedule, loan documents etc. to see if all the items that are still outstanding are properly recorded.

I still don't understand company B's problem. Wouldn't they have done this before acquiring company A? Why would they purchase something without knowing its true worth? You wouldn't just pay a certain $$$ based on what a seller tells says would you? If the business combination was properly done the audit process should be a breeze.