Accounting Due Diligence Playbook

Don’t know where to start? You’re in the right place. We’ve put together this accounting due diligence template to help you tackle one of the most daunting aspects of the deal. Book a playbook demo to explore — schedule a call with us and we will reach out to help you get started.

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Due Diligence

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.

Tailored for auditing a target’s cash flows and accounting practices
Requests are prioritized to focus on areas of due diligence to uncover potential financial issues and malpractices
Checklists are customizable to meet the specific circumstances of your deal

What Tasks does the

Accounting Due Diligence Playbook

Include

General Information

Corporate name
Address
Accountant's name
Attorney's name
Fiscal year
Capitalization
Bank references
Location of company records
Employee contacts
Tax audit records
Tax audit actions against company and terms

Sales and Earnings

Description of market
Gross and net sales for past year and past five years
Sales backlog and accounts receivable activity
Advertising and sales promotion cost
Earnings record and budget for past five years
Earning comparison with industry for past five years
Dividend and earnings record for past five years
Analysis of selling and general administration expenses
Sales comparison to industry
Sales compensation plan
Comparison of sales team to total revenue
Earning margin
Return on investment
Return on equity

Plant and Real Estate

Location
Real estate holdings
Real estate valuations and appraisals
Tax assessor real estate valuation
Acreage
Cost at purchase
Real estate fair market value
Building age and condition
Building depreciation methods rates and policies
Fire insurance
Title insurance to realty and policy
Equipment description
Equipment cost age condition efficiency and insurance coverage
Equipment reserves deprecation methods age rates and policies
Projected plant and equipment for next five years
Capital expenditure and repairs expense for past five years
Maintenance cost for all real estate
Sub leasing agreements with other contractors or tenants
Major maintenance issues in past five years
Major plant and equipment purchases in past five years

Assets

Ratio of cash to current liabilities
Age and number of accounts receivable
Provision for bad debts
Complete inventory
Inventory location
Inventory of finished goods by product
Work in progress by product
Raw materials by product
Pricing methods
Accounting methods and procedures
Analysis of notes receivable
Analysis of investments
Patents trademarks and copyrights
Current ratioInventory turnover ratio
Asset turnover ratio

Liabilities

Current state and federal tax status and payments
State and federal tax status and payments for past five years
Commitments for new building equipment and inventory
Long term loans outstanding
Long term loan terms
Short term loans outstanding
Short term loan terms
Debentures outstanding and terms
Pensions
Dividend and interest arrearages
Contingent liabilities
Warranties
Patent infringements
Compensation for services
Written off losses for past five years
Debt equity ratio
Interest coverage ratio
Fixed interest cover

Financial Data

Annual statements for past five years
Audit reports for past five years
Tax returns for past five years
Disposition of funds for past five years
Reports to SEC
Chart of accounts
Book, net, quick, liquidating and market value for past five years
Working capital for past five years and normal trade practices for industry
Inventory turnover for past five years
Interest charges for past five years
Exchange on which stock is traded and price chart for past five years
Price to earning ratio
Sales to accounts receivable ratio
Sales to inventory ratio
Sales to fixed asset ratio
Earnings to book value ratio
Debt service coverage ratio
Fixed interest coverage ratio
Debt to equity ratio
Operating leverage ratio
Financial leverage ratio

Terms and Projected Financials

Reason for sale
Price to be paid
Terms of payment
Financing Brokerage fees
Tax considerations
Current or past company sales agreements
Pro forma balance sheet
Projected earnings forecast
Projected Income statements
Projected income statements dated for the past five years
Projected cash flow statements
Projected cash flow statements dated for the past five years
Capital turnover ratio
Receivable turnover ratio

FAQ

What Is Due Diligence?

Due diligence is a critical aspect of any deal that begins very early in the process and can continue right up until closing. During due diligence, the potential buyer asks questions and requests documentation from the seller that helps the buyer understand the target company and its business. These requests are usually general to start and become more specific as the buyer develops a greater understanding of the target. Buyers use the information provided by the seller to evaluate the opportunities and risks associated with the potential transaction. It is important for sellers to stay organized throughout the process. Buyers often submit thorough, detailed request lists that require input from numerous members of the seller’s deal team.

What is a due diligence checklist?

As the name implies, a due diligence request list is a list of questions and requests for information and documentation that a buyer submits to a seller in order to learn about the target company, its business and its operations. The initial diligence request list tends to be broad and typically includes an extensive list of questions covering a wide range of subjects. This allows the buyer to gain a broad understanding of the target company and identify key issues that can be investigated and considered more closely. Because every deal is different, due diligence request lists have to be tailored to meet the needs of the buyer and address the unique circumstances of your transaction.
However, there is a variety of fundamental requests that are relevant in most deals. These are the types of requests that our templates are designed to address.

What Questions Does the Master Due Diligence Questionnaire Include?

Key considerations when using our m&a due diligence template

Our templates are drafted to provide an inclusive and wide-ranging list of initial due diligence requests. However, the templates, as well as the information contained therein, are not legal advice. They are not complete, and they are not specific to your transaction. The templates are designed to elicit general information from the seller that will provide the buyer with a broad overview of the target and it’s business and operations. You should review any template before using it, and it may need to be modified to ensure that it is suitable and relevant to your circumstances. Information provided by the seller will likely trigger additional questions that focus on specific aspects of the target’s business and issues identified during the due diligence process.

Are the requests in the template comprehensive?

No. Our Due Diligence Checklist is drafted to include typical requests that are relevant in most transactions. However, every deal and every target company is unique. Before utilizing any template, it is important that you review it with the help of your legal and other professional advisors to ensure that the requests are complete and tailored to the specific circumstances of your deal.

How to use the template with Dealroom

Start 14-day Free Trial of DealRoom and sign-up
Select a Master Due Diligence Template while creating a new room
Start assigning, adding to, and completing due diligence requests with needed documents by uploading them into the built-in virtual data room. The Requests tab is automatically populated with the requests from the due diligence template.

Can I change requests in this checklist or add new?

Every M&A process is different. Downloaders are urged to make these checklists their own by changing the providing information to better fit their needs.

Does this questionnaire provide all the necessary integration information?

This checklist was created by and for M&A professionals. It includes a comprehensive starting point for the integration process. However, every deal is different and may require additional requirements and tasks.

How to use this template with DealRoom?

Start 14-day Free Trial of DealRoom and sign-up
Select an Integration Template while creating a new workspace
Start planning, assigning, adding to, and completing integration tasks. The Requests tab is automatically populated with the tasks from the integration template.

Key considerations when using our m&a due diligence template

Are the requests in the template comprehensive?

How to use the template with Dealroom

Start 14-day Free Trial of DealRoom and sign-up
Select a Master Due Diligence Template while creating a new room
Start assigning, adding to, and completing due diligence requests with needed documents by uploading them into the built-in virtual data room. The Requests tab is automatically populated with the requests from the due diligence template.

Accounting Due Diligence Playbook

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This template comes with Single Project plan and above

Automate your process today with this M&A checklist.

Utilizing a checklist is just step one. In order to have a seamless process, M&A checklists need to be utilized with the proper deal workflow tool.

‍Request a demo to learn how you can turn a checklist into an automated process and workflow with the DealRoom platform. With DealRoom, you can tackle any type of due diligence.

Requests

Documents

Groups

Analytics

Overview

Progress

Timeline

Filter

All Requests

Export

Corporate name
Address
Accountant's name
Attorney's name
Fiscal year
Capitalization
Bank references
Location of company records
Employee contacts
Tax audit records
Tax audit actions against company and terms

Description of market
Gross and net sales for past year and past five years
Sales backlog and accounts receivable activity
Advertising and sales promotion cost
Earnings record and budget for past five years
Earning comparison with industry for past five years
Dividend and earnings record for past five years
Analysis of selling and general administration expenses
Sales comparison to industry
Sales compensation plan
Comparison of sales team to total revenue
Earning margin
Return on investment
Return on equity

Location
Real estate holdings
Real estate valuations and appraisals
Tax assessor real estate valuation
Acreage
Cost at purchase
Real estate fair market value
Building age and condition
Building depreciation methods rates and policies
Fire insurance
Title insurance to realty and policy
Equipment description
Equipment cost age condition efficiency and insurance coverage
Equipment reserves deprecation methods age rates and policies
Projected plant and equipment for next five years
Capital expenditure and repairs expense for past five years
Maintenance cost for all real estate
Sub leasing agreements with other contractors or tenants
Major maintenance issues in past five years
Major plant and equipment purchases in past five years

Ratio of cash to current liabilities
Age and number of accounts receivable
Provision for bad debts
Complete inventory
Inventory location
Inventory of finished goods by product
Work in progress by product
Raw materials by product
Pricing methods
Accounting methods and procedures
Analysis of notes receivable
Analysis of investments
Patents trademarks and copyrights
Current ratioInventory turnover ratio
Asset turnover ratio

Current state and federal tax status and payments
State and federal tax status and payments for past five years
Commitments for new building equipment and inventory
Long term loans outstanding
Long term loan terms
Short term loans outstanding
Short term loan terms
Debentures outstanding and terms
Pensions
Dividend and interest arrearages
Contingent liabilities
Warranties
Patent infringements
Compensation for services
Written off losses for past five years
Debt equity ratio
Interest coverage ratio
Fixed interest cover

Annual statements for past five years
Audit reports for past five years
Tax returns for past five years
Disposition of funds for past five years
Reports to SEC
Chart of accounts
Book, net, quick, liquidating and market value for past five years
Working capital for past five years and normal trade practices for industry
Inventory turnover for past five years
Interest charges for past five years
Exchange on which stock is traded and price chart for past five years
Price to earning ratio
Sales to accounts receivable ratio
Sales to inventory ratio
Sales to fixed asset ratio
Earnings to book value ratio
Debt service coverage ratio
Fixed interest coverage ratio
Debt to equity ratio
Operating leverage ratio
Financial leverage ratio

Reason for sale
Price to be paid
Terms of payment
Financing Brokerage fees
Tax considerations
Current or past company sales agreements
Pro forma balance sheet
Projected earnings forecast
Projected Income statements
Projected income statements dated for the past five years
Projected cash flow statements
Projected cash flow statements dated for the past five years
Capital turnover ratio
Receivable turnover ratio

Prepare for your due diligence

DealRoom’s accounting due diligence template is designed to help teams have an efficient due diligence process from the beginning. By providing your team with a pre-made professional diligence checklist, you can get a jump start on fulfilling diligence requests.

The template can act as a guide for common diligence requests categories such as legal, financial, HR, IT, commercial and more. And when you use a diligence tracker inside DealRoom, everything will be in one centralized space.