Accounting Due Diligence

Summary

This practice note covers accounting due diligence, including its purpose and how it is conducted. Accounting due diligence is a principal component of the due diligence performed in connection with a securities offering. Underwriters and their counsel conduct accounting due diligence in order to: assess and understand the policies used to prepare the issuer's financial statements; identify the judgments, assumptions, and estimates made in the application of accounting policies to the issuer's financial statements; understand the scope and nature of the audit and the relationship between the auditors, the issuer, and the audit committee; and identify issues with the issuer's accounting systems and internal control over financial reporting. Accounting due diligence can also mitigate an underwriter's potential securities law liability in the case of material misstatements or omissions in the offering document or other documents incorporated therein.