What is Due Diligence?

The term due diligence is often applied in cases of business transactions, litigations and in hedge funds and foreign exchange trading scenarios. But what is due diligence? What are the formal implications of these two words coined together in this particular sequence? Well, the term due diligence has more than one specific implications when it comes to be used with relation to different fields.

However, the overall inference of this term pertains to adhering to a certain degree of prudence or standard of care or caution in the discharge of a particular duty. It also means undertaking a particular activity by being fully aware of all the risks and possibilities of such duty or activity before assuming any responsibility.

Let's now take a detailed tour of how the titular question is answered by the various different fields of its application.

In the following paragraphs, the meaning of due diligence is being discussed from the point-of-view of each field in which it is applied under certain circumstances.

In terms of business transactions and commercial dealings, due diligence covers the scope of mergers, acquisitions, future and present financial decisions, decisions based upon shareholder value analysis and fully understanding the entire impact of any merger, acquisition, amalgamation or takeover.

In this light, the process of due diligence is carried out in the form of nine audits - financial audit, compatibility audit, reconciliation audit, macro and legal environment audit, management audit, production and marketing audit and information systems audit.

Shareholder value analysis is also a part of the due diligence process in the due course of such business transactions.

Hedge funds and forex dealings are tricky waters and one who is courageous enough to dabble in these instruments must be ready with all facts and must be aware of all risks before taking the plunge.

Showing due diligence in this case would include taking a comprehensive snapshot of the fund, a close examination of the disclosed investment strategy, a carefully scrutiny of the historical record of the funds'/foreign exchange's performance/ rate stability in the market, a detailed analysis of the fund's complete portfolio, etc.

The interested party must also get a copy of the audited financial statements of the fund, carefully go through its various details and terms, evaluate the risk factors and ask for a complete valuation besides checking for any kind of registration if such is required.

In terms of philanthropy, the investor must undertake a careful and detailed research of the financial health and organizational capacity to stand by a grant making decision of the enterprise in which he is interested for purpose of funding.

Object data analysis and a detailed study of organizational stability from an important part of a comprehensive due diligence review for the purpose of corporate philanthropy.

With respect to cases of civil litigation, the principle of due diligence demands that reasonable investigation must go into the matter at hand before any kind of relief or verdict is requested. It must be established that the facts and information provided with relation to a petition are accurate and true to the knowledge of the petitioner as well as the plaintiff.

Due diligence is the only means of defending for a crime that involves an external or objective element and is committed without a guilty intention.

In such a case, the onus lies upon the defendant to prove beyond a reasonable doubt that everything that could, possibly, be done for preventing the crime from being committed was undertaken by the defendant and proofs or witnesses of such due diligence measures must be produced.

The principle of due diligence is also present in the activities undertaken under the Foreign Corrupt Practices Act by Federal bodies for keeping a track of all overseas relations. Information security, commercial property dealings and supplier quality engineering are also such fields which strictly adhere to and enforce the due diligence clause.

I guess that answers what due diligence is simply without dragging you too much into the confusing details.