This is a guest post from Jadelyn. She is presently working in an accounting firm , particularly financial advisory services. She is known as a Transaction Services (TS) professional. The financial due diligence services are mainly provided to corporate buyers and private equity houses. If you want to buy a business, make sure you seek help from Jadelyn to perform the due diligence. Thanks Jadelyn for the insights!

I have been invited by KC Lau to write an article on my line of service. I am a transaction services professional, which basically involve carrying out financial due diligence during a merger and or acquisition. Many of you are still wondering what exactly that is, don’t you? In a nutshell, if a client is interested in acquiring another company, however, have no idea if there are any black holes underlying the company, the acquiring party could engage us in carrying out a due diligence exercise. By performing a due diligence it could help in identifying the issues before deciding to proceed further.

Due diligence in simple terms merely means to perform an investigation on a particular transaction. Due diligence can be performed in many areas, such as financial, taxation, commercial, human resource, information technology (IT), legal and or environmental. This article focuses on due diligence from a financial point of view.

Many people have been asking how is the economy outlook for transaction professionals considering there appear to be a global slowdown in the economy for merger and acquisition. The answer is, it will be a challenging year ahead for the profession. However, you never know whether it could be a boom year or otherwise. As cash rich companies could be on a lookout for businesses at distressed value. The following paragraphs will briefly bring you through what exactly we would look at in performing a due diligence exercise.

In a financial due diligence we provide support for merger and acquisition. Gain an understanding of the client’s corporate plan, identify risk associated with the seller, consider local and cross border tax issues, identify potential deal breakers and price adjustment and assist in structuring an optimal bid, to assure a successful transaction.

By now many would be wondering how exactly we go about identifying potential issues and risk as mention above. In a nutshell we analyse the selling company’s quality of asset and earnings to get a sense of the normalized quality of earnings and quality of assets.

Quality of earnings reflects the financial performance of a company under normal circumstance. In arriving at normalized earnings we would eliminate potential one off gains or losses. For example, impairment loss on an asset, or permanent diminution in value of investment.

In analysing the quality of assets, we would analyse assets and liabilities to be acquired. For example, are there finished goods in stock that are unlikely to be sold of within the next 3-6 months? Are the liabilities of the seller for purchases that occurred prior to the closing date no purchaser would want liabilities to appear later on and wonder, “Where did they come from?” In most cases, tax due diligence would be performed hand in hand to ensure whether taxes have been filed appropriately by the seller, as this may affect the quality of assets and earnings of the seller company. It’s important to ensure that the seller has complied with all tax requirements.

I hope the this article have enlighten many individuals that have intention or interest in acquiring or taking over companies.


Personal finance author and trainer

    12 replies to "Financial Due Diligence in a nutshell"

    • […] by Jadelyn, who is a regular contributor of this blog. You can read about her previous job as a Transaction Services Professional […]

    • jadelynlee

      Hi coolkid.

      I reckon all Big 4 accounting firm have this service.
      PwC has a dedicated team of TS practice, we are the largest TS practice in Malaysia with a strong team of 40.
      How much a due diligence will cost you will very much depend on the scope of work and duration.
      Pls drop me an email if you are interested to persue the subject further.

    • coolkid23

      As i heard, deloitte also providing such services, which firm is better?
      The fee is definitely higher than normal external audit?
      Say, RM20Million to take over a company, i want to appoint Due D consultant, how much is the fee?

    • jadelyn

      sorry for the late response Kris.

      Hope the following will be able shed some light for you:-

      1. Depends very much on the deal size. In most cases 2-3 weeks on the field, and another 1-2 weeks to draft out the report. However, if the deal is relatively large in the case of a the merger of Sime Darby, Guthrie and Golden Hope, it could run up to 2-3 months.

      2. For the financial due diligence very much would be accountancy. However, legal due D would be done by the lawyers, and techinical due diligence is very much by the techinical expertise such as engineer, geologist etc.

      3. The big for accounting firms do offer such services. However, not all firm have a dedicated team of Transaction Services (TS) professional. I am proud to say that PricewaterhouseCoopers have it! Do contact me if you need further details / or use of our services(

    • Kris

      1.Usually how long will you take to do a due diligence for an average engagement?

      2. And what are the qualifications needed to join your profession? Accountant degree?

      3. Are you in a niche market? I don’t see many financial companies offering these services?

    • jadelynlee

      I would believe that business appraisal cover more than just financial aspect of a business, there could be the operational and commercial insights to comment on in a biz appraisal.

      In a FDD, it is not just looking into a company’s fair value of a company. There is a valuation team that could be engage in determining the transactions valuation.

    • GiapSeng

      What is the difference between the financial due diligence and the business appraisal?

      Actually I thought when someone is going to acquire some business, he will normally engaged a someone to do the business appraisal for him to determine the “fair” value of the business?

    • jadelyn

      Fees could be charge at a proxy of the deal size, so in this case probably 10% of RM 100k . The smallest job that I was assigned to was an engagement with RM 70k fee.

    • jadelyn

      Fees is very much dependant on the size of the deal of the assignment.

      • KCLau

        Let’s say a business that I am going to acquire is offered RM100k. Roughly how much is the fee for financial due diligence service?

    • KCLau

      I wonder how much is the fee to engage a financial due diligence service?

    • ongkl

      Never know there is such profession. Financial due diligence is very important before any acquisition. Thanks for your information, KC & Jadelyn. Hope I will have a chance to use the service soon 🙂


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