Due diligence is an investigation or audit of a potential investment or product to confirm all facts, such as reviewing all financial records, plus anything else deemed material.
DUE DILIGENCE AUDIT
In business, a due diligence audit is basically a careful investigation into the complete financial picture of a company. Generally, these audits come before a purchase, merger or other major decision that could negatively influence the finances of one or more businesses. These audits are generally used to ensure that no hidden liabilities exist.
Due diligence can be compared to an employee background check on a corporate scale. Like perspective employees, companies wishing to be purchased are often trying to make the most positive impression possible. The strengths of the company are often highly stressed and the weakness is downplayed. A due diligence audit is the equivalent of checking references before hiring.
DUE DILIGENCE AUDIT - PROCEDURE
Identifying legal and financial risks associated with investing in a particular business.
Preparing a report on the legitimacy of a target business and its assets
Advice on minimizing investment risks
The work which is performed within the due diligence procedure may be divided into three interconnected parts:
Financial Due Diligence: confirmation of net assets, both title and value, check of accuracy of accounting, historic and prospective financial analysis, assessment of financial risks;
Tax Due Diligence: check of accuracy of tax calculations, tax risks evaluation;
Legal Due Diligence: check of corporate structure, titles to assets, intellectual property rights, commercial liabilities and legal risks evaluation.