Due Diligence and Audit – Meaning & Difference
Posted On
Due diligence is a critical component of today’s commercial transactions, such as investments, mergers and acquisitions, and so on. It is essential when a person is likely to make a large-scale investment or capital expenditure. It is a method of analysing and mitigating risk in a company or investment decision in a methodical manner.
Due diligence entails scrutinizing a company’s financial statements, comparing them over time, and comparing them to competitors. It involves an analysis of financial data, including historical statutory accounts, performance forecasts, outstanding debts, and any funding requirements of the business before entering into any agreement with the company.
Meaning & Types of Due Diligence
Corporate due diligence means in-depth analysis of information and data provided by the company in order to make an informed decision on whether to go forward with the investment. It is an essential aspect before making any investment decision.
1.Operational DD:
It is the research and evaluation of a target company’s operations, plans, and commercial activities. For evaluating synergies between the purchasing and target companies, operational due diligence is critical. It helps a proposed buyer to ensure whether it is profitable to make an investment in the business or whether the proposed merger would create operational synergies.
2. Financial DD:
It is an assessment into a company’s financial performance. It is similar to an audit in that it is carried out by outsiders who want to obtain a better understanding of the company’s financial position and future possibilities. Financial due diligence also aims to find issues that aren’t immediately apparent in the financial statements.
3. Asset DD:
Asset due diligence is the process of verifying the value of assets that have been shown in the books of the target company. Net assets are sometimes used to determine a company’s worth. It is also important to consider the impact of an under or overvaluation of assets on the net worth of the company. If required, the assistance of expert values could also be obtained for the valuation of immovable properties and plants. The accountant should pay special attention to the appraisal of intangible assets.
4. Environmental DD:
Following a standardized approach, environmental due diligence is the process of assessing an entity’s environment. The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) establishes liability for contamination. CERCLA laid out the requirements for closing and abandoning hazardous sites and their related prohibitions and established liabilities for those who created the waste. Environmental due diligence is important for the safeguard of the buyer from the environmental liabilities under CERCLA, even if the environmental liability arises after the purchase.
5. Legal DD:
It means the examination of the legal affairs of the target company or asset to identify the legal risk. Legal due diligence can assist the buyer in avoiding legal risks and costs that may develop as a result of legal procedures. Intellectual property, tax liabilities, regulatory compliance, environmental law disputes, and other areas of law can all benefit from this diligence.
6. Personnel DD:
It is comprehensive and includes total employee analysis, encompassing existing roles, vacancies, retirement dates, and notice periods. It analyzes whether HR policies are in compliance. Personal due diligence can be modified as per the requirements of restructuring. It helps to improve work performance, workplace safety, employee experience, etc.
The Difference Between Due Diligence and Audit
It’s important to distinguish between due diligence and an audit. An audit is concerned with the independent examination of financial statements in order to express a true and fair opinion. Due diligence, on the other hand, is the process through which a potential investor investigates and analyses all material information before investing in a target firm. It considers all financial and non-financial aspects in order to identify a potential business opportunity. It means all the reasonable care taken by a person before entering into any transaction with another party.
Komplytek’s Due diligence and Auditing Service comprises a review of the client’s complete financial data and determining its exactitude. We deliver unmatched audit services such as measuring fraud threats, testing the financial information, evaluating internal procedures.
Our prime aim is to determine the precision of the business financial reports as it is critical to the financial health of the business. We also provide accurate financial statements, and taking care of the other critical areas concerning the financial assets of the company.
Our team of experts are well equipped and competent in auditing ethics and standards. We also put in the utmost degree of integrity in delivering factual observation to improve your business processes.
Get on a FREE Consultation Call with us today!
visit: https://komplytek.com/
