Due Diligence
Financial or accounting due diligence, also known as “due diligence,” is the preparation of economic financial reports conducted by an accountant at the request of a client or investor. The results of these reports are intended to assist in decision-making regarding the entity being reviewed, in which the investor intends to make an investment or a full acquisition. Typically, financial due diligence is performed on the financial data of businesses before the client decides to purchase or invest in a company or business. Additionally, such a review may be requested before granting credit to the entity or before entering into any other significant engagement.
The ultimate goal of financial due diligence is to present the client, who requested the review, with a financial and economic report of the entity being reviewed. This report also includes references to non-financial data, such as significant agreements made by the entity, contingent liabilities, exposures, threats, risks, and so on. In essence, the accountant transforms the financial reports of the entity into economic reports, presenting, for example, fixed assets based on their market value rather than their nominal depreciated cost, as is sometimes shown according to accepted accounting principles in Israel.
During the financial or accounting due diligence process, the entity’s financial reports are analyzed by an accountant. A thorough review is conducted of all the business’s significant liabilities and assets, including consultations with the business’s legal advisors to clarify its legal status. However, financial due diligence does not address the legal aspects of the entity, and therefore it is often recommended to conduct legal due diligence simultaneously, performed by specialized attorneys. Additionally, the business’s credit structure is analyzed, evidence is reviewed to support verbal claims made by the business owner to the client, protocols and agreements are examined, and any other relevant checks are performed to analyze the business’s condition from multiple significant angles for the client.
As a result, financial due diligence can sometimes help an investor decide to avoid or withdraw from a deal and/or investment, while other times it can lead to a decision to proceed with the deal, but at lower or more favorable prices. Alternatively, the deal may be presented as particularly attractive based on the reports, ensuring that the client benefits in any case. Therefore, it is always worthwhile and recommended to perform financial due diligence before investing in any business or company.
At our firm, Michael Weizman & Co. Financial Advisory & Accounting, accounting/financial due diligence is performed by the economic department, staffed by expert accountants holding academic degrees in economics and/or business administration. The reviews conducted by the department are highly professional and comprehensive, and our experience has shown that, on more than one occasion, our reviews have uncovered information that was not necessarily disclosed to the investor during the negotiation phase. Hence, their critical importance before making a significant move such as purchasing a business or company, or before granting credit.
An accountant from our firm will be happy to assist you with this service. Contact us with no obligation.
