Due diligence - procedures

In this lesson

1. 0:00 Acquisition due diligence procedures overview
2. 0:14 Analysing target company financial performance
3. 0:30 Assessing accounting policies and integration feasibility
4. 0:44 Evaluating profit and cash flow forecasts
5. 1:17 Reviewing contracts and asset registers
6. 2:03 Investigating legal and tax compliance issues
7. 3:13 Understanding industry-specific risks
8. 3:42 Due diligence conclusion types and limited assurance
9. 5:05 Limited assurance versus reasonable audit assurance

About this lesson

Due diligence is a direct reporting assurance engagement that helps acquirers identify financial, legal, and operational risks before completing a purchase. The core procedures include: analysing historical financial statements to assess performance and position; comparing the target's accounting policies with the acquirer's; reviewing profit and cash flow forecasts for reasonableness (bearing in mind the target may have incentive to overstate figures); examining contracts to verify claims and check expiry dates; inspecting asset registers for completeness, existence, and valuation; reviewing legal correspondence for compliance issues or disputes; checking tax authority correspondence for disputes or potential liabilities; and researching industry-specific risks through trade publications and research. A key distinction from audit work is the nature of the conclusion. Due diligence reports express limited assurance using negative wording—for example, "based on our review, nothing has come to our attention"—rather than the reasonable assurance opinion issued in an audit report. This reflects that review procedures (mainly inquiry and analytical review) provide less comprehensive evidence than full audit procedures. This content is relevant to assurance modules across ACCA and CIMA qualifications, particularly where you study direct reporting engagements and audit procedures beyond the statutory audit.

Duration: 6m