Question

Explain the term ‘due diligence’. Discuss at least three components that affect the due diligence process.

Answer 1

Due diligence is an investigation of a business or person prior to signing a contract , or an act with a certain standard of care. it is an investigation or audit of a potential investment or product to confirm all facts such as reviewing financial records, plus anything else deemed material. it also refers to the care a reasonable person should take before entering into an agreement or a financial transaction with another party.

fOLLOWING ARE THE THREE COMPONENT OF DUE DILIGENCE----------

1. commercial due diligence-------- it include real property, plant and equipment, stock and inventory, product and services suppliers etc.

2. legal due diligence--------------it can include claim and warrenties, patent, trade mark and business name, and transfer of employee entitlement etc.

3. financial due diligence-------------it include financial performance, debtor, creditor , work in progress and salary and wages etc.