As a consulting firm to provide clients with investment and financing, mergers and acquisitions,IPOIt involves a comprehensive and in-depth review and evaluation of the target enterprise to ensure the legality, reasonableness and validity of the transaction. However, there are various risks and difficulties in the due diligence process, such as information asymmetry, untrue information, changes in the legal environment, industry particularities, etc., which may lead to deviations or omissions in the due diligence results and even affect the success of the transaction. The purpose of this paper is to explore the strategies and practices of consulting companies to deal with due diligence risks and difficulties, with a view to providing some reference and reference for the consulting industry. This paper first analyzes the purpose, scope and process of due diligence, and then expounds the risks and difficulties that may be encountered in due diligence from four aspects, namely, information acquisition, data verification, industry analysis and financial audit, and introduces the methods and measures taken to deal with these risks and difficulties by combining the specific cases of Shangpu Consulting Company serving customers, such as clear focus, open leg field visits, understand the industry to know finance, control mouth confidentiality commitments. Finally, this paper summarizes the principles and suggestions that consulting companies should follow when conducting due diligence, such as professional, objective, rigorous and flexible.

The best tone is EnglishDue DiligenceThe abbreviation generally refers to the investor after reaching an initial cooperation intention with the target enterprise, after consensus, the historical data and documents of the enterprise, the background of the management personnel, market risk, management risk, technical risk and capital risk to do a comprehensive and in-depth review. As a consulting firm to provide clients with investment and financing, mergers and acquisitions,IPOIt involves a comprehensive and in-depth review and evaluation of the target enterprise to ensure the legality, reasonableness and validity of the transaction.

However, there are various risks and difficulties in the due diligence process, such as information asymmetry, untrue information, changes in the legal environment, industry particularities, etc., which may lead to deviations or omissions in the due diligence results and even affect the success of the transaction. Therefore, consulting companies need to have clear objectives, scope and processes when conducting due diligence, and adopt corresponding strategies and measures according to different situations to deal with the risks and difficulties that may be encountered.

The purpose of this paper is to explore the strategies and practices of consulting companies to deal with due diligence risks and difficulties, with a view to providing some reference and reference for the consulting industry. This paper first analyzes the purpose, scope and process of due diligence, then expounds the risks and difficulties that may be encountered in due diligence from four aspects, and introduces the methods and measures taken to deal with these risks and difficulties in the light of the specific cases of Shangpu Consulting's service clients. Finally, this paper summarizes the principles and suggestions that consulting companies should follow when conducting due diligence.

Purpose, scope and process of 1. due diligence

The purpose of due diligence is to solve the problem of information asymmetry between the two sides of the transaction, so that investors can fully understand the real situation of the target enterprise, assess its value and potential, find its problems and risks, and make reasonable investment decisions. The scope of due diligence generally includes the following aspects:

Financial due diligence: mainly to review and analyze the financial situation, financial management, financial statements, accounting policies, taxation, etc. of the target enterprise to assess its profitability, solvency, cash flow, asset quality, etc.

Legal due diligence: mainly to review and analyze the legal status, legal documents and legal risks of the target enterprise to confirm its legality, compliance and effectiveness.

Business due diligence: mainly to review and analyze the market situation, competitive advantage, customer relationship, supply chain management, marketing strategy, etc. of the target enterprise to assess its market share, competitiveness, growth potential, etc.

Technical due diligence: mainly to review and analyze the technical status, technological innovation, technological protection, etc. of the target enterprise to assess its technical level, technical advantages, technical risks, etc.

Management due diligence: mainly to review and analyze the organizational structure, human resources, corporate culture, etc. of the target enterprise to assess its management efficiency, management level, management risk, etc.

The process of due diligence generally includes the following steps:

Sign a confidentiality agreement: in order to protect the commercial secrets of both parties to the transaction and avoid information leakage or improper use, both parties need to sign a confidentiality agreement before starting the due diligence, specifying the confidentiality obligations and liabilities for breach of contract.

Make a due diligence plan: according to the purpose and characteristics of the transaction, make a due diligence plan, clarify the scope, focus, method, timetable, etc., and determine the members and division of labor of the due diligence team.

Obtain and verify information: obtain relevant information from the target company, and conduct verification and analysis. If necessary, you can also obtain more information through on-site visits, on-site interviews, and open channel inquiries.

Issue a due diligence report: according to the results of verification and analysis, issue a due diligence report, summarize the advantages and disadvantages of the target enterprise, find out its existing problems and risks, and put forward corresponding suggestions and opinions.

Follow-up work: according to the content of the due diligence report, communicate and negotiate with the target enterprise to solve or avoid the problems and risks found, and carry out follow-up work such as transaction structure design, contract drafting review, and legal opinion issuance as needed.

Risks and difficulties in access to 2. information

Information acquisition is the most basic and important link in the process of due diligence. Without sufficient and accurate information as support, effective and in-depth analysis cannot be carried out. However, in practice, consulting firms often encounter the following risks and difficulties:

Target enterprises do not cooperate or deliberately conceal: some target enterprises may be out of the uncertainty of the transaction, the protection of information or the lack of trust in consulting companies and other reasons, unwilling or not to provide the required information in a timely manner, or deliberately conceal or tamper with some important information, such as liabilities, litigation, losses, etc., thus affecting the efficiency and accuracy of due diligence.

Incomplete or untrue information: Some target enterprises may provide incomplete or untrue information due to management confusion, lack of systems or human error, such as irregular financial statements, incomplete contracts, illegal documents, etc., thus increasing the difficulty and risk of due diligence.

The amount of information is too large or too small: some target enterprises may be due to large scale, complex business or transactions involving multiple parties, resulting in their provision of information is too complex and cumbersome, such as hundreds of contracts, thousands of invoices, etc., thus bringing huge workload and pressure to the due diligence team. On the other hand, some target enterprises may provide too simple and sketchy information, such as only one financial statement, only one business license, etc., due to their small size, simple business or few parties involved in the transaction, thus creating problems of insufficient information and difficulties in judgment for the due diligence team.

Unreliable or undisclosed sources of information: some target enterprises may provide unreliable or undisclosed sources of information due to the particularity of their industries, the restrictions of their countries or the sensitivity of the fields involved, such as the lack of authority of industry data, the prohibition of foreigners from accessing certain information by national laws, the involvement of national security or commercial secrets, etc., thus challenging the information and legitimacy of the due diligence team.

In response to these risks and difficulties, the consulting firm needs to adopt the following strategies and measures:

Clear due diligence: In developing a due diligence plan, the consulting firm needs to make clear due diligence priorities based on the purpose and characteristics of the transaction, I .e., to determine what information must be obtained, what information can be discarded, what information needs to be analyzed in depth, and what information can be processed simply. This can avoid wasting time and energy on irrelevant information, and also avoid negligence and loopholes in important information.

Field visit: When obtaining and verifying data, the consulting company cannot only rely on the written data provided by the target company, but also need to open its legs to visit the production and operation sites of the target company, customer suppliers, government departments and other related parties. Obtain more first-hand information by means of observation, interview, investigation, etc., and compare and verify it with the written data. This can increase the comprehensiveness and authenticity of the information, and also identify potential problems and risks.

Understand the industry and know the financial: in the analysis and evaluation of the target enterprise information, the consulting company needs to have a certain degree of industry knowledge and financial knowledge, in order to be able to target the enterprise's market situation, competitive advantage, financial situation and other reasonable judgment and forecast. If the consulting firm is not familiar with the industry in which the target enterprise is located, it can consult an industry expert or refer to an industry report; if the consulting firm is not clear about the financial data of the target enterprise, it can consult a financial expert or refer to financial norms.

Keep your mouth shut and keep confidential: when making due diligence, the consulting company needs to strictly abide by the confidentiality agreement and shall not disclose or disclose any information about the target enterprise to any unrelated party, including the existence, progress and results of due diligence. At the same time, the consulting company also needs to require the target enterprise to abide by the confidentiality agreement, and shall not disclose or disclose any information of the consulting company to any unrelated party, including the identity, background and intention of the consulting company. This can protect the commercial interests of both parties to the transaction and avoid unnecessary troubles and disputes.

The following is a specific case study of a Champu Consulting service client that illustrates its approach and measures to address risks and difficulties in information access:

Champu Consulting was commissioned by an American investment fund to conduct a due diligence on a Chinese e-commerce company. The e-commerce company is an entrepreneurial company, mainly engaged in the development and operation of cross-border e-commerce platforms, with millions of users and tens of millions of transactions. The US investment fund intends to make strategic investments in the e-commerce business to capture its share and growth potential in the Chinese market.

When formulating the due diligence plan, Shangpu Consulting clearly defined the market situation, technical situation, legal situation and financial situation of the e-commerce enterprise, and determined the members and division of labor of the due diligence team. Among them, a consultant with many years of experience in the e-commerce industry is responsible for the market situation; a technical expert with many years of experience in e-commerce platform development is responsible for the technical situation; a lawyer with many years of cross-border e-commerce legal experience is responsible for the legal situation; and an accountant with many years of e-commerce financial experience is responsible for the financial situation.

When obtaining and verifying information, in addition to requesting relevant information from the e-commerce company, Shangpu Consulting also obtains more information through the following methods:

Visit the headquarters, branches, warehouses and other places of the e-commerce enterprise to observe its production and operation, staff quality, equipment and facilities, etc;

Visit the main customers, suppliers, partners and other relevant parties of the e-commerce enterprise, and interview their evaluation, cooperation and future prospects of the e-commerce enterprise;

Inquire about the development trend, competition pattern, policies and regulations of the industry in which the e-commerce enterprise is located through online search, industry reports, government announcements and other public channels;

Through secret shopping, user survey, data analysis and other ways to test the e-commerce enterprise's platform function, user experience, transaction efficiency and other indicators.

In analyzing and evaluating the information of the e-commerce enterprise, Shangpu Consulting has used its own industry knowledge and financial knowledge to make reasonable judgments and forecasts on its market situation, technical situation, legal situation and financial situation. Among them, in terms of market conditions, Shangpu Consulting believes that the cross-border e-commerce industry in which the e-commerce company is located has high growth potential and competitive advantages, but it also faces uncertain factors such as policies and regulations, exchange rate fluctuations, logistics and distribution. Impact; In terms of technical status, Shangpu Consulting believes that the platform functions of the e-commerce company are relatively complete and advanced, which can meet the diverse needs and preferences of users, however, it also needs continuous technological innovation and protection to cope with market changes and competitive pressures; in terms of legal status, Shangpu Consulting believes that the legal status of this e-commerce enterprise is relatively legal and compliant, and there are no major lawsuits or disputes involved. However, it also needs to pay attention to complying with the legal regulations and standards of different countries and regions to avoid legal risks; in terms of financial status, shangpu Consulting believes that the financial situation of the e-commerce enterprise is relatively healthy and stable, with high profitability and cash flow, but it also needs to pay attention to controlling costs and risks in order to maintain financial balance and security.

In conducting its due diligence, Champ Consulting strictly abides by the confidentiality agreement and does not disclose or disclose any information about the e-commerce enterprise or the U.S. investment fund to any unrelated party. At the same time, Shangpu Consulting also requires the e-commerce enterprise to abide by the confidentiality agreement and not disclose or disclose any information about Shangpu Consulting or the US investment fund to any unrelated party.

In the end, based on the results of the analysis and evaluation, Champ Consulting issued a due diligence report and made the following recommendations and opinions to the U.S. investment fund:

The e-commerce enterprise is a target enterprise with high value and potential, which is worthy of strategic investment;

The investment amount shall be reasonably determined according to the valuation, profitability, growth potential and other factors of the e-commerce enterprise;

Investment methods should be based on the e-commerce enterprise's equity structure, management will, market environment and other factors for flexible choice;

The investment agreement should clarify the rights and obligations of both parties, risk sharing, exit mechanism and other provisions, and set up corresponding safeguard measures;

In the later stage of investment, we should strengthen the cooperation in supervision and management, strategic guidance and resource support of the e-commerce enterprise.

Through the professional services of Shangpu Consulting, the US investment fund finally reached an investment agreement with the e-commerce enterprise and successfully completed the transaction. The transaction not only brings rich returns to the US investment fund, but also brings new development opportunities for the e-commerce enterprise. Champ Consulting has also won the trust and praise of its customers because of its efficient, professional and responsible due diligence services.

Risks and difficulties in the verification of 3. information

Data verification is the most detailed and critical link in the process of due diligence. It involves verifying and analyzing all kinds of information provided by the target enterprise one by one to confirm its authenticity, legality and validity. However, in practice, consulting firms often encounter the following risks and difficulties:

Information is not standardized or inconsistent: some target enterprises may be due to the lack of uniform norms or standards, resulting in the information they provide is not standardized or inconsistent, such as financial statements do not conform to international accounting standards, contract format is not uniform, document number mismatch, etc., thus making it difficult for the due diligence team to understand and compare.

Expired or invalid information: Some target enterprises may neglect to update or renew the information they provide, such as financial statements that do not reflect the latest operating conditions, contracts have expired or terminated, documents have expired or become invalid, etc., resulting in errors in the judgment and evaluation of the due diligence team.

Information is suspected of fraud or illegal: some target enterprises may intentionally cheat or evade responsibilities, resulting in the information they provide being suspected of fraud or illegal, such as inflated income or reduced expenditure in financial statements, forged signatures or tampered with the contents of contracts, forged or stolen documents, etc., thus bringing risks to the due diligence team in identifying and handling them.

Disputes or disputes over information: some target enterprises may have disputes or disputes over the information provided by them due to disputes or disputes with other parties, such as the qualified or negative opinions issued by the audit institution on the financial statements, the arbitration or lawsuit initiated by the other party on the contract, the ownership or use right of the certificate claimed by other parties, etc., thus bringing difficulties to the due diligence team to solve and resolve.

In response to these risks and difficulties, the consulting firm needs to adopt the following strategies and measures:

Understand and comply with relevant norms and standards: When conducting data verification, the consulting company needs to understand and comply with relevant norms and standards, such as international accounting standards, national laws and regulations, industry practices, etc., and check and evaluate the information provided by the target enterprise according to these norms and standards. This can ensure the professionalism and authority of due diligence, and also avoid misunderstandings and mistakes due to unfamiliarity with norms and standards.

Confirm and update the relevant dates and deadlines: When verifying the information, the consulting firm needs to confirm and update the relevant dates and deadlines, such as the date of preparation of the financial statements, the date of signing the contract, the validity of the documents, etc., and verify and analyze the information provided by the target enterprise according to these dates and deadlines. This would ensure the timeliness and effectiveness of due diligence and avoid the problem of obsolescence and ineffectiveness due to the neglect of dates and deadlines.

Screening and exposing relevant falsifications and violations of the law: When conducting data verification, the consulting company needs to identify and expose relevant falsifications and violations of the law, such as false statements in financial statements, forged changes to contracts, forged and misappropriated documents, etc., and expose and evaluate the information provided by the target enterprise based on these falsifications and violations. This can ensure the authenticity and legitimacy of the due diligence, and also avoid the risk of fraud and liability due to the neglect of fraud and illegality.

Resolve and resolve related disputes and disputes: When conducting data verification, the consulting company needs to resolve and resolve related disputes and disputes, such as audit opinions on financial statements, arbitration litigation on contracts, ownership and use of documents, etc., and resolve and resolve the information provided by the target company based on these disputes and disputes. This ensures the smoothness and effectiveness of due diligence, and avoids the existence of disputes and disputes that affect the success of the transaction.

The following is a specific case of a Champpe Consulting service client illustrating its methods and measures to address risks and difficulties in data verification:

Champ Consulting was commissioned by a German automaker to conduct a due diligence exercise for an American auto parts supplier. The auto parts supplier is a medium-sized enterprise, mainly engaged in the production and sales of core parts such as automobile engines, gearboxes, brakes, etc., with a number of patented technologies and high-quality customers. The German automaker intends to acquire the auto parts supplier to gain market share and technological advantage in the United States.

In its data verification, Champ & Co. complied with the relevant codes and standards and confirmed and updated the relevant dates and deadlines. Among them, in terms of financial statements, Shangpu Consulting Company inspected and evaluated the financial statements provided by the auto parts supplier in accordance with international accounting standards, and confirmed that its preparation date was the latest year; in terms of contract, Shangpu Consulting Company inspected and evaluated the contract provided by the auto parts supplier in accordance with the US contract law, and confirmed that its signing date was the latest three years; in terms of documents, champu Consulting inspected and evaluated the documents provided by the auto parts supplier in accordance with US intellectual property laws and confirmed that they were valid for the last five years.

During the data verification, Shangpu Consulting Company identified and exposed relevant frauds and violations of the law, and resolved and resolved relevant disputes and disputes. Among them, in terms of financial statements, Shangpu Consulting Company found that the auto parts supplier had inflated income or reduced expenditure on some projects, thus exaggerating its profitability; in terms of contracts, Shangpu Consulting Company found that there were non-performance or breach of contract between the auto parts supplier and some customers, thus affecting its business stability; in terms of documents, champu Consulting found that certain patented technologies of the auto parts supplier were claimed by other companies, which caused litigation or arbitration.

In response to these circumstances, when issuing the due diligence report, Shangpu Consulting disclosed and evaluated the information provided by the auto parts supplier, and made the following suggestions and opinions to the German automaker:

The auto parts supplier is a target enterprise with certain value and potential, but there are also some problems and risks, which need to be carefully acquired;

The purchase price shall be reasonably adjusted according to the real financial situation of the auto parts supplier, the performance of the contract, the patent technology and other factors;

The acquisition method shall be flexibly selected according to the equity structure, management wishes, market environment and other factors of the auto parts supplier;

The acquisition agreement should clarify the rights and obligations of both parties, risk sharing, exit mechanism and other provisions, and set up corresponding safeguard measures;

In the later stage of the acquisition, cooperation in supervision and management, strategic guidance and resource support of the auto parts supplier should be strengthened.

Through the professional services of Champ Consulting, the German automaker finally reached an acquisition agreement with the auto parts supplier and successfully completed the transaction. The transaction not only brings new markets and technologies to the German automaker, but also new development opportunities for the auto parts supplier. Champ Consulting has also won the trust and praise of its customers for its meticulous, critical and responsible due diligence services.

Risks and difficulties in 4. industry analysis

Industry analysis is the most extensive and important part of the due diligence process, which involves the study and prediction of the development trend, competitive landscape, policies and regulations of the target enterprise's industry in order to assess its market share, competitiveness, growth potential and so on. However, in practice, consulting firms often encounter the following risks and difficulties:

Lack or inaccurate industry data: some target enterprises may be in the industry due to immature development, statistical irregularities or non-disclosure of information and other reasons, resulting in the lack of relevant data or inaccurate, such as industry size, industry growth rate, industry profits, etc., thus bringing difficulties to the due diligence team to obtain and analyze.

Industry characteristics are complex or variable: some target enterprises may be involved in multiple areas, affected by multiple parties or changing rapidly, resulting in complex or variable characteristics, such as industry structure, industry competition, industry innovation, etc., thus bringing understanding and prediction challenges to the due diligence team.

Industry risks are high or uncontrollable: Some target companies may be in industries that face multiple threats, assume multiple responsibilities or are difficult to prevent, resulting in high or uncontrollable risks, such as industry crises, industry regulation, industry litigation, etc., thus putting pressure on the due diligence team to assess and avoid.

In response to these risks and difficulties, the consulting firm needs to adopt the following strategies and measures:

Access and compare multiple data sources: When conducting industry analysis, consulting firms need to access and compare multiple data sources, such as government statistics, industry associations, market research, media reports, etc., and screen and evaluate these data sources based on their reliability, timeliness and relevance. This can increase the objectivity and accuracy of industry analysis, and also avoid bias and misleading due to reliance on a single data source.

Understand and track changes in multiple characteristics: When conducting industry analysis, consulting firms need to understand and track changes in multiple characteristics, such as the evolution of industry structure, changes in industry competition, and the development of industry innovation, and analyze and predict the causes, directions, and impacts of changes in these characteristics. This can increase the depth and breadth of industry analysis, and also avoid the problem of backwardness and failure due to the neglect of characteristic changes.

Identify and avoid multiple risk factors: When conducting industry analysis, consulting firms need to identify and avoid multiple risk factors, such as the outbreak of industry crises, tighter industry regulation, and increased industry litigation, and evaluate and plan based on the likelihood, severity, and countermeasures of these risk factors. This increases the comprehensiveness and effectiveness of industry analysis and avoids the risk of loss and liability due to the neglect of risk factors.

The following is a specific case study of a Shangpu consulting company serving a client, illustrating its methods and measures to deal with risks and difficulties in industry analysis:

Champ Consulting was commissioned by a British medical device manufacturer to conduct a due diligence exercise for an Indian medical device distributor. The medical device distributor is a large enterprise, mainly engaged in the import, distribution and service of medical devices, with multiple brands and channels. The British medical device manufacturer intends to make a strategic cooperation with the medical device distributor to obtain its channels and resources in the Indian market.

In its industry analysis, Champ Consulting consulted and compared a variety of data sources and understood and tracked changes in a variety of characteristics. Among them, in terms of data sources, Champ Consulting refers to the following data sources:

Government of India Statistics: According to Government of India statistics, the size of the Indian medical device market is in2023The year reached150Billion US dollars, the average annual growth rate has reached15%It is one of the largest and fastest growing medical device markets in the world;

Indian Medical Device Association: According to the Indian Medical Device Association, the Indian medical device market is dominated by imported products, which account for a share of the market.80%Above, mainly from the United States, Germany, China and other countries;

Indian market research: According to the Indian market research, the Indian medical device market is mainly composed of two major categories of products: diagnostic equipment and therapeutic equipment, of which diagnostic equipment accounts for the market share.60%around, therapeutic devices account for market share of40%Left and right;

Indian media reports: According to Indian media reports, the Indian medical device market has been greatly affected by the new crown epidemic, with increased demand on the one hand and insufficient supply on the other, leading to tension and confusion in the market.

In terms of feature changes, Champ Consulting tracked the following feature changes:

Evolution of the industry structure: With the continuous expansion and development of the Indian medical device market, the industry structure is also evolving, from the past to import-based to local production, from the past to low-end to high-end, from the past to single-based to multiple changes;

Changes in industry competition: With the continuous expansion and development of the Indian medical device market, industry competition is also constantly changing, from the past price-based to quality, from the past product-based to service-based, from the past The scale-based shift to innovation;

The development of industry innovation: With the continuous expansion and development of the Indian medical device market, industry innovation is also constantly developing, from the past mainly imitation to original transformation, from the past mainly traditional to digital transformation, from the past mainly single to comprehensive transformation.

In conducting industry analysis, Champ Consulting identifies and avoids a variety of risk factors. Among them, in terms of risk factors, Champ Consulting focuses on the following risk factors:

The outbreak of the industry crisis: due to the continued spread and variation of the new crown epidemic, the Indian medical device market may face greater demand and supply imbalances, leading to market price fluctuations, reduced product quality, reduced customer satisfaction and other issues, and even social unrest and political intervention and other crises;

Tightening of industry regulation: Due to the Indian government's attention and protection of the medical device market, the Indian medical device market may face stricter supervision and review, resulting in higher market access barriers, increased market operating costs, and weakened market competitive advantages;

Increased industry litigation: Due to the complexity and sensitivity of the Indian medical device market, the Indian medical device market may face more litigation and disputes, resulting in damage to market reputation, reduced market profits, and increased market risks.

In response to these circumstances, when issuing the due diligence report, Shangpu Consulting Company evaluated and planned the industry in which the medical device distributor is located, and made the following suggestions and opinions to the British medical device manufacturer:

The medical device distributor is a target enterprise with certain value and potential, but there are also some problems and risks, which need careful cooperation;

The cooperation mode should be reasonably selected according to the channel advantage, brand influence, service ability and other factors of the medical device distributor, such as agency, distribution, joint venture, etc;

The cooperation agreement should clarify the rights and obligations of both parties, risk sharing, exit mechanism and other provisions, and set up corresponding safeguard measures, such as quality assurance, price adjustment, market division, etc;

In the later stage of cooperation, the supervision and management, strategic guidance and resource support of the medical device distributor should be strengthened, such as product training, market promotion and technical support.

Through the professional services of Champ Consulting, the British medical device manufacturer finally reached a cooperation agreement with the medical device distributor and successfully carried out its business. The partnership not only brings new channels and resources to the British medical device manufacturer, but also brings new brands and technologies to the medical device distributor. Champ Consulting has also won the trust and praise of its customers for its extensive, important and responsible due diligence services.

Risks and difficulties in 5. financial audit.

Financial audit is the most core and sensitive part of the due diligence process, which involves the review and evaluation of the financial position, financial management, financial statements, etc. of the target enterprise to assess its profitability, solvency, cash flow, etc. However, in practice, consulting firms often encounter the following risks and difficulties:

Non-transparent or non-comparable financial data: Some target enterprises may provide non-transparent or non-comparable financial data due to lack of transparency or consistency, such as financial statements not prepared in accordance with international accounting standards, financial data not translated in accordance with the unified currency, financial data not accounted for in the same period, etc., thus causing analysis and evaluation difficulties for the due diligence team.

Financial management is not standardized or perfect: some target enterprises may be due to the lack of standardization or perfection, resulting in its financial management is not standardized or imperfect, such as financial system is not perfect, financial personnel is not professional, financial process is not clear, etc., thus bringing obstacles to the review and evaluation of the team.

High or difficult to control financial risks: Some target enterprises may face multiple pressures or bear multiple responsibilities, resulting in high or difficult to control financial risks, such as excessive debt, cash flow constraints, tax disputes, etc., thus putting pressure on the due diligence team to evaluate and avoid.

In response to these risks and difficulties, the consulting firm needs to adopt the following strategies and measures:

Conversion and adjustment of relevant data standards: When conducting financial audits, the consulting company needs to convert and adjust relevant data standards, such as re-preparing the financial statements in accordance with international accounting standards, re-converting the financial data in accordance with the unified currency, re-accounting the financial data in the same period, etc., and analyze and evaluate the financial data provided by the target enterprise according to these data standards. This ensures transparency and comparability of financial audits and avoids errors and deviations due to different data standards.

Review and improve the relevant management system: in the financial audit, the consulting company needs to review and improve the relevant management system, such as checking whether the financial system of the target enterprise is sound, whether the financial personnel are professional, whether the financial process is clear, etc., and according to these management systems to review and evaluate the financial management of the target enterprise. This can ensure the standardization and perfection of financial audit, and also avoid problems and risks due to poor management.

Identify and avoid relevant risk factors: When conducting a financial audit, the consulting firm needs to identify and avoid relevant risk factors, such as analyzing the debt status, cash flow status, tax status, etc. of the target enterprise, and identifying and avoiding the financial risks of the target enterprise based on these risk factors. This ensures the comprehensiveness and effectiveness of the financial audit and avoids losses and liabilities due to high risk.

The following is a specific case study of a Shangpu Consulting service client that illustrates its approach and measures to address risks and difficulties in financial audits:

Champ Consulting was commissioned by a French cosmetics manufacturer to carry out a due diligence for a Brazilian cosmetics distributor. The cosmetics distributor is a small business, mainly engaged in the import, distribution and service of cosmetics in France, with multiple channels and customers. The French cosmetics manufacturer intends to acquire the cosmetics distributor to gain access to its channels and customers in the Brazilian market.

During the financial audit, Champ Consulting converted and adjusted the relevant data standards, and reviewed and improved the relevant management system. In particular, in terms of data standards, Champ Consulting has taken the following measures:

The financial statements provided by the cosmetics distributor have been reformulated in accordance with IAS for comparison and analysis with the financial statements of the French cosmetics manufacturer;

Recalculate the financial data provided by the cosmetics distributor in the same currency for comparison and analysis with the financial data of the French cosmetics manufacturer;

The financial data provided by the cosmetics distributor were recalculated for the same period for comparison and analysis with the financial data of the French cosmetics manufacturer.

In terms of management systems, Champ Consulting has taken the following measures:

Check whether the financial system of the cosmetics distributor is sound, such as whether there are complete accounting policies, internal controls, budget management, etc;

Check whether the financial personnel of the cosmetics distributor are professional, such as whether there are qualified accountants, auditors, tax collectors, etc;

Check whether the financial process of the cosmetics distributor is clear, such as whether there is a standardized accounting treatment, report preparation, fund management, etc.

In conducting its financial audit, Champ Consulting identified and avoided the relevant risk factors. Among them, in terms of risk factors, Champ Consulting focuses on the following risk factors:

Debt status: Shangpu Consulting analyzed the debt status of the cosmetics distributor and found that its total debt was high, mainly due to the high cost of its imported cosmetics, which led to its capital turnover difficulties and the need to borrow or overdraft;

Cash flow situation: Champ Consulting analyzed the cash flow situation of the cosmetics distributor and found that its cash inflow was low, mainly due to its low income from the distribution of cosmetics, which led to its slow repayment rate and the need for credit sales or discounts;

Tax status: Shangpu Consulting analyzed the tax status of the cosmetics distributor and found that its tax burden was heavy, mainly due to the high tax rate of its imported cosmetics, which led to its payment of customs duties, value-added tax and other taxes.

In response to these circumstances, in issuing the due diligence report, Champ Consulting identified and avoided the financial risks of the cosmetics distributor and made the following recommendations and comments to the French cosmetics manufacturer:

The cosmetics distributor is a target enterprise with certain value and potential, but there are also some problems and risks, which need to be carefully acquired;

The purchase price shall be reasonably adjusted according to the real financial situation, liabilities, cash flow and other factors of the cosmetics distributor;

The acquisition method shall be flexibly selected according to the equity structure, management wishes, market environment and other factors of the cosmetics distributor;

The acquisition agreement should clarify the rights and obligations of both parties, risk sharing, exit mechanism and other provisions, and set up corresponding safeguard measures;

In the later stage of the acquisition, cooperation in supervision and management, strategic guidance and resource support should be strengthened for the cosmetics distributor.

Through the professional services of Champ Consulting, the French cosmetics manufacturer finally reached an acquisition agreement with the cosmetics distributor and successfully completed the transaction. The deal not only brings new channels and customers to the French cosmetics manufacturer, but also new brands and technologies to the cosmetics distributor. Champ Consulting has also won the trust and praise of its customers for its core, sensitive and responsible due diligence services.

6. summary and recommendations

Through the above analysis, we can see that due diligence is a complex and important task, involving many aspects of risks and difficulties. In order to effectively deal with these risks and difficulties, consulting companies need to have clear objectives, scope and processes, and adopt corresponding strategies and measures according to different situations. On this basis, this paper puts forward the following principles and suggestions:

Professionalism: when consulting companies conduct due diligence, they need to have professional knowledge, skills and experience in order to be able to conduct a comprehensive and in-depth review and evaluation of all aspects of the target enterprise, and issue professional reports and opinions.

Objective: When consulting firms conduct due diligence, they need to maintain an objective attitude and position so that they can fairly summarize and analyze the strengths and weaknesses of the target company and make objective recommendations and opinions.

Rigor: Consulting companies need to follow rigorous methods and processes when conducting due diligence, so that they can verify and analyze the various information provided by the target company one by one, and ensure the accuracy and effectiveness of due diligence.

Flexibility: when consulting companies make due diligence, they need to make flexible adjustments and changes according to the actual situation, so as to be able to track and predict the industry, market and environment of the target enterprise in a timely manner, and deal with possible changes and risks.