Due Diligence Audit Checklist

In simple terms, Due Diligence can be explained as an internal audit conducted for a company where every process is audited based on a preplanned checklist to understand its potential and any underlying risks associated with it. Due Diligence is not limited to financial audits but runs across Human Resources, Information Technology, Operations, and even the legal department.

Why Is Due Diligence Essential in the UAE?

Taking precautions is better than regretting the step of making the wrong investments. Companies are known to window-dress their assets and hide their shortcomings regarding mergers and acquisitions or sales. However, a hired third-party audit firm in Dubai or the UAE. must conduct a due diligence report and provide it to a client who may be on the buyer's or seller's side.

The UAE is a hub for investors and soon scale up as a start-up haven for several tech and non-tech companies that provide great returns. For an eye-catching investment opportunity, there is a high demand for Audit companies in Dubai to conduct due diligence on the buyer's or investors' side and even the seller's side. A due diligence report allows both parties to make an accurate decision about the business transaction, making it even more successful.

Who Conducts the Due Diligence Audit?

Audit firms in Dubai have a team of forensic accountants and equity research analysts responsible for conducting the due diligence audit. A due diligence audit is different from a regular audit in several ways. They specialize in forensic research and audits that help detect frauds, hidden transactions, Incorrect representation of data, and manipulated data. All of these, when remaining undetected, are the underlying cause of bad investment decisions. 

An equity research analyst or forensic accountant is responsible for providing an in-depth analysis due diligence report that includes the following:

• Market Capitalization of the company and market & industry competition
• Revenues and profit margins
• Valuation study includes price-to-earnings ratio, price-making to growth ratio, price-to-book ratio, etc. The valuation study is critical in due Diligence as it not only studies the historical and current data but also provides transparent future earnings and a realistic projection of the company's performance.
• Balance sheet evaluation- Debt to equity ratio, creditors, aging of the receivables, and payables.
• Stock evaluation
• Short-term and long-term risks in a complex due diligence study where the data of EBITDA (Earnings before interest, tax, dividends, and amortization) is analyzed.

Read more: How to Audit Next-generation digital assets in the UAE?

Here Is the Due Diligence Audit Checklist for 2024

1. Financial Due Diligence audit
2. Operational Due Diligence audit
3. Human Resources Due Diligence audit
4. Legal Due Diligence audit

Financial Due Diligence Audit

Financial due Diligence is the most challenging and critical due diligence audit. It is an essential audit and cannot be overlooked while planning an M&A or sale investment. A company will typically be audited for:

• Financial statements are current and historical data.
• Filing of tax returns and tax study, including the future impact of taxation policies implied in the country.
• Changes in accounting policies
• The working capital study, operational statistics
• Revenues and potential revenue streams in the future, product analysis, commercial terms with partners and customers
• Assessment of short-term and long-term Creditors and debtors
• Internal controls and financial policies of the company
• I.T. infrastructure study for financial reporting

Operational Due Diligence Audit

In operations is the audit of the company's productivity in producing its goods and services. It involves the audit of its machinery, physical stock, the technology used, and various Standard operating procedures followed by the operations department.

This includes:

• Audit of the past 5 to 7 years of supply and demand of the product
• Shareholding in the company's construction.
• Study of the company's partners and the CEOs of the company
• SWOT analysis of the operation and reporting any major or minor shortcomings
• Product analysis and its demand in the future and verification of the projection shown by the seller on paper.

Read more: Financial Statement Audit Overview

Human Resources Due Diligence Audit

Every company in the UAE is obliged to abide by the local laws when it comes to providing essential services such as visas and insurance of Emirates ID to the company's employees. Due Diligence audit identifies the gap between the HR department and the employees. The health policies, workers' compensation policies, etc. A thorough study about the right hired employees to perform critical tasks or if the company is overstaffed or understaffed.

The due diligence audit also aims to understand the employees' remuneration and leave policies that directly affect their constitution at the workplace.

Legal Due Diligence Audit

While running a company in the UAE, several legal procedures must be adhered to. These procedures vary depending on whether the company is a mainland company or a free zone company. Due Diligence in the legal department ensures to list of all the existing and future legal threats to the company. It conducts verification of international standards of the company and highlights ongoing legal cases of the company and their statuses. 

Hiring an Audit Firm in Dubai to Conduct Due Diligence

Having extensive experience in conducting due diligence, Leading and premier audit firm in Dubai. An expert with a forensic accounting and equity research background will be assigned for your due diligence audit. Audit firms in Dubai have a proven record of yielding top-notch results for companies forming mergers, acquisitions, or sales. Thus, do not hesitate to contact us today and we shall be happy to assist you with expert due diligence audit services.