Question: Under a management buyout the top management of a firm
Under a management buyout, the top management of a firm offers to buy the company from its stockholders, usually at a premium over its current stock price. The management team puts up its own capital to finance the acquisition, with additional financing typically coming from a private buyout firm and private debt. If management is interested in making such an offer for its firm in the near future, what are its financial reporting incentives? How do these differ from the incentives of management that are not interested in a buyout? How would you respond to a proposed management buyout if you were the firm’s auditor? What about if you were a member of the audit committee?
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