Commissioning party: An audit is undertaken by the target company while the commissioning party of Financial Due Diligence (FDD) can be the buyer or the seller.
Objective and scope: The goal of an audit is to verify that the target company is following all of the compliance rules and presenting accurate financial records and other information. The goal of FDD is to provide potential investors a detailed view and commentary of a target company’s performance and observe all associated risks. A due diligence may expand to review and analyse business plan, future aspects, corporate and management structure and legal issues, whilst audit does not.
Assurance: While an audit is an assurance service, FDD is a service based on business transaction and is non-assurance because it is focusing on risks.
Data: FDD may use available audit reports’ data and outcomes to conduct a detailed review, analysis, assessment and comments. The audit does not use FDD.
Content: Audited records typically only show general queries a potential investor might have. They do not provide any insightful and objective aspects. Audit reports provide data about market trends over the years but do not show in detail the factors behind these trends. FDD reports try to give the most in-depth and structural analysis of all the factors that influence market trends. Through a FDD, a prospective investor can obtain insightful information about the business operation, commercial, finance, accounting, tax insights.
Repetitiveness: An audit is a recurring event while a FDD is an occasional event.