Tips For Identifying & Auditing Due Diligence Documents
Due diligence is a necessary and important part of business mergers and acquisitions. However, due diligence must be thorough in order to verify critical information that allows a business to make decisions in their best interest. If there is only a cursory review of due diligence documents, or if auditors do not understand the specifics of what they are reviewing, limited value will be gained, and this could lead to major oversights that may have seemed insignificant with a limited review.
Due Diligence Documents ID
The first step in conducting effective due diligence is to identify documents and records for review. While the nature of these records will vary somewhat depending on the nature of the business being acquired, in general, due diligence should include a review of:
- Audited financial statements
- Bank statements
- Loan notes and credit agreements
- Notes payable
- Contracts with vendors, suppliers and other third parties
- Accounts receivable, including “aging” reports
- Income tax records
- Any recently completed or pending litigation
- Lists of assets and fixed equipment
- Employment contracts and payroll reports for staff
- Employee handbook
Auditing Documents
Once records have been identified and located, it’s important to review them with a critical eye. Reviewers should not review documents in isolation, but should instead review each record as part of the larger picture.
When auditing financial documents, reviewers should look for any indication of lax internal controls, or signs that could signal noncompliance with accounting principles or corporate governance standards.
It’s also important to review documents with an eye toward identifying hidden costs, contingencies or commitments that are not obvious at first glance. A thorough audit of due diligence documents can highlight potential issues that could impact the proposed purchase price or conditions for the deal.
Baer Reed Can Help with Transaction Due Diligence
At Baer Reed, we have a team of trained and experienced legal professionals who are adept and efficient at handling transaction due diligence in a thorough manner. To learn more, contact us today or call us at (888) 433-1990.
- On July 28, 2017
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