Due Diligence

Financial Dictionary -> Investing -> Due Diligence

Due diligence is actually a term that is used for a variety of concepts involving investigations of businesses or people. It is basically the standard of care and providing all information during a performance while doing something. It can also be a legal obligation to seek to 'do the best job possible and find the most information you can to disclose to who need it'. It is about disclosing the most accurate information available and the responsibility of making sure it is really accurate and getting the 'whole story'.

While it is normally used in terms of investigations and in law, it is actually a result of the US Securities Act of 1933. It was a defense that was used by broke-dealers. This happened when they were accused of not disclosing to investors all of the details that they would need to purchase securities. So when broke-dealers conducted a due diligence investigation about a company they were selling, they would then disclose the information to the investor about what was found. The concept spread into different areas of business, and has developed into meaning a number of different things to different companies.

In business transactions, the process of due diligence varies from all the different types of companies. It might depend on which area of business, such as tax, financial, labor and legal areas. The concept of due diligence is also used in civil litigation, for supplier quality engineering, as a criminal defense and in Environmental cases. So depending on the area, the concept of due diligence might mean different things. Thus you might find many different specific definitions, though mostly it comes down to a form of research.

Basically, it is all about information. For example, certain parties are responsible for making sure a document that is presented is accurate. Those people involved have an obligation to perform an examination, which is called due diligence. They would go through all avenues possible to find the right answers and what they need. It could also be the investigation performed on a company before it goes public. Again, there are a variety of different ways that due diligence is used, and can affect the jobs of many people.