WARNING SIGNALS IN THE AUDIT REPORT

Warning signals in the audit report regarding failed mergers and acquisitions

Abstract

The impact of mergers and acquisitions on organizational culture and productivity significantly shapes the future success of newly joined organizations. Statistics show that approximately 50% of all mergers and acquisitions fail to achieve intended results. Limited success is attributed to the lack of appreciation regarding the impact of organizational culture. This study provides an overview of the Warning signals in the audit report regarding failed mergers and acquisition. Significant impacts were identified in the areas of leadership, communication, organizational structure, decision-making, and communication.

Table of Content

Abstract2

Part 14

Merger and Acquisition4

Types of Merger7

Auditors9

Different Accounting Standards12

Part 219

Part 3: Why merger & Acquisition fail?31

Employees33

Due Diligence40

Organizational Climate44

A Failed Case of Penn State and Geisinger47

Anatomy of a merger47

Conclusion59

Failed Case: AOL and Time Warner Merger60

Reasons for the Merger61

Reasons for Failure63

Reference68

Part 1

Merger and Acquisition

A merger refers to the amalgamation of two independent corporate entities into a single one (eg. Daimler/Chrysler), whereas an acquisition refers to the absorption of one corporate entity into another (eg. Cisco/Stratacom). Mergers and acquisitions (M&A) are among the most dramatic and visible manifestations of corporate strategy. With a single deal, the strategic course of the organizations involved can be altered permanently. Capital market reactions may create enormous changes in shareholder value and the careers of individual managers at all levels may be profoundly affected.

M&A transactions are made for a variety of reasons: to realize economies of scale and scope; to access technology, brands, products, and distribution channels; to build critical mass in growth industries; to remove excess capacity and consolidate a mature industry; or to change the rules of competition as deregulation and technological change trigger convergence across industries. The common theme (and the attraction of M&A strategies) is quick access to and control of a set of resources. However, the difficulties inherent in managing M&A are reflected in their low success rates. About half of these transactions fail, whether measured in terms of capital market reactions, financial results, or employee retention.

There are at least five important aspects of M&A that are of significance to students of organization. (Economists extensively study other aspects of M&A, such as industry concentration and anti trust implications). First, M&A involve the valuation of the firm as a bundle of resources. The parties to an M&A transaction must agree on a price that reflects the value of the combination of assets across firms. Second, M&A involve changes to the legal boundaries of the firms involved, and the transfer of property rights on underlying assets. Third, M&A represent a means to diversify a firm's product market scope (Singh and Montgomery, 1987). Fourth, the implementation of M&A involves the integration of elements of formal organization (such as structures, systems, and processes) and informal organization (such as culture and networks) across formerly independent firms (Puranam and Singh, 2002). Fifth, since many firms engage in a program of M&A, multiple M&A transactions can give rise to experience curve effects (Zollo and Singh, ...