Due Diligence Audit
In business, a due diligence audit is basically a careful investigation into the complete financial picture of a company. Generally, these audits come before a purchase, merger, or other major decision that could negatively influence the finances of one or more businesses. These audits are generally used to ensure that no hidden liabilities exist.
Due diligence can be compared to an employee background check on a corporate scale. Like perspective employees. The strengths of the company are often highly stressed and the weakness is downplayed. A due diligence audit is the equivalent of checking references before hiring.
In general, a due diligence audit focuses on information outside of what is freely presented. While it is generally expected for a purchasing company to perform these investigations, they are often done discreetly. The hire of private investigators is not uncommon, and seldom are the companies that are being investigated aware of the specific focuses of investigation.
Forensic accounting teams are often the backbone of a due diligence audit. These specialists are trained to thoroughly review the financial records of an organization for any discrepancies. Unlike traditional accountants, forensic accountants are specifically trained to search for fraud and hidden assets and debts.
The due diligence procedure involves:
- Identifying legal and financial risks associated with investing in a particular business
Preparing a report on the validity of a target business and its assets - Advice on minimizing investment risks
The work which is performed within the due diligence procedure may be divided into three interconnected parts:
Financial Due Diligence:
- Confirmation of net assets, both title and value, check of accuracy of accounting, historic and prospective financial analysis, assessment of financial risks;
Tax Due Diligence:
- Check of the accuracy of tax calculations, tax risks evaluation;
Legal Due Diligence:
- Check of corporate structure, titles to assets, intellectual property rights, commercial liabilities, and legal risks evaluation.
What Sarvam Associates Offers
- Our Prime focuses on Independent analysis and evaluation of financial and commercial information prepared at an early stage of a disposal
- Gather, analyses and interpret financial, commercial, and tax information in detail
- Compilation and review of financial information
- Audit of special purpose accounts
- Interfacing with the purchaser and their accounting advisors on accounting matters and challenging due diligence findings of the purchaser
Finance and Accounting
- Validation of balance sheet items and modified cash basis (off-balance sheet items)
- Review and assessment of existing accounts receivable
- Analysis of trends in financial data and quality of earnings.
- Assessment of relevant accounting policies and procedures
Finance Process
- Review of financial close process and timing
- Assessment of internal audit function
- Assessment of current financial systems and integration with overall IT infrastructure
- Assessment of finance organization
Operations
- Site visit and review of facilities
- Assessment of relevant intellectual property
- Review of real estate and related contracts
- Assessment of existing employees and contracts
Information Technology
- Assessment of current systems and processes
- Data and network security
- Assessment of IT organization
- Review of the software development lifecycle
- Assessment of third-party service and software providers
Environmental, Health, and Safety
- Identification of potential EH&S risks
- Assessment of EH&S risk management goals, objectives, and infrastructure
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