Due & Diligence Audit​

Due diligence is a process of investigation, performed by investors, into the details of a potential investment such as an examination of operations and management and the verification of material facts. It entails conducting inquiries for the purpose of sufficient, timely, and accurate disclosure of all documents, information or material statements that influence the result of the transaction.

Thus from the above definition, we can understand that due diligence is an audit of not only financial matters but also non-financial areas as well. To put it in simple terms due diligence is seeking an opinion from a professional of the prospects of the business where investment is detested.

At the start of business opportunity, initial talks, data collection, and analyzing of the same are performed. The detailed due diligence follows after this. Due diligence is normally performed once it is confirmed between the parties about the transaction or the deal will be pursued. However, this is done before the signing of the contract or the agreement.

Following points reveal the importance of Due diligence:

• To confirm that the business is actually performing the same as it is presented to be
• To identify the potential deal-killer defects in the business opportunity and avoid the agreement if it appears to be a bad transaction
• To collect data and information for negotiating price concessions, defining representations and warranties, valuing assets, etc
• To verify if the deal is compliant with acquisition or investment criteria.

The major aim of due diligence is to assist the investor or the purchaser to find out the strengths, weaknesses, critical success factors, etc, and get all the possible information before completing the deal. Along with this due diligence also helps in exposing the problems or for that matter potential problems which can help in negotiating price, adding points in the contractual documents or indemnity provisions.

At VJM & Associates LLP we have classified and carry out the due diligence as per the activities performed by the business opportunity and concentrate on the areas specific to it:

Commercial or operational due diligence

This kind of due diligence is performed to analyze operational, strategic and commercial perspectives of the acquiring enterprise

Financial due diligence

This due diligence is normally performed after the operational due diligence is done. This is auditing and evaluation of financial matters, books of accounts, statement of affairs of an entity

Tax due Diligence

This diligence is generally performed along with the financial due diligence. However, it is one totally different activity. This due diligence is all about investigating different types of taxes which are applicable to the entity and to which extent compliance of the same has been done by the company. Auditor also analyzes the possible outcome of all the pending litigations and matters so that any possible liability can be factored in determining consideration of transaction.

Legal due diligence

Compliance of all the statutory laws applicable to the entity, legal activities related to various functions and department of the business etc all come under the purview of legal due diligence. Auditors identify any possible non-compliance which can affect the transaction or can create future liability for prospective buyer or investor.

Information Systems Due diligence

Information system is the backbone of every organisation and if an entity is looking for merger with another entity then it is important to know to which extent their IT system syncs with each other. Therefore, IT Due diligence is carried out to analysis capabilities and limitations of the IT system of the entity.

Environmental due diligence

When the merger happens it is very important to understand the flexibility of the business operations and management of the organization. Environmental due diligence aims at assessing the environmental condition so that investors are aware about potential environment liability. It can involve looking at various perspectives like checking past spill or fire incidences, operations carried out by adjacent facilities, availability of resources nearby etc. It helps in evaluating the flexibility, the working environment and adapting capability of the organization

Personnel due diligence

This due diligence is conducted to ascertain whether prospective organisation has potential employees as per organisation requirement and what is the over all structure of employees like current positions, vacancies, due for retirement, notice service period etc. 

Purchasing a business involves a lot of cost and effort. Therefore the business should be analyzed, ascertained, and evaluated from all the angles relevant. This involves the following approach:

• Review and report of the financials submitted by the target company
• Assessing the business first hand by site visit wherever possible.
• Working through the due diligence process with the acquisition company or investor by defining the key areas
• Helping prepare an offer based on completion of due diligence

To determine a correct and effective strategy is very important. Factors such as company age, geography, markets, competitive dynamics, price levels, etc impact the decision of the purchasing.

VJM & associates LLP have therefore built up a comprehensive model which is also popularly known as 6 D’s of Due Diligence for due diligence which can be elaborated as below:

Define

With the help of discussions with both parties, we evaluate the project goals. This includes resource requirement, the garner of the project, and the strategy to be adopted

Discover

Here we do a thorough analysis of financial records of the organization. The major reason is to measure the asset health of the entity, stability, and financial performance. 

Diagnose

An appraisal of long term value of the organization and understanding the business practices is done in this step. This is a very important step as here we provide an assurance on the basis of overall examination of documents if the business venture is worth or not.

Design

Detailed scrutiny of the business model and plans is done through this process. And then a plan is designed and implemented on the basis of viability and integrity of the two organization

Deliver

After all the inspection of documents and gathering of information and data, the same are analyzed by our experts in VJM & Associates. The valuation is done and we propose the price to be put forth

Defend

Risk management is done through this step so as to assess and forecast any potential risks through this business deal and be prepared for the same.

The process that we follow at VJM & Associates LLP for performing Due diligence is divided into three major steps:

Pre Due Diligence

Pre Due diligence is a period when we prepare ourselves and the target party for the process of Due diligence. It involves the following steps:

• We discuss things with you to understand the deal that is going to take place and the basic details of the same
• Then we analyze the most pertinent and significant scope of work and methods to be adopted
• A team with experts in the field is made up with centralized coordination
• A requirement list for the due diligence to be conducted is identified according to the concerns related to the particular area.

Due Diligence process and Negotiation Phase

This phase is the actual working phase. Here we implement all our planning and expertise. Following are the steps followed:

• As per the requirement, the experts of VJM & Associates work onsite or offsite
• We follow a very flexible approach instead of stereotype manners
• A question-answer session is conducted with the management to satisfy our queries and inquiries
• A comprehensive report is drafted and discussed with the management
• We provide full support for negotiation terms
• The most integral part of our approach is the regular update with and to the client

Closing & Post closing Phase

This is the last phase of the due diligence process. Here we follow the following approach

VJM & Associates experts prepare a complete and exhaustive report after a detailed review of the closing documents.

Review of other post-closing transactions is also done

If you require we get involved in price adjustment procedures as we can comment on the same based on our findings during Due Diligence