Accounting Due Diligence Checklist

General Information

Items in general Accounting Due Diligence include:
  • Corporate name
  • Address
  • Accountant's name
  • Attorney's name
  • Fiscal year
  • Capitalization
  • Bank references
  • Location of company records
  • Employee contacts
  • Tax audit records
  • Tax audit actions against company and terms

Sales and Earnings

Items in sales and earnings due diligence include:
  • Description of market
  • Gross and net sales for past year and past five years
  • Sales backlog and accounts receivable activity
  • Advertising and sales promotion cost
  • Earnings record and budget for past five years
  • Earning comparison with industry for past five years
  • Dividend and earnings record for past five years
  • Analysis of selling and general administration expenses
  • Sales comparison to industry
  • Sales compensation plan
  • Comparison of sales team to total revenue
  • Earning margin
  • Return on investment
  • Return on equity

Plant and Real Estate

LocationReal estate holdingsReal estate taxesReal estate valuations and appraisalsTax assesor real estate valuationAcreageCost at purchaseReal estate fair market valueBuilding age and conditionBuilding deprecitation methods rates and policiesFire insuranceTitle insurance to realty and policyEquipment descriptionEquipment cost age condition efficiencey and insurance coverageEquipment reserves deprecation methods age rates and policiesProjected plant and equipment for next five yearsCapital expenditure and repairs expense for past five yearsMaintenance cost for all real estateSub leasing agreements with other contractors or tennantsLeasing of plant and equipmentMajor maintenance issues in past five yearsMajor plant and equipment purchases in past five years

Items in Plant and Real Estate due diligence include:
  • Location
  • Real estate holdings
  • Real estate valuations and appraisals
  • Tax assessor real estate valuation
  • Acreage
  • Cost at purchase
  • Real estate fair market value
  • Building age and condition
  • Building depreciation methods rates and policies
  • Fire insurance
  • Title insurance to realty and policy
  • Equipment description
  • Equipment cost age condition efficiency and insurance coverage
  • Equipment reserves deprecation methods age rates and policies
  • Projected plant and equipment for next five years
  • Capital expenditure and repairs expense for past five years
  • Maintenance cost for all real estate
  • Sub leasing agreements with other contractors or tenants
  • Major maintenance issues in past five years
  • Major plant and equipment purchases in past five years

Assets

Ratio of cash to current liabilitiesAge and number of accounts receivableProvision for bad debtsComplete inventoryInventory locationInventory of finished goods by productWork in progress by productRaw materials by productPricing methods Accounting methods and proceduresAnalysis of notes receivableAnalysis of investmentsPatents trademarks and copyrightsCurrent ratioInventory turnover ratioFixed asset ratioAsset turnover rato

Items in assets due diligence include:
  • Ratio of cash to current liabilities
  • Age and number of accounts receivable
  • Provision for bad debts
  • Complete inventory
  • Inventory location
  • Inventory of finished goods by product
  • Work in progress by product
  • Raw materials by product
  • Pricing methods
  • Accounting methods and procedures
  • Analysis of notes receivable
  • Analysis of investments
  • Patents trademarks and copyrights
  • Current ratioInventory turnover ratio
  • Asset turnover ratio

Liabilities

Items in Liabilities due diligence include:
  • Current state and federal tax status and payments
  • State and federal tax status and payments for past five years
  • Commitments for new building equipment and inventory
  • Long term loans outstanding
  • Long term loan terms
  • Short term loans outstanding
  • Short term loan terms
  • Debentures outstanding and terms
  • Pensions
  • Dividend and interest arrearages
  • Contingent liabilities
  • Warranties
  • Patent infringements
  • Compensation for services
  • Written off losses for past five years
  • Debt equity ratio
  • Interest coverage ratio
  • Fixed interest cover

Financial Data

Annual statements for past five yearsAudit reports for past five yearsTax returns for past five yearsDisposition of funds for past five yearsReports to SECChart of accountsBook, net, quick, liquidating and market value for past five years.Working capital for past five years and normal trade practices for industry.Inventory turnover for past five yearsIntrerest charges for past five yearsExchange on which stock is traded and price chart for past five yearsPrice to earning ratioPrice to book value ratioSales to accounts receivable ratioSales to inventory ratioSales to fixed asset ratioEarnings to book value ratioDebt service coverage ratioFixed interest coverage ratioDebt to equity ratioOperating leverage ratioFinancial leverage ratio

Items in financial data due diligence include:
  • Annual statements for past five years
  • Audit reports for past five years
  • Tax returns for past five years
  • Disposition of funds for past five years
  • Reports to SEC
  • Chart of accounts
  • Book, net, quick, liquidating and market value for past five years
  • Working capital for past five years and normal trade practices for industry
  • Inventory turnover for past five years
  • Interest charges for past five years
  • Exchange on which stock is traded and price chart for past five years
  • Price to earning ratio
  • Sales to accounts receivable ratio
  • Sales to inventory ratio
  • Sales to fixed asset ratio
  • Earnings to book value ratio
  • Debt service coverage ratio
  • Fixed interest coverage ratio
  • Debt to equity ratio
  • Operating leverage ratio
  • Financial leverage ratio

Terms and Projected Financials

Items in it staff due diligence include:
  • Reason for sale
  • Price to be paid
  • Terms of payment
  • Financing Brokerage fees
  • Tax considerations
  • Current or past company sales agreements
  • Pro forma balance sheet
  • Projected earnings forecast
  • Projected Income statements
  • Projected income statements dated for the past five years
  • Projected cash flow statements
  • Projected cash flow statements dated for the past five years
  • Capital turnover ratio
  • Receivable turnover ratio
FAQ

Can I change requests in this checklist or add new?

Every M&A and due diligence process is different. Downloaders are urged to make these checklists their own by changing the providing information to better fit their needs.

Does this questionnaire provide all the necessary due diligence information?

This IT due diligence questionnaire was created by and for M&A professionals and includes a comprehensive starting point for any diligence process. Every deal is different however and may require additional requests or diligence areas.
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