Question

Prepare a search strategy for understanding a due diligence review of a company. Implement the strategy to find five important items in a due diligences review.

Answer 1

In simple words we can say that Due Diligence refers to the whole process of investigating about a company & firm before involving in any business deal with such firm & company. Practically we see that due diligence have much significance in case of mergers & acquisition. In present age various mergers & acquisitions take place hence due diligence is a vital process for investigating about the particular company.

Following strategy should be adopted by the auditor or any other stakeholder for understanding due diligence review of a company;

1. Past records of the company must be checked such as; incorporataion, about promoters, about mission & vision of the company etc. Apart from this data of last some years must be reviewed to know actual progress of the company.

2. Accounting policies & practice of that company must be checked to know whether that company follow valid & reasonable accounting policies or not?

3. Financial statements of the company must be reviewed to get more financial details.

4. Cash flows position must be checked to know liquidity position of the company. Such as from where cash is coming and where it is using?

5. It should also be checked that whether company is running as per laws of the country & countries or not.

Important items in due diligence review;

Following are the important items in due diligence review;

1. Environment due diligence

2. Financial due diligence

3. Legal due diligence

4. Operational due diligence

5. Commercial due diligence

6. Personnel due diligence etc.