Due Diligence Task
A Due Diligence Task is a risk management investigation task that involves conducting a comprehensive appraisal.
- Context:
- It can (typically) involve assessing the financial, legal, and operational risks associated with an investment decision.
- It can (typically) be before an act with a certain standard of care.
- It can (often) include reviewing financial statements, legal documents, and operational processes.
- It can be conducted to ensure compliance with regulatory requirements and industry standards.
- It can (often) involve specialists in various fields, including finance, law, and engineering.
- It can vary significantly in scope and depth, depending on the complexity of the transaction and the level of risk perceived by the investigating party.
- It can include quantitative and qualitative assessments
- It can be a critical component in the decision-making process, providing key insights that can influence negotiations, pricing, and, ultimately, the decision to proceed with a transaction.
- ...
- Example(s):
- One to uncover any hidden liabilities or risks associated with a potential company acquisition.
- One to ensure that a candidate investment in a startup has a viable business model and is a good fit for their investment portfolio.
- One by a bank on a borrower to evaluate their creditworthiness and the risks involved in granting a loan.
- One by a transactional contract lawyer to ensure all legal aspects of a deal are in order, such as compliance with laws, the legitimacy of contracts, and the rightful ownership of assets.
- ...
- Counter-Example(s):
- A routine financial audit conducted by an accounting firm for annual reporting purposes.
- A personal background check for employment purposes.
- See: Risk Assessment, Financial Analysis, Legal Audit, Operational Review, Compliance Check.
- See: Mergers and Acquisitions, Contract, Standard of Care, Legal Obligation, Defense (Legal), Practicing Law Institute.
References
2024
- (Wikipedia, 2024) ⇒ https://en.wikipedia.org/wiki/Due_diligence Retrieved:2024-2-26.
- Due diligence is the investigation or exercise of care that a reasonable business or person is normally expected to take before entering into an agreement or contract with another party or an act with a certain standard of care.
Due diligence can be a legal obligation, but the term more commonly applies to voluntary investigations. It may also offer a defence against legal action. A common example of due diligence is the process through which a potential acquirer evaluates a target company or its assets in advance of a merger or acquisition. The theory behind due diligence holds that performing this type of investigation contributes significantly to informed decision making by enhancing the amount and quality of information available to decision makers and by ensuring that this information is systematically used to deliberate on the decision at hand and all its costs, benefits, and risks.
- Due diligence is the investigation or exercise of care that a reasonable business or person is normally expected to take before entering into an agreement or contract with another party or an act with a certain standard of care.