What is Due Diligence?

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  • Anonymous
    9 years ago
    Favorite Answer

    Due diligence in business transactions (Corporate Finance)

    Due Diligence can be defined as:

    1. The examination of a potential target for merger, acquisition, privatisation or similar corporate finance transaction normally by a buyer.

    2. A reasonable investigation focusing on material future matters.

    3. An examination being achieved by asking certain key questions, including, do we buy, how do we structure the acquisition and how much do we pay?

    4. An examination aiming to make an acquisition decision via the principles of valuation and shareholder value analysis."

    The Due Diligence process (framework) can be divided into nine distinct areas:

    -Compatibility audit.

    -Financial audit.

    -Macro-environment audit.

    -Legal/environmental audit.

    -Marketing audit.

    -Production audit.

    -Management audit.

    -Information systems audit.

    -Reconciliation audit.

    It is essential that the concepts of valuations (shareholder value analysis) be linked into a due diligence process. This is in order to reduce the number of failed mergers and acquisitions.

    In this regard two new audit areas have been incorporated into the Due Diligence framework:

    -the Compatibility Audit which deals with the strategic components of the transaction and in particular the need to add shareholder value and

    -the Reconciliation audit, which links/consolidates other audit areas together via a formal valuation in order to test whether shareholder value will be added.

    Source(s): Source: Gillman, Luis (2010). Due Diligence, a Strategic and Financial Approach (2nd ed.). Durban: LexisNexis. ISBN 9780409046991.
  • 4 years ago

    Due Diligence are the type reviewing engagement services which are normally perform the investigation to the target business, or companies related to business performance, liabilities, assets, and others subject matters. Due Diligence service are are vary depending on the nature of engagement; however, there are five type of Due Diligence.

    Here is full text:

    http://www.wikiaccounting.com/audit/concept-due-di...

  • 5 years ago

    The goal of due diligence is to discover hidden information about a business. Performing an effective due diligence will take time, resources and money. It’s certainly true that due diligence needs to be performed because some business owners intentionally hide information about a business they’re trying to sell. It’s often not what’s said but what’s not said in these situations that you are trying to discover. The Latin expression "caveat emptor" fully applies here, avoiding fraud is not the only reason to perform a due diligence. "Let the buyer beware" indeed, but fear of a dishonest seller isn’t the only benefit of a due diligence.

  • Anonymous
    9 years ago

    The investigation or research of a person or company before conducting business with said person or company.

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