3 Key Steps in Conducting Due Diligence & Transparency Analysis on a Company

One of the legislative innovations with which the lawyer will have to come to terms are the strengthened rules of financial monitoring. Check three steps in conducting due diligence in the company in the article below.

What Is Due Diligence and Why Is It Carried Out?

Nowadays, the need for risk management in their activities becomes obvious to market participants. The requirement of “transparency” when interacting with partners is no longer a tribute to fashion but a norm that is relevant both for large companies leading the market and for young businesses aimed at successful development.

Financial monitoring is a set of financial operations control measures that are subject to monitoring and include identification, verification of clients, record keeping of such operations, and collection of information about their participants. Its task is to monitor risky financial operations and detects attempts to legalize funds obtained illegally or to finance terrorism.

Let’s start with the fact that due diligence is actually the same study and analysis of the client as during due diligence and compliance procedures. From this point of view, conducting an inspection is not reduced solely to the lawyer’s duty to the state. What exactly are the circumstances that require such an inspection?

Conducting due diligence or due diligence is increasing interest in business owners. During acquisitions, mergers, and acquisitions of companies or investments, for example, in securities, a person must protect himself and his funds as appropriate. For this reason, anyone who works with business partners should familiarize themselves with the most important key data by conducting partner due diligence before closing a deal or making any other important decision.

Which Are Three Key Steps in Conducting Due Diligence?

The beautiful phrase due diligence is well known to those who, by the nature of their activities, are faced with audit and consulting services – business owners, company executives, and employees of consulting firms themselves. In world practice, due diligence is a very common procedure since the requirement for transparency when interacting with a partner is one of the main ones in serious business.

Among three key steps in conducting due diligence are:

1)     income statements;

2)     records of accounts receivable and payable;

3)     balance sheets and tax returns, including business activity statements (last 3-5 years).

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Any company that intends to enter into an important contract, or an investor planning to acquire a business, wants to be completely confident in the profitability and security of the future transaction. This confidence can only be based on reliable and comprehensive information about a potential counterparty. It is for the collection and analysis of such information that a special comprehensive check is carried out, which in world practice is called due diligence.