Due Diligence And Investigation Flashcards
Areas where due diligence can take place
Commercial/operational due diligence Financial due diligence Tax due diligence Information systems due diligence Legal due diligence Environmental due diligence Personnel due diligence
Aspects to be covered in financial due diligence
BAR ke aandar TCS Ka financial manager audit kr rha hai
Business history Accounting policies Profit & loss Payment of taxes Cash flow Studying economic environment Financial projections Management and employees Net worth
Work approach to due diligence
Reviewing and reporting on financial submitted by target company
Assessing the business by a site visit
Working thorough due diligence process with the acquisitioning company or investor by defining key areas
Prepare an offer based on completion of due diligence
Conducting due diligence (process)
PRE DUE DILIGENCE PERIOD discussion with the client to gain understanding of the transaction Most appropriate scope of work Centralized coordination of project team Due diligence request list
DUE DILIGENCE PROCESS AND NEGOTIATION PROCESS
working offsite and onsite
Flexible approach even after project kick off
Q&A process with management
Report drafting
CLOSING AND POST CLOSING PROCESS
review or review of closing documents prepared by the target
Review of other post closing transactions
OR
Start with an open mind Get the best team of people Get help in all areas of due diligence Talk to customers, suppliers, partner or employees Risk management approach Comprehensive report details
Auditing vs investigation
REASON
R- reporting E- evidence A- accounting policies S- scope O- objective N- Nature
Steps in investigation
DETERMINATION OF OBJECTIVE AND ESTABLISHMENT OF SCOPE (absolutely clear of scope and take written instructions covering the object )
INVESTIGATION PROGRAM (Wrt nature and structure of business and should be flexible enough for subsequent changes)
Collection of evidences
Analysis and interpretation of findings
Reporting of findings (to the point report, fully clear and direct, linkages in report, assumption taken, nature, objective and limitation of scope and restriction imposed)
General approach for investigation
Clarity of terms of reference - clear, unambiguous and effects of limitations on investigation
Scope of investigation - enable him to locate limitation not clearly mentioned in terms of reference
Period for investigation - depends on above 2
Framing of program - collection of evidences and flexible program
Using the work of expert - engineers or lawyers or any other professional
Legal requirement and investigation report - funding should be completed and exhaustive and keep conclusive evidence relied upon in the process
Areas to be covered in investigation on behalf of incoming partner
History of the firm Deed of partnership Record of profitability Assets and liabilities position Order at hand or executioners orders Terms of loans or finance Composition and quality of personnel Reason for offering partnership Record of. Capital employed and rate of return Goodwill calculation
Collection of information when investigating for bank for advances
Purpose for which loan is required
Manner in which borrower planned to invest the amount of loan
Schedule of repayment submitted by the borrower , particularly, the assumptions made therein as regards to amounts of profits and amount of profit in cash that would be available for repayment of loan borrowed from bank
Financial standing and reputation
History of growth and development
Authorization of borrowing
Steps to be taken by investigator to investigate the information collected in relation to investigation is true
Preparation of condensed income statement
Computation of relevant ratios
Break up of annual sales
Schedule of assets and liabilities
Several indications of possible fraud
Discrepancies in accounting record ( non recording, partial recording, incorrect recording or delayed recording)
Conflicting or missing evidence (missing documents, altered documents & discrepancies between internal documents and confirmation)
Unacceptable management responses (denial of access, undue time, unusual delays & unwillingness)
Other indication like ac policies not in harmony with other industry players
