Scope of Due Diligence

Due DiligenceWith the continuous rising trend of companies through out the world there is much need of those individuals who can carry out the function of due diligence beyond the financial Statements . There are various instances where the activity of due diligence is required to be carried conducted, which has increased the scope of Due Diligence through out the world.Some of such transaction include-

  • Confirmation that the business is what it appears to be;
  • Identify potential “deal killer” defects in the target and avoid a bad business transaction;
  • Gain information that will be useful for valuing assets, defining representations and warranties, and/or negotiating price concessions; and
  • Verification that the transaction complies with investment or acquisition criteria.

Due diligence is used to investigate and evaluate a business opportunity. The term due diligence describes a general duty to exercise care in any transaction. As such, it spans investigation into all relevant aspects of the past, present, and predictable future of the business of a target company. Due diligence sounds impressive but ultimately it translates into basic commonsense success factors such as “thinking things through” and “doing your homework”.

The function of due diligence is carried out by lead and co-investors, corporate development staff, attorneys, accountants, investment bankers, loan officers and other professionals involved in a transaction may have a need or an obligation to conduct independent due diligence. Target management typically assists these parties in obtaining due diligence information but because it is unwise to totally rely on management third party consultants such as Practising Certified Due Diligence Specialist or anyone who has obtained the certification of Certified Due Diligence Specialist from Auditronix -School of Certification. Auditronix- School of Certification is pioneer in the certification of Due Diligence globally. It is not necessary for a individual to be a Chartered Accountant , Company Secretary , Legal Advocate or MBA finance to be eligible to pursue this certification . Any person who has graduated from any university or has practical experience of due diligence can apply for these certification.

Due Diligence is conducted when Initial data collection and evaluation commences when a business opportunity first arises and continues throughout the talks. Thorough detailed due diligence is typically conducted after the parties involved in a proposed transaction have agreed in principle that a deal should be pursued and after a preliminary understanding has been reached, but prior to the signing of a binding contract.

With the increase in the  Merger of companies , De-merger of companies , Private Equity , Investment in new ventures has really increased the scope of due diligence activity . The outside parties may assign the task of carrying out the activity of due diligence to individuals who perform such activity.