Financial Due Diligence is a detailed examination of the financial position, performance and related risks of a business prior to a significant transaction such as acquisition, investment, merger or restructuring. The objective is to provide stakeholders with an independent assessment of the financial information presented.
Scope of Review
The diligence typically covers:
Historical financial statements and accounting policies
Revenue, cost and profitability analysis
Assets, liabilities and contingent liabilities
Cash flow and working capital position
Tax compliance status and potential exposures
Key contracts and financial commitments
Approach
Procedures include:
Review of books, records and supporting documents
Analytical review of trends and ratios
Discussions with management on significant matters
Identification of key risks and quality of earnings adjustments
Reporting
A due diligence report summarises the findings, observations and potential implications for the proposed transaction.