Due Diligence Report
Due Diligence is the process of systematically researching and verifying the accuracy of a statement.
The term originated in the business world, where due diligence is required to validate financial statements. The goal of the process is to ensure that all stakeholders associated with a financial endeavour have the information they need to assess risk accurately.
When due diligence involves the offering of securities for purchase, as in an IPO (Initial Public Offering), specific corporate officers are responsible for the proper completion of the process, including the issuer, issuer’s counsel, underwriters, CFO and the brokerage firm offering shares. Because of the delicate nature and importance of such judgments to the prospects for the performance of a company’s equities in the public market, there is a strong emphasis on neutral, unbiased analysis of both the current financial state and future prospects of the firm in question.
Scope & Objectives of Due Diligence
It is very much necessary that the scope of DDR is determined in consultation with the client. It is not confined to financial due diligence but extends to operational due diligence, market due diligence, technical due diligence, legal due diligence, systems due diligence, etc. all of which form an integral part of the overall due diligence exercise.
Generally, a comprehensive DDR is undertaken with the following objectives:
- To assess the commercial and technical feasibility, resource availability of the business and synergy between the organization (acquirer & target)
- To ensure the compliance of necessary statutes and ascertain the liability in the event of non-compliance
- To finalize the value of the acquisition or a financial investment
- Look at tax position / structure and its implications
- Look for overvalued assets or under-recorded liabilities, hidden assets or liabilities
- Assess the quality of management and identifying key employees of the Target Company
- To prepare a post-acquisition plan
- Look into any other significant matters of interest to the acquirer
- Provide value added information about the target’s business
Types of Due Diligence
There are several types of DDR, which are as listed below:
- Business / Market Due Diligence
- Technical Due Diligence
- Human Resource Due Diligence
- Legal Due Diligence
- Environment Due Diligence
- System Due Diligence
- Tax Due Diligence
- Financial & Accounting Due Diligence