Accounting Due Diligence Checklist
Whether an organization is for profit or nonprofit; employs 1 person or 100,000 people; is headquartered down the street or on the other side of the world, they all probably heavily depend on the same element: cash flow. Cash flow is a major signifier of the health of a business or organization. Because of this, performing proper accounting due diligence is a crucial preemptive measure to closing any investment deal, merger, or acquisition.
One of the most intimidating aspects of accounting due diligence is knowing where to begin. Fortunately, DealRoom’s team of seasoned professionals crafted an Accounting Due Diligence Checklist that is applicable to virtually any company’s cash flow system.
What Tasks does the Accounting Due Diligence Checklist Include
If you are planning on investing in a company, it is crucial to have a comprehensive knowledge of their leadership, business practices, and employees. The General Information tab of our Accounting Due Diligence Checklist will give you a holistic overview of the company and their accounting practices. Information required include general company data, tax documents, accounting procedures, and bank references.
ITEMS IN GENERAL ACCOUNTING DUE DILIGENCE INCLUDE:
Sales are the bread and butter of earning an income and sustaining a business. Investigating the sales facet of a business gives you an authentic look at the growth and sustainability of an organization. Information required include market and sales data, earnings records, and calculations such as ROI.
ITEMS IN SALES AND EARNINGS DUE DILIGENCE INCLUDE:
Prior to undertaking a new investment, you want to ensure that the organization’s physical facilities are healthy and operating. This can help you predict costs and gauge resale value of property and equipment. Information required include leases, insurance coverages, appraisals, and costs of equipment and maintenance.
ITEMS IN PLANT AND REAL ESTATE DUE DILIGENCE INCLUDE:
Since assets facilitate running a business, it is essential to examine a target company’s during due diligence. Information required here include copyrights, patents, trademarks, specs on accounts such as inventory, work in progress, and raw materials, as well as calculations and valuations such as current ratio, fixed asset ratio, and asset turnover.
ITEMS IN ASSETS DUE DILIGENCE INCLUDE:
Liabilities cover all of the legal responsibilities, obligations, and debts of an organization. By examining an organization’s liabilities, you can have a better understanding of what debts you will inherit and if you will be able to sustain them. Information required here include loan documents, warranties, dividend agreements, and calculations and valuations such as debt equity ratio, interest coverage ratio, and fixed interest cover.
ITEMS IN LIABILITIES DUE DILIGENCE INCLUDE:
Financial data contain all of the vital information to appraise an organization’s financial health. This can backup or refute a target company’s claims and provide feedback for what areas need improvement. Information required here include financial statements, audit reports, reports to SEC, historical ratios and valuations, and calculations such as price to earnings, sales to accounts receivable, earnings to book value, and financial leverage.
ITEMS IN FINANCIAL DATA DUE DILIGENCE INCLUDE:
Terms and projected financials concerns everything for the sale of the target company. This includes the target company’s price and other associated fees as well as future projections.
ITEMS IN TERMS AND PROJECTED FINANCIALS DUE DILIGENCE INCLUDE:
This accounting due diligence questionnaire was created by and for M&A professionals and includes a comprehensive starting point for any diligence process. Every deal is different however and may require additional requests or diligence areas.
This accounting due diligence template may be used as simply the downloadable Excel sheet. However, it operates most efficiently when utilized in conjunction with DealRoom’s dynamic due diligence tool. We offer a secure space to conveniently request, collect, and house data. Additionally, DealRoom offers numerous capabilities and security features to streamline the process.