What is due diligence audit?

It is the investigation of all records of an organization available for sale, done by the professionals hired by purchasing organisation. It involves extensive checking of financial records of the organisation along with analysis of synergies which could be achieved once two entities start working together. It helps us in addressing key tax and regulatory matters which would arise in the fields of Income-tax, Indirect tax, Foreign Exchange, Company Law and Capital Markets.

Types of due diligence

1. Financial due diligence: It is one of the most important type of due diligence done for an entity which includes analysis of audited/ unaudited financial statements of the previous years, current year and future years. It includes analysis of the following areas:

  • Current major contracts with customers.
  • Inventory valuation i.e. fixed and variable cost analysis
  • Capital commitments.
  • Profit margin analysis.
  • Operating effectiveness of Internal controls.

2. Administrative due diligence: It is the analysis of infrastructure and other facilities provided by the Company which includes number of workstations, power back-ups, canteen facilities etc. This analysis is done to assess the financial burden which will be borne by the Company once merger/acquisition has taken place.

3. Asset Due diligence: It is done to verify the schedule of fixed assets of the Company. It is done through:

  • Physical verification of fixed assets.
  • Examination of title deeds/ invoices of major fixed assets.
  • Verification of sale and purchase transactions done in the previous years.
  • Inquiring about future capital commitments of the Company.

4. Human resource due diligence: It is verification of employee records of the Company. It includes:

  • Examination of employee contracts and appointments along with letter of appraisals issued to employees.
  • Analysis of HR policies of the Company.
  • Testing of attendance mechanism of the Company and monthly salary update process.
  • Leave policy of the Company.
  • Analysing health benefits and welfare insurance policies of the Company
  • ESOPS or any other grants issued to employees.

5. Taxes due diligence: It includes review of all taxes applicable on the Company and status of all pending cases filed against the Company.

6. Legal due diligence: It includes examination review of the following:

  • Memorandum of Association (MOA) and Articles of Association (AOA)
  • Statutory registers of the Company.
  • Minutes of meetings like Board Meeting, Annual General Meeting and Extra-ordinary General Meeting.
  • All guarantees provided by the Company.
  • All loan agreements, overdraft facilities and banking arrangements of the Company.

Above mentioned list is not an exhaustive list and only key areas have been highlighted.

How MSB provides better assurance services?

  • Run by distinguished professionals having 10 years of experience in Assurance services.
  • Overseas experience in the field of Assurance services in US, Singapore, Canada, GCC Countries and India.
  • Venerated ICAI Chartered Accountants.
  • Subjective feedbacks to the clients.

We at MSB, perform due diligence audit with great care and confidentiality so that all merger/ acquisition transactions are performed swiftly. We use different analytical tools which helps in understanding the exposure and benefits that will be derived from the transaction of purchase or acquisition.

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