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Due diligence standards in the US and the UK appear to provide deal parties different incentives as to disclosure - Essay Example

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Not only is it a legal requirement but it also provides security to the dealing parties as significant doubts about the respective financial viabilities are dispelled. When a party looks to buy a…
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Due diligence standards in the US and the UK appear to provide deal parties different incentives as to disclosure
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"Due diligence standards in the US and the UK appear to provide deal parties different incentives as to disclosure"

Download file to see previous pages Duty of care is a fiduciary duty for the Board but it can also be delegated (Batterson, nd). When due diligence examination is outsourced i.e. accounting professionals are hired to produce a report for an entity’s future prospects, the fiduciary duty of due diligence is delegated to the professionals.
It is not only the bidder’s responsibility to exercise due diligence but the target company also needs to provide that information to the potential buyer which is not publicly available. A significant amount of information becomes automatically available to the Board when it examines the financial statements of the target company. In order to exercise due diligence, mere dependence on financial statements is insufficient because these statements contain the opinion of an auditor regarding the fact whether the statements are prepared according to the generally accepted accounting principles. These statements do not provide a reliable forecast on the target company’s future profits. This is why a “special audit” is required to obtain relevant and reliable information (Weiner, 2010). However, in cases where a hostile bid is placed, the bidder only has the option of relying on the publicly available information of the target company. Also, the target company is not legally obligated to expose its private information in a hostile bid. Publicly available information of a company includes:
Contingent liabilities: Liabilities that might arise from pending litigation or environmental liabilities. This information can also be obtained from financial statements but it might also not be disclosed if it does not meet the criteria of materiality;
Restrictions: The bidder has to be careful for the existence of any agreements or covenants that putt restrictions on the conduct of the targets business. For instance, covenants that require an entity not to compete;
Further, a bidder should ...Download file to see next pagesRead More
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