lexis legis

Due Diligence Reporting (DDR)

 

 

Due diligence is the effort made by an ordinarily prudent or reasonable party to avoid harm to another party or himself. The term “Due diligence” is used for a number of concepts involving either the performance of an investigation of a business or person, or the performance of an act with a certain standard of care.  Due diligence involves investigation and evaluation of a management team’s characteristics, investment philosophy, and terms and conditions prior to committing capital. Due diligence is undertaken in order to determine the value of the subject of the due diligence and unearth any issues or potential issues. It is expected to provide a realistic picture of how the business is performing now, and how it is likely to perform in the future.  In addition to identifying risks and implications of an investment, due diligence may also include data on a company’s solvency and assets. To be concise, Due Diligence is most necessary for the purpose of analysing the feasibility, to enable better mode of investment and to reduce riskd to minimum.

 

In audit, the Chartered Accountant’s objective is to provide a high (but not absolute) level of assurance on the reliability of financial statements. The auditor provides a positive opinion which essentially states that based on the work performed; the financial statements comply with relevant accounting standards and principles. The level of testing procedures to obtain the evidence necessary to support such an opinion is high. In contrast, a review provides a negative assurance report giving only a moderate level of assurance on the reliability of the financial information. The report essentially states that nothing has come to the reviewer’s attention to indicate that the financial information is not presented fairly in accordance relevant accounting standards and principles.

 

Due diligence is necessary to allow the investigating party to find out everything that he needs to know about the subject of the due diligence. The objective is to allow the investigator to consider his options in light of the facts. The investigator would then have the following options open:

i. To withdraw from the deal - if the due diligence unearths information that makes the investment, loan or participation risky or undesirable and which
cannot be adequately resolved then

 

ii. To adjust the valuation of the investment - the investigator may revise his valuation of the company or reassess the price at which it will provide services. More often, the information will be adverse and therefore the valuation will go down or the price will go up, as positive information will have been made more publicly available by the target from the start.

iii. To have the problem remedied - it may be possible for a problem  uncovered by the due diligence to be remedied before the deal goes ahead.

 

We at Lexislegis are accustomed with the process of preparing due diligence and have been accomplishing the goals with the aid of inputs provided by investors, to the best of their satisfaction.