For starters, financial due diligence is not an audit. Financial due diligence attempts to understand the reasons for historical and forecasted business trends, and reports on the relevancy of these trends to the purchaser of a business.
Depending upon the scope, financial due diligence should provide answers to the following questions:
Is the information provided by the vendor reliable?
Are the historical earnings of the company sustainable?
What are the potential future earnings of the company?
What level of working capital should be included at transaction closing?
Has the company sufficiently invested in capital expenditures?
Are there any on or off balance sheet liabilities that should be considered?
Does the company have any future commitments or contingencies?
When done properly, financial due diligence provides valuable information to support a fair purchase price and ensures the appropriate warranties and representations are included in the purchaser’s agreement.REQUEST SERVICE