“Due diligence is an investigation of a business or person prior to signing a contract, or an act with a certain standard of care. It can be a legal obligation, but the term will more commonly apply
to voluntary investigations” – Wikipedia
Due Diligence in simple terms refers to the careful appraisal of any Business transaction, offer or proposition with utmost care, responsibility and prudence so as to eliminate or avoid any potential harm or discrepancy.
Due Diligence process is commonly performed before an acquiring company initiates the taking over of a target company
It aims at evaluation of a business proposition from all the relevant angles so as to assess the risks involved at the initial stage itself and confirm the existence of conditions and particulars agreed upon beforehand. It is generally outsourced or done by a third party to avoid any hindsight bias.
Audit is an integral part of the Due Diligence framework.
The Due Diligence framework(process) can be divided into the following areas -
