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Financial Due Diligence

Updated:2018-2-28 17:58:37    Source:www.tannet-group.comViews:888

Financial due diligence focuses on verifying the financial information provided and to assess the underlying performance of the business. Financial due diligence is completed prior to the transaction being completed and the amount of financial due diligence to be completed will often vary according to the knowledge of the purchaser or investor, the size and complexity of the target and the degree of risk involved. Financial due diligence is often undertaken by a reporting accountant who will undertake the work on behalf of the purchaser.

Financial due diligence is a non-assurance service and therefore, it is not a part of the statutory services of certified public accountants. Rather, the role of a financial professional is more like a management consultant for financial advisory. Whereas, audit is a statutory service, which is part of assurance services to be provided by certified accountants.

Difference between Financial Audit and Financial Due Diligence
A financial audit is conducted to provide an opinion whether "financial statements" (the information being verified) are stated in accordance with specified criteria. Normally, the criteria are international accounting standards, although auditors may conduct audits of financial statements prepared using the cash basis or some other basis of accounting appropriate for the organization. In providing an opinion whether financial statements are fairly stated in accordance with accounting standards, the auditor gathers evidence to determine whether the statements contain material errors or other misstatements.

The objective of financial due diligence is to provide an investor with the insight of the operations of the target company, be it for the purpose of investment or for acquisition, thus helping the investor in making an informed decision, so that they are aware about the risks involved. The purpose of auditing services is to check, whether the company is following the prescribed format for book keeping, adhering to the accounting standards and reporting the finances accordingly, including red flags, if any.

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