When an acquisition or investment is contemplated, a financial due diligence of the target entity is conducted by the proposed buyer to learn about any accounting and taxation risks that prevail in the target entity. This helps in making an informed investment decision.
The various facets covered in a Financial DD report include:
- Compliance with accounting standards (or Ind AS, as applicable)
- Analysis of various items in the Balance Sheet, Profit & Loss Account, and Cash Flow Statement
- Analysis of internal controls, if required.
- Compliance with both direct and indirect tax laws, and observations regarding issues that carry risk.
A financial DD is part of the two larger goals in a transaction: one, determining the purchase consideration, and two, drafting meticulous definitive agreements. Both of which we can do as well.