due diligence

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 reviewed in November of 2020 by the Wex Definitions Team ]

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