Due Diligence is the intense examination of a target
business for a merger or acquisition by a prospective buyer and it can be
described as a fact-finding device to assist in determining whether to buy
the business at all, how much to pay for the business and how to structure
the acquisition.
The principal purpose of Due Diligence is to verify assertions made by
the Seller and to identify caveats that may not have been disclosed to the
Buyer. It is a reasonable investigation about the state of affairs of the
business to be acquired, focusing on matters which may have an effect on the
future of the business.
More specifically, a due diligence audit is performed to help a buyer
understand details of the development process, degree of regulatory
compliance, etc. of a target company. Due diligence audits are often
performed in conjunction with the legal staff of the acquiring company.
The Audit Report prepared as a result of a Due Diligence Audit is
extremely critical as it often impacts the business decision of the
acquiring company.