Due Diligence Audit

Due diligence is the systematic examination of the risks of a target organisation before entering a transaction — an acquisition, investment, partnership or loan. The technical, environmental, social, compliance and operational dimensions may be addressed separately or together.

The aim is to see, before the contract is signed, the risks that will affect the price and terms of the transaction. An environmental liability or structural problem that surfaces afterwards becomes a cost the buyer has to bear.

• Buyers in company acquisition and merger processes
• Investment funds and venture-capital firms
• Institutions providing loan and project finance
• Companies about to form a partnership or joint venture
• Businesses acquiring an asset (a facility, land, equipment)

The criteria are set together with the buyer according to the nature of the transaction: technical specifications and engineering standards, environmental legislation, human-rights and labour legislation, compliance frameworks, and the financier's performance standards.

• Legal status and the validity of permits, licences and authorisations
• The technical condition of the facility, equipment and infrastructure
• Remaining useful life and an estimate of required investment (capex)
• Environmental liabilities: contamination, waste, soil and groundwater
• OHS performance and accident history
• Social and labour risks, industrial relations
• Compliance risks: bribery, sanctions, data protection
• Supply-chain dependencies and continuity risk
• Contractual obligations and assignability
• Insurance coverage and past claims
• Ongoing or potential disputes
• The estimated cost of the risks identified

• ISO 19011
• ISO 31000
• OECD Due Diligence Guidance
• ISO 14015

1. 1Defining the Purpose and ScopeIt is set out in writing which decision the assessment will feed into and which areas it will cover.
2. 2Information RequestThe documents, records and data to be examined are listed and requested.
3. 3Review of Documents and DataThe information provided is examined; inconsistencies and gaps are identified.
4. 4Site Visit and InterviewsWhere necessary an on-site review is carried out and the relevant people are interviewed.
5. 5AnalysisFindings are compared with the target criteria or risk framework; gaps and risks are prioritised.
6. 6ReportingFindings, risks and recommendations are reported in a form suited to decision-making; critical findings are highlighted separately.

Findings are prioritised by risk level and estimated financial impact. A distinction is also made for each finding as to whether it should be remedied before the deal, reflected in the price, or secured through a contractual warranty.

• Purpose, scope and limits of the assessment
• List of documents and data examined
• Criteria or reference framework applied
• Findings and gaps
• Prioritisation of risks
• Recommendations and estimated workload
• Information constraints and assumptions

This is an assessment service, not an audit, and it produces no accredited certificate. The result is valid within the limits of the information supplied and the scope examined; incomplete or incorrect information directly affects it. The assessment is not a guarantee, a warranty or investment advice.

Accreditation differs with the type of audit. Third-party audits underpinning management system certification are carried out under ISO/IEC 17021-1 and those underpinning product certification under ISO/IEC 17065; these scopes are subject to accreditation. First- and second-party audits, and audits governed by a scheme owner's own rules (such as SMETA or amfori BSCI), do not fall within accredited certification; they are conducted following the ISO 19011 guidance and produce a report. EUROLAB holds internationally recognised accreditation under ISO/IEC 17021-1 and ISO/IEC 17065, granted by accreditation bodies that are signatories to the IAF multilateral recognition arrangement; which audits can be offered within accredited scope is confirmed in writing at the quotation stage.

• Gap Analysis Audit