04 Sep Due Diligence and Risk Factors
It’s a buyer conducting a property inspection before making the purchase, or an acquiring firm analyzing the tax position of a target company prior to completing a merger, due diligence is all about assessing the risks and opportunities. It’s also about effectively communicating the results to stakeholders and ensuring that everyone understands how to minimize any liability.
Financial institutions and businesses conduct enhanced due diligence (EDD) on individuals and corporate clients to determine and assess the risk. In this type of investigation further steps are taken to verify the identity of a customer and delve into the nature of complex transactions. The additional steps could include analysing the source of funds, investigating business connections and analyzing the reason for particular transactions.
This process is often an amalgamation of modern technology and a specialized expertise. For instance machine learning algorithms and artificial intelligence could help streamline the due diligence process by automating document review and conducting predictive risk analysis. These technologies can help to identify red flags, potentially suspicious activity, and other information by analyzing huge amounts of data from multiple sources like transaction histories or negative media reports and more.
Another vital aspect of EDD is the utilization of external and internal resources to ensure a thorough investigation. Accounting firms, legal experts, and industry specialists can all examine the financial records of a company to determine accuracy and find accounting irregularities. External verification is crucial particularly when evaluating complicated transactions in highly regulated fields such as banking and finance.
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