Problems in Due Diligence

Problems Faced By an Organisation When Conducting Due Diligence in A Global Context

Problems Faced By an Organisation When Conducting Due Diligence in A Global Context

Introduction

This paper discusses the problems faced by companies while conducting due diligence in it. Due diligence is a mission that explores the exercise which is created to provide information needed to fulfil a goal or objective. Due diligence process cannot be performed in a rush. Many firms have the belief that the due diligence process should be performed in a rush so that it can be a part of outsourcing contract. It should not be the real practice to perform due diligence process, as it is important for the organizations that the process of due diligence should not be performed in rush (Anderson, 2001, p. 56).

Discussion

Due diligence is a fact-finding mission or investigative process. Distressed organizations need this process to address an issue of fundamental importance to all stakeholders: whether to liquidate the organization or attempt a turnaround (Argyris, 2007, p. 11). The parameters necessary for turnaround success are core product, financial resources and competent management.

The organization in decline represents a special challenge to the process of due diligence. It is a harsh, extreme, ambiguous and exigent environment. In this setting, time is short, and information systems are likely impaired. This creates difficulties in gathering and assessing data. It is crucial to view all data with significant scepticism (Summers, 2004, p. 82).

The fact that institutional investors often align themselves with management is not, in itself, sufficient proof that divided loyalty exists, or that extraneous interests drive voting decisions. After all, most shareholders vote with management on most issues. This is expected; investors would not purchase or continue to hold stock in firms whose management they perceive as being incompetent or disloyal. Therefore, the fact that fiduciaries typically vote with management is neither surprising nor is it indicative of a failure to fulfil a duty of loyalty or due diligence obligations (Srivastava, 2008, p. 253). An exception, however, is provided by votes involving antitakeover amendments. Because these measures have been found to be associated with negative stock price reactions, fiduciaries, ostensibly acting in the interest of beneficiaries, would be expected to oppose them.

The due diligence audit is to acquire a target, made by the potential buyer, to limit certain "risks of acquisitions" inherent in the target (Onich, 2010, p. 26). It effects downstream of the "letter of intent" in the process of acquisition. The acquisition audit allows the purchaser to verify that the points, that have been negotiated (accounting items, profitability,) with the target in order of value, correspond to reality (Anderson, 2001, p. 56). More rarely, the due diligence is completed by a strategy resulting from the acquisition of the target and knows all the risks and potential of the acquisition.

When entertaining a transaction, most firms understand the necessity--and value--or financial and tax due diligence. Information technology due diligence, on the other hand, is an often overlooked and underrated ...