Due Diligence
Due Diligence is a thorough investigation of legal, tax, financial and other aspects of company’s activity.
The main objective of Due Diligence is to avoid or mitigate business risks of overcharge business acquisition, transaction invalidation, lawsuits starting, claiming to property, and etc.
Due Diligence is usually carried out before:
- business buying or selling
- the conclusion of association agreement between partners
- business credit extension
- companies mergers or acquisitions
- in other cases associated with the significant investment risks
Desonn Partners offer this service on the following aspects of company’s activity:
- Strategic Due Diligence
- Financial Due Diligence
- Legal Due Diligence
- Tax Due Diligence
Strategic Due Diligence
Strategic Due Diligence is an investigation of company’s strategy and management system efficiency.
The following issues are analysed in strategic Due Diligence:
- Brief industry and market review
- Company’s competitive position in the market
- Marketing strategy and growth potential
- Marketing and sales management system
- Process of making and realizing strategic decisions
- Company’s top-management
Financial Due Diligence
Financial Due Diligence is an examination of the company’s financial management system, which includes the deep analysis of internal control system, documents circulation system, company’s financial and management accounting with the aim to represent information about the entity’s key assets and liabilities, profitability of main activities, cost structure, etc.
This type of Due Diligence involves the following:
- Express-inventory of key assets
- Internal control system analysis
- Analysis of current documents circulation system
- Incomes analysis (business segments and key contractors)
- Expenses examination (cost elements and business segments)
- Key assets and liabilities analysis
- Credit portfolio and mortgages analysis
- Cash flow analysis
- Examination of started investment projects close out
- Post-balance sheet events
- Information gathering on client’s demand
It is important while carrying out the financial Due Diligence to disclosure post-balance sheet events, which can result both in substantial adjustments of the financial reporting and influence on client’s decision-making. The results of the conducted examination are valid at the reporting date, if the reverse is not indicated in the report.
Legal Due Diligence
Legal Due Diligence is an expert examination of company’s statutory documents and contracts, company’s activity analysis on conformity to current legislation, and examination of its management legal authorization.
Legal Due Diligence includes examination of:
- Business civil status
- Compliance with corporate legislation at the shares / part of business selling, and also at providing of sizeable transactions with legal entities’ property
- Rights on objects of movable and immovable properties, existing encumbrances and restrictions
- Rights on the objects of intellectual property
- Compliance with labour legislation
- Compliance with industrial and environmental protection legislation
- Legality of carrying on business requiring licensing and/or certification
Tax Due Diligence
Tax Due Diligence is an examination of the company’s most significant tax accounting items with the aim to disclose information about the company’s current tax accounting system, company’s tax burden, tax law violation and possible risks of tax liabilities increasing.
The purpose of tax Due Diligence is identification, summarizing and, if possible, evaluation in money terms all company’s existing tax risks, unaccounted and / or possible tax liabilities. This service involves the following activities:
- Company’s tax accounting system analysis
- Compliance examination of company’s significant contracts to tax legislation requirements
- Tax aspects in the company’s transactions with residents and non-residents
- Examination of transactions with related parties and transferring pricing
- Tax issues examination of non-ordinary transactions
- Risks evaluation of possible tax liabilities charging
- Analysis of tax charges and social deductions from wages
- Accuracy examination of the other tax liabilities calculations
- Information gathering on client’s demand
As a rule, Due Diligence is provided during 3 – 5 weeks depending on subject complexity and it consists of the following stages:
- Preparation stage: At this stage the goals of Due Diligence are determined, client's Requirements Specification is designed, DD program and list of the inquired information are developed, confidentiality agreement is signed, client’s responsibility for given information is agreed. Duration of the stage is 2 – 5 days.
- Company’s examination: The consultants’ team conducts information collection and verification directly in the Company’s office based on the agreed program. The given documents and reports are analysed. Interviews are conducted with key managers. Information is collected from the external sources. Duration of this stage is 10 – 15 days.
- Report preparation: At this stage consultants analyse obtained information, the query of additional information is possible on occasion. A structure of report is flexible, oriented to the client’s purpose. Report results can not be used otherwise than in accordance with the aims and tasks, stated in Agreement between Client and Consultant. Duration of the stage is 7 – 10 days.
- Results presentation to client: The results of the carried out Due Diligence are presented to the Client emphasizing on the key risks of transaction realization. Consultants do not express their opinion in relation to reliability of the financial reporting. The Client of Due Diligence should evaluate independently acceptability of risks based on obtained information.
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