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due diligence

Contributor(s): Herzl Regev

1. Due diligence is the process of systematically researching and verifying the accuracy of a statement.

The term originated in the business world, where due diligence is required to validate financial statements. The goal of the process is to ensure that all stakeholders associated with a financial endeavor have the information they need to assess risk accurately.

When due diligence involves the offering of securities for purchase, as in an IPO (initial public offering), specific corporate officers are responsible for the proper completion of the process, including the issuer, issuer's counsel, underwriters, CFO and the brokerage firm offering shares. Because of the delicate nature and importance of such judgments to the prospects for the performance of a company's equities in the public market, there is a strong emphasis on neutral, unbiased analysis of both the current financial state and future prospects of the firm in question.

2. In compliance, due diligence describes the degree of effort required by law or industry standard.

3. In real estate, due diligence is the time period between the acceptance of an offer and the close of escrow.

4. In civil law, due diligence is synonymous with "reasonable care."

5. When a patent is issued, due diligence is the requirement that the patent holder should develop a product around the patent, and not just prevent others from doing so.

Professor Patrick Reinmoeller explains the importance of due diligence and suggests a new approach:

This was last updated in February 2015

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I found this very succinct video on Due Diligence. Explains everything you need to know in 3minutes. http://www.corporatefinancetv.com/video/336/what-is-due-diligence.html
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