Due Diligence Services

Due Diligence

Due diligence is the investigation or exercise of care that a reasonable business or person is normally expected to take before entering into an agreement or contract with another party. It is used to investigate and evaluate a business opportunity.

A common example of due diligence in various industries is the process through which a potential acquirer evaluates a target company or its assets before acquisition. It involves a careful study of financial and non-financial factors for successful implementation of restructuring plans.

Due Diligence has a become a legal requirement in several countries before entering into any new contracts with various legislations implemented to oversee the same. Proper use of due diligence systems is used as a defense against any potential fraud or breach of law.

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Major Types of Due Diligence

  • Commercial Due Diligence: This due diligence reviews the Target’s historical and forecast performance from the perspective of its markets, customers, competitors, and internal capabilities.
  • Financial Due Diligence: This involves analysis of books of accounts and other information pertaining to the financial matters of the target entity. This is normally performed after the completion of commercial due diligence.
  • Operational Due Diligence : Here the potential purchaser reviews the operational aspects of the target company to ensure that the business plan provided is achievable with the existing operational facilities. Most often ODDs are conducted in industrial sector.
  • Human resources Due Diligence: It is a fact that much of the Target’s performance is linked to its people and the way the organization is designed to allow for employees to perform the way they do. So a HRDD gives a better perspective of the target organization’s HR practices and culture.
  • Customer Due Diligence: This is the Process of identifying or verifying the information of a Customer or Beneficial Owner, whether a natural or legal person or a legal arrangement, and the nature of its activity and the purpose of the business relationship and the ownership structure.
  • Legal Due Diligence: This due diligence focuses on all legal aspects of the company and its relationships with its stakeholders. Areas typically analyzed include licenses, regulatory issues, contracts, and any legal liabilities or suits that may be pending.

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Reasons for carrying out a Due Diligence

  • It helps organizations protect their interests in relation to a future potential investment, customer or project.
  • To confirm that the business is what it appears to be.
  • To gain information that will be useful for valuing assets, defining representations and warranties and or negotiating price.
  • It helps to safeguard the value chain and ensures compliance with relevant legislations.
  • To understand if there is any hidden liabilities or overvalued assets in a potential acquisition.

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How is due diligence conducted will be better?

The process of any typical due diligence would depend on the purpose it should cater. The process of doing a financial due diligence would widely differ from the process of an operational due diligence.
However, the following will be standard operating procedure for any due diligence:

  • Evaluating the goals: The first step in any project is to delineate the goals or purpose of the project.
  • Defining the scope: This helps in understanding the purview of the project, the areas to be focused and resources required.
  • Analysis of financial and non-financial information: This involves verification of various financial and non-financial information to gauge the overall health of the company and to detect any red flags.
  • Inspection of documents: Involves verification of relevant documents to validate the information obtained otherwise.
  • Risk assessment: This involves assessing the various risk factors in the potential transaction and its impact. Risk assessment and due diligence though separate concepts are inseparable. Thorough evaluation of risk assessment enables the decision maker to take an informed decision.
  • Preparation of due diligence report: This involves documenting the findings of the investigation and compiling all the necessary information into an organized document. It contains the processes and procedures applied, verifications made and the results of the same.
  • Post due diligence support: Supporting the management to arrive at an informed decision based on the findings in the due diligence report.

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Our team with multi-disciplinary expertise can take audit to a next level to meet the evolving market and client requirements. We maintain uncompromising commitment to deliver quality and time bound audits. Over the period, we have a strong network of clients and affiliated firms who are consistently with us and thus expanding our profiles from Elevate First Accounting & Audit to Elevate Business Solutions DMCC and Elevate Prime Auditing Solutions.