Due diligence is a particular type of audit that must be done on potential investments. A due diligence report is an essential document that needs to be presented to all parties prior to finalising an investment agreement.
Due diligence audits are open and thorough investigations done to:
- Provide assurance on an investment (as far as that assurance can go) – and formalise that assurance legally through the due diligence report.
- Lay the foundation for finalising purchase agreements. Once a due diligence audit is completed, and the due diligence report reviewed and signed off, the ‘cards are all on the table’.
Why financial due diligence reports are so important:
- Investors require due diligence to know exactly what they are purchasing – especially financial due diligence.
- Due diligence ensures that there are no ugly surprises waiting for the investor or receiver of the investment once agreements are finalised and signed. This is especially important when it comes to financial due diligence. Financial irregularities can slip through easily, and books can be (and often are) ‘cooked’. ‘Creative accounting’ financials are best way to make investment look better, and worth more, than it actually is.
- Financial due diligence also allows for realistic projections on a real Return on Investment (ROI) based in fact and accurate financial statements and history. Reports examined include 3 – 5 years’ worth of financial statements, costs analysis, profit analysis, internal control procedures examinations and analyses, short and long-term debt review – to name just a few of the crucial financial health information an investor needs to know before buying. This not only reassures buyers; it can influence price (usually in favour of the buyer).
- A due diligence audit done with report in hand: this forms a solid, audited baseline for future operations. This will allow operational and financial strategies and maximise profitability and the investors ROI.
The Accounting Team offers assurance services that include audit activities that provide an independent, objective assessment of financial statements enabling business growth, control and risk management. So don’t hesitate to call us for assistance.
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