Due Diligence and Risk Factors
Due diligence is the process of assessing the risks and opportunities for an investor looking over a property before buying or an acquiring firm looking at the tax position of a prospective firm prior to completing a merger. It is also important to share the results with all stakeholders and ensure they know how to limit any liabilities.
Financial institutions and businesses perform enhanced due diligence on both corporate and individual clients to assess and identify the risk. In this type of investigation additional steps are made to verify the identity of a customer and investigate the nature of complicated transactions. These additional steps can include analysing the source of funds, examining business relationships and assessing the purpose of particular transactions.
This process often involves a combination of advanced technology and expert knowledge. Machine learning algorithms and artificial intelligent can simplify due diligence by automating document reviews as well as conducting predictive risk analyses. These technologies can also assist in the identification of suspicious activity by analyzing vast amounts of information from various sources, including transaction history, adverse media reports, and many more.
Another critical aspect of EDD is the use of internal and external resources to conduct a thorough investigation. This could include experts in legal, industry specialists and accounting firms that can examine the financial records of a company to verify accuracy, and detect accounting irregularities. External verification is crucial when evaluating complex transactions as well as highly regulated sectors like banking and finance.