Due diligence risk factors are the main aspects of the risk assessment which is a part of conducting a business due diligence investigation. The process can be beneficial to a range of stakeholders, including acquisition firms seeking to assess their potential partner prior to merger or an acquisition; investors who want a thorough assessment of risk prior investing; and prospective employees who are evaluating potential candidates for employment.
Due diligence can involve various types of checks depending on the purpose and scope. Checks include identity verification screening of sanctions lists, criminal watchlists as well as an investigation into funds the source. In addition, a risk-based approach must be employed to determine if enhanced due diligence (EDD) measures must be applied. This is because clients who are at an increased risk of laundering or financing terrorists require additional measures, like increased monitoring of transaction patterns selecting the perfect boardroom software and the gathering of more data.
EDD can involve analyzing beneficial ownership of corporate clients in order to limit the risks associated with hidden ownership. The process could include examining the structure of the business and identifying any connections with public officials that could lead to corruption. In addition, it is vital that EDD includes a regular review of international sanctions lists in order to ensure compliance with regulations.
A successful due diligence procedure will provide a summary of the key findings to those who don’t have the time to read the entire report. The summary should be brief and include the type of due diligence conducted (e.g. an extensive risk analysis before investing in a business) and the reasons for the due diligence, as well as any significant findings.