Due Diligence Investigation – what is the Purpose?

Before making any business investment, it’s crucial that a due diligence investigation is performed. Due diligence is the process of investigating a potential financial investment, which is meant to provide assurance to the investor. When due diligence isn’t performed, there is no guarantee that what an investor is purchasing or investing in is legitimate. It is important that an experienced and reputable accounting firm performs this investigation to ensure that no detail is overlooked. While the aim of a due diligence investigation is to provide assurance, it is performed for several reasons.

One of the main purposes of due diligence investigation is to provide financial security

During a comprehensive due diligence investigation, everything about a company is reviewed, including their finances. In fact, the company’s finances may arguably be the most important part of a due diligence investigation.

Prior to this investigation, a meeting is held between the company and the potential investor or buyer to negotiate a price. During this meeting, the investor will typically ask a series of questions regarding the financial security of the company and the company representative will provide answers.

But how does the investor know that these answers are true?

During a due diligence investigation, the accounting firm hired will find the true facts about the company’s financial situation and uncover any inconsistencies. This provides the investor with financial security, as they could lose billions on an investment based on false facts. In addition to providing financial security, the due diligence process reduces any risk for the investor, from financial risk to technology and market risk.

After due diligence is performed, the investor is then presented with the findings. At that point, the investor can decide to continue with the investment, renegotiate the terms, or walk away.

Due diligence investigations are time consuming and tedious as it goes beyond the basic checks you would normally make. After a due diligence assessment you should know just as much about the prospective business as you do about your own business and it’s evaluation. Producing a check list of your own, even if you are in the financial field might not produce the correct results.

At TAT Accountant, we provide a wide range of accounting and tax service packages, including due diligence investigations. The financial aspect of these investigations ensures that the financials provided by the other party are accurate. When financial due diligence is performed on a company, TAT Accountant analyses profit margins, fixed and variable costs, audited financial statements, debt, and more. If you are interested in having a due diligence performed on a company regarding a prospective investment, don’t hesitate to contact us.