Due Diligence Audit#
Definition#
Due diligence is a comprehensive appraisal of a business undertaken before entering into a transaction like acquisition, merger, or investment.
Types of Due Diligence#
1. Financial Due Diligence
- Historical financial performance
- Quality of earnings
- Cash flow analysis
- Assets and liabilities verification
2. Legal Due Diligence
- Litigation check
- Contract review
- Regulatory compliance
- Intellectual property
3. Operational Due Diligence
- Business processes
- Technology systems
- Supply chain
- Human resources
4. Tax Due Diligence
- Tax compliance
- Tax exposures
- Tax incentives
Process#
- Engagement planning
- Information gathering
- Analysis and verification
- Findings and recommendations
- Report preparation
Key Areas of Focus#
- Revenue and profitability trends
- Working capital management
- Contingent liabilities
- Related party transactions
- Internal controls
- Customer concentration
- Key man risk
Deliverables#
- Due diligence report
- Valuation support
- Risk assessment
- Recommendations