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What's the Difference Between Due Diligence and Audit

What’s the Difference Between Due Diligence and Audit?

Want to understand the distinction between Due Diligence and Audit? While Due Diligence is considered a form of audit, it's crucial to recognize that it is a more comprehensive process. It analyzes various aspects like labor, social security, financial, legal, accounting, tax, and environmental, depending on the context and the company.

Thus, it’s vital to discern between Due Diligence and audit, as both are relevant in the corporate world, offering essential solutions for detailed analyses in transactions and businesses. This article explores this difference in detail. Continue reading for more information!

 

Difference Between Due Diligence and Audit

Due Diligence and audit are interconnected, although they have slightly different meanings and objectives. Due Diligence refers to a detailed investigation before significant business transactions such as mergers, acquisitions, investments, or partnerships.

Its purpose is to thoroughly assess risks, opportunities, finances, operations, legal compliance, and other relevant aspects, providing information for final decisions and involves areas like finance, HR, legal, and operations.

On the other hand, an audit is a structured examination of financial records, transactions, and operations of a company, which can be internal or external. Its primary goal is to ensure the accuracy and reliability of financial information, ensuring compliance with accounting standards and identifying irregularities.

Thus, while Due Diligence has a broad scope, covering various aspects of the company, the audit focuses mainly on finances. Due Diligence is carried out at specific times, like mergers, whereas an audit is continuous and recurrent.

Both aim to provide a transparent understanding of the organization, each with its specific focus. However, during Due Diligence, financial audit procedures may be conducted to ensure the accuracy of accounting information.

 

Difference Between Due Diligence and Background Check

Background Check, or background verification, differs in many respects from the previously mentioned practices. This is because it involves collecting and analyzing information about the background of a person, company, or entity, including criminal history, employment, education, and references, among others.

Thus, its goal is to assess reliability, integrity, and history, being used in recruitment, real estate leasing, credit granting, and various business transactions. However, it’s necessary to conduct Background Checks in accordance with privacy laws, local regulations such as GDPR in the EU, and labor standards.

Although it provides a view of the past, Background Checks do not guarantee the future, and their accuracy depends on the source and collection process.

 

Why Conduct a Background Check?

Conducting Background Checks is justified by several benefits. Besides offering comprehensive data for informed decisions, it minimizes risks, protects safety, ensures regulatory compliance, prevents fraud, assesses integrity, protects reputation, complies with internal policies, and ensures legal compliance. It is an essential preventive practice to mitigate risks, ensure safety, and promote integrity in various personal and professional contexts.

Now that you know the difference between both processes, if you liked this content, leave your comment and share it with those who might find it useful!.

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QMS Certification

QMS is an accredited third party certification body, it is currently present in 33 countries and focuses on the certification of management systems. QMS America is managed by the US office and has consistently grown in market recognition by technical level, customer satisfaction and competitive pricing.

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