due diligence

Primary tabs

Care or attention to a matter that is sufficient to avoid liability, though not necessarily exhaustive. For example, the Securities Act § 11(b)(3) allows parties involved in a securities offering to escape § 11 fraud liability if they conducted due diligence on the issuer. FIT consulting points out that due diligence largely consists of reviewing audited financial statements and conducting any other reasonable investigation. Due diligence may also refer to conducting a reasonable investigation in a company prior to a merger or acquisition transaction. The Corporate Finance Institute describes it as the “process of verification, investigation, or audit of a potential deal or investment opportunity to confirm all relevant facts and financial information, and to verify anything else that was brought up during an M&A deal or investment process.”

[Last updated in November of 2020 by the Wex Definitions Team]