What is Financial Due Diligence?
Financial due diligence is the appraising and improvising the financial activities of the entity in order to ensure that there is no hidden liabilities or no uncovered costs in any manner of the target company.
Types of Financial Due Diligence
1. Taxation Due Diligence – Covers the scope of direct and indirect taxes compliances not limited to Litigations, Notices, Orders,
Returns, Payments Direct taxes include compliances not limited to Income tax Act 1961,Wealth tax act,TDS with respect to Returns Filing,Notices,Orders,Pending litigations and any other related activity which is related financial and taxation compliance
Indirect taxes include Service tax,GST Acts with respect to any supplies of services in the financial statements are under the ambit of GST or Service tax preview; Like Processing fee of loan attracts GST/Service tax
2. Financial Reporting Due Diligence – Covers the scope of classification, reporting in a correct manner
Major aspects are as follows covered:
(i) Loans and advances – Review of activities, documents, vouchers,
papers, titles, agreements or other related documents which is necessary to support the evidence of the loan/advance vis-a-vis compliances in a timely manner not limited to reporting
(ii) Investments – If any investment is traded as Futures and Options, then it needs to be classified in Inventories other than Investments as its a pre requisite of reporting standard
(iii) Bank Accounts – Review with respect to any unusual/non ordinary transaction in the statements of the entity so that no uncovered liability would arise in future
3. Miscellaneous – Covers the scope of any additional observation which is not present in taxation or financial reporting due diligence
Like Any Regulatory authority Notices Served on Entity which can affect the financial position of the entity