You might require a due diligence audit to fulfil a legal obligation, but by and large the term is applicable to voluntary investigations. The audit enables the management to assess the present financial condition of their company while unveiling any issues in the businesses and thus allows them to act on the said information and take appropriate measures to rectify the course of the business.
Usually, the need for a due diligence audit arises when a company gets into merger & acquisitions of business and wants to identify the financial performance, figure out earning capabilities, know current financial position, understand prospective customers, and learn competency level of the target company’s management. On acceptance of an offer to acquire a business, the seller should allow the prospective buyer to conduct its due diligence investigations on the target company. This investigative process mainly revolves around legal, financial and operational areas. The extent of the procedures required under each area will be decided by the size and nature of the individual transaction. The due diligence report prepared by the due diligence audit firms helps in decision making, keeping all risks and opportunities in view.