Due Diligence Audit in the UAE: The Purpose and Types

Typically, we associate the word “auditors” with professionals who conduct an annual audit of a company’s financial statements. However, the role of auditors is not restricted to the adjusting of financial statements alone. The key role played by audit firms in Dubai in conducting due diligence is often underrated. A due diligence audit can be defined as an examination of a business before signing a contract or buying a business.

The analysis made by the auditors in Dubai during the due diligence could be used for a potential objective for the merger, acquisition, privatisation, or similar corporate finance transaction, usually by a buyer. For instance, if you are planning to invest in an emerging startup, you can hire audit firms in Dubai to carry out a due diligence audit on the targeted company to help you make a better investment decision.

However, the focus of a due diligence audit is not restricted to financial due diligence alone. Auditors in Dubai who carry out the due diligence process cover a wide range of areas. Let’s explore the different types of areas covered under due diligence audit in the UAE.

Financial Due Diligence 

Financial due diligence is often nicknamed accounting due diligence in professional circles.  During a financial due diligence audit auditors in Dubai provides the potential investors with an understanding of a company’s sustainable economic earnings, historical sales and operating expense trends, historical working capital needs, key assumptions used in management’s forecast and key personnel and accounting information systems.

The auditor examines a company’s transaction data, historical trade results, cash flow & balance sheet to validate the financial statements. Conducting financial due diligence audit in the UAE enables the investors to understand the financial risk & forecast of the company. The objective of financial due diligence also covers the funding requirements of a business in the future.

M&A due diligence 

Merger and acquisition (M&A) due diligence is initiated when two businesses intend to merge into one, or when one company is considering whether to acquire another. Auditors in Dubai carry out M&A due diligence to help a buyer determine whether to proceed with the proposed deal. M&A due diligence helps the buyer to understand likely risks, and also plan for the acquisition of the target company without any worries.

Commercial due diligence 

Investors undertake commercial due diligence with the help of audit firms in Dubai to measure a company’s commercial potential. By carrying out commercial due diligence, the investors can obtain a complete overview of the target company’s internal and external environment. This is quite different from financial due diligence, which only assesses the financial health of a company.

Here, the audit firm analyses a company’s performance, the likelihood that the business will meet its targets, and highlights potential problems that may occur as a result of an acquisition. A potential buyer gets in-depth knowledge of the target company and the market in which it is positioned. A commercial due diligence audit helps the prospective buyer to make an informed decision, and highlight any potential risks inherent in the target company.

Customer Due Diligence 

When forming new business relationships, companies will often want to establish if a prospective customer is involved with illegal practices such as money laundering, or funding terrorist organisations. This type of due diligence minimises the risk of conducting business with a new customer. A customer due diligence audit is becoming more relevant since the UAE introduced the Anti-Money Laundering and Counter Financing of Terrorism (AML-CFT).

Operational Due Diligence 

Operational due diligence audit deals with the assessment of non-financial factors of a target company. It helps the prospective buyers to have a better understanding of business operations, organisational structure, internal process & system, performance evaluations of the management team and HR process of a target company.

How can Jitendra Chartered Accountants Help Investors? 

A due diligence audit helps investors to evaluate and understand a potential acquisition, partner or buyer. In the business environment, due diligence enables organisations to investigate a prospective investment to gather as much detail as possible. The information is then used to determine the attractiveness of the investment. Investors can ensure they make better buying decisions with the help of the best audit firms in Dubai such as Jitendra Chartered Accountants (JCA). JCA is one of the few audit firms in the UAE that completed more than 20 years of service. We offer all kinds of due diligence audit services to help you in deciding to merge or acquire a company in the UAE without getting into any kind of post-transaction woes.