Importance of due diligence and roles of an auditor

What is due diligence?

Due diligence is a procedure that includes investigation, audit, review of a potential investment or product before signing an agreement or a proposed transaction with the other party. Usually, due diligence is performed by investors or the seller on a buyer to check if they possess enough resources to enter the financial transaction and complete the entire process.

 

Does due diligence differ in Dubai?

Due diligence is an auditing process that is followed across the globe with a similar pattern. As mentioned above, this process brings in three-pointers about the buyers and sellers who are getting into the deal.

  1. Issues related to the transactions can be identified and accordingly tackled
  2. One establishes the true value of a business transaction
  3. The process empowers to negotiate the best transaction terms

 

Why is it helpful?

Due diligence is an important step for both the buyers and sellers when the businesses are planning to acquire or merge. This process lets both the parties to verify the accuracy of the exchanged financial information. This gives clarity if the quoted prices are on the right side, and accordingly take a final decision of continuing the deal or negotiate the amount or just walk away from the project.

While processing due diligence the buyers and seller should ensure that their risk management and governance objectives are followed. Due diligence audit or auditor plays a good role in this process, as they will help you in recognizing the possible risks and potential opportunities.

 

What are the types of due diligence?

The most common due diligence review takes place in a triangular model, where the focus is on legal, financial, and tax due to diligence review. However, there are other formats of due diligence that might look at the review in different angles and approaches, which might be helpful in your decision-making. Following are the other types of due diligence reviews:

  • Carve our due diligence (this process focuses only on one aspect of the target)
  • Commercial/operational
  • Customer
  • Human resources
  • Information technology
  • Seller due diligence

Due diligence auditors can help you in looking at all these angles, but it is the buyer and the seller who have to scope the requirement with the team of auditors and set the parameters you would like to review. Because, at the end of the review, it is you who have to decide about the numbers.

 

How is a due diligence auditor appointed?

Before delegating an auditor for the due diligence process we create a program comprising of the purpose of the acquisition, critical goals, and objectives. Then a team of auditors is appointed with the right skill set and the ones who are aware of the entire due diligence process. During the time of the process, we ensure the auditors monitor the following objectives:

✓ Investigate affairs of business as a judicious businessperson
✓ All business-related documents and materials will be confirmed
✓ Assessment of risks and opportunities of the proposed transaction
✓ Help in reducing post-transaction risks
✓ Transparency of the business
✓ Creating trust between the buyer and the seller
✓ Help in avoiding a bad business transaction
✓ Validating if the transaction complies with investment or acquisition criteria

Collecting timely feedback on the current financial status of either party (buyers and sellers) helps in making healthy and good decisions. Spectrum accounts have professionals who are thorough with these processes and keep you informed about the acquiring procedures.

 

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