Main Services Due Diligence

Due Diligence

Due diligence gives a fair representation of investment object including investment risks, independent appraisal and various other factors, gives recommendations to improve and enhance the efficiency of the company’s corporate structure, sales and marketing systems, administrative and financial management, accounting and tax reporting and legal practices.

Due diligence provides comprehensive inspection of lawfulness and commercial appeal of a planned transaction or an investment project. The comprehensive nature of information provided by due diligence allows investors to fully evaluate advantages and disadvantages of future cooperation.

A proposed transaction is assessed based on the past, present and expected future performance of acquired business and identification of potential risks:

  • acquisition of an enterprise (shares) at an overestimated value;
  • acquisition of an enterprise:
    • with an inefficient management and planning system;
    • with an inefficient management and planning system;
    • with an inefficient management, accounting and tax reporting systems;
    • with excessive and poorly qualified staff;
    • with outstanding liabilities and debts;
  • failure by an enterprise-debtor to perform its obligations;
  • loss of property: arrest or injunctive measures;
  • damage to intangible assets, for instance, goodwill;
  • initiation of litigation and their unfavorable consequences;
  • transaction invalidation;
  • imposition of tax, administrative or criminal liability;
  • corporate conflicts (takeover, merger, legal battles);
  • loss of intellectual property (trademark, industrial design, invention, know how, commercial idea, business plan, etc.);
  • risk of losing administrative resources (legislative changes, resignation of person responsible for the project success, criminal prosecution);
  • unscrupulous actions of competitors;
  • inability to receive or loss of permits, licenses, approvals, etc. material for the project, transaction, etc.

Legal Due Diligence

The main objective of legal due diligence is to identify legal risks which may potentially affect economic activity of a company in the future. Specialists of MEF-Audit analyze legal aspects of the company’s operation regarding its compliance with Russian laws:

  • analysis of constitutional documents and their legal status;
  • analysis of corporate management documents, decisions of collective managing bodies and primary powers of attorney;
  • analysis of major transactions with the company’s shares, information about shareholders, property and non-property rights;
  • analysis of lawfulness of the Company’s operation – availability of required licenses, permits, certificates and their potential extension/withdrawal;
  • analysis of labor relations;
  • evaluation of major contracts of the company to identify any unfavorable consequences for the buyer;
  • analysis of loan, guarantee agreements as well as various promissory notes and liabilities;
  • evaluation of legal claims and other complaints.

Operation Due Diligence

Operation due diligence reveals the efficiency of management, business planning, marketing and sales systems of a company. Our specialists apply SADT (Structure Analysis and Design Technique) developed by SoftTech which has been providing Product Management solutions since 1969.

Operation DD researches the following aspects:

  • management structure and decision making process;
  • business planning and key business indicators;
  • available standards, procedures, job descriptions as well as their compliance with the actual situation;
  • current public and government relations if such relations are essential for business practices;
  • production organization and management system;
  • logistic system;
  • sales system and its efficiency, if possible comparison with average indicators for the industry;
  • marketing system and its efficiency, adequacy of competitive environment analysis.

Financial Due Diligence

Financial due diligence assesses the management, tax and accounting reporting systems. It identifies and assesses risks related to breaches in system operation. Documents for the last three years of the company’s operation are reviewed.

Financial DD includes the following:

  • comprehensive audit of accounting and management reporting;
  • analysis of the company’s proceeds and expenses in the reporting period;
  • evaluation of the company’s internal control system regarding document flow related to the company’s expenses;
  • sample analysis of the quality and completeness of documents confirming expenses of the company;
  • analysis of fixed assets: general composition, accumulated deprecation, revaluation results (if any);
  • analysis of the company’s financial investments (structure, terms, documents);
  • analysis of accounts receivable including unconfirmed accounts;
  • analysis of accounts payable including overdue accounts;
  • analysis of loan agreements and liabilities: composition of creditors/lenders and amount of borrowed funds, terms of loans;
  • analysis of contingent liabilities (fines, penalties, warranties to secure third party debt, endorsed bills, claims filed against the company, pledges and other proprietary charges against the company’s property);
  • analysis of completeness and validity of assets and liabilities reported outside of the company’s balance sheet;
  • determination of actual financial indicators including net profit and net assets;
  • comprehensive financial and economic analysis: horizontal and vertical analysis, ratio analysis (actual profitability, turnaround, liquidity, financial stability);
  • defining actual profits and expenses, identifying deviations from announced performance.

Tax Due Diligence

Tax due diligence assesses the quality of tax reporting, identifies tax risks regarding potential tax liability for violation of tax laws. Documents for the last three years of the company’s operation are reviewed.

  • analysis of tax regulations applied by the company;
  • analysis of tax reports;
  • analysis of tax ledgers;
  • analysis of accuracy of tax calculation and payment;
  • analysis of tax benefits applied;
  • analysis of risks of potential violation of labor laws and liability.


HR due diligence assesses the quality of labor resources and their compliance with the company’s primary activity. This service includes analysis of the following:

  • staff management system;
  • age and professional composition of the staff;
  • efficiency and factors affecting it;
  • staff motivation system.