The concept of due diligence is quite a common one, and the term is used in several varying fields and also in different contexts. A simple definition that can be put forth, is that it is a certain concrete decorum that is used to complete proceedings with a certain objective.
In some cases, this concept is termed as a 'standard of care'. A due diligence procedure exists in relation with several fields, such as business, investigations, assessment, tax proceedings, market trades and even philanthropy. It does not always have legal binding in all the cases. In some cases, it merely defines a code of conduct that is to be followed during procedures and proceedings.
Due Diligence Explained
Though the Securities Act of 1933 makes use of the term 'due diligence for a defense procedure', the term was used in several instances even before the act was passed, in order to identify and prescribe a code of conduct or a decorum or even a procedure. For example, when we file a compliant, we are supposed to do so in due diligence. In some cases, the word 'diligent' is also used. Thus this term and its process is found in several areas, especially in cases where a certain procedure or proceeding is involved.
Use of Due Diligence Process
In recent times, the term has come to be used in several cases there are some significant fields. Here are some common usages:
Consumerism is a popular movement in which substantial improvements in consumer goods are being seen even today. Consumer complaints and solutions to the same is carried out through a specified procedure, that is very effective in achieving a said result. In such cases, both the producer and consumer is expected to follow a process with due diligence, so that the solution can be reached upon.
This term often implies a certain assessment or a background check on people, organizations, processes, documents, products, statements, etc. In such a case, a due diligence is an investigation, audit or even a conformation in order to ascertain whether the subject has been in compliance with law, prospectus, promise, etc. In tax and compliance laws, for that matter, it becomes an important faction.
In the business world, it is principally the examination of anything that the business wants to purchase. It may be some office stationery or even another business. The intention of the process of due diligence, is simple, it is conducted to find out whether the purchase is a wise decision or not. This process is often deemed to be the final procedure of the purchase.
Investors and Financiers
This process which is quite similar to the process that is used in purchase that involves ascertaining of the profitability of a certain business.
The process of underwriting is to be followed with due diligence, that is care and strong decorum should be followed while issuing securities and even while approving a loan. Underwriting is done for both, securities as well as loans.
In different markets such as the financial markets, money markets and stock markets, the term operational due diligence, in context with procedures, is used to identify, ascertain and curb markets and operational risks.
This term can be used in two ways namely, as an adverb which implies care and decorum that is adopted to complete a said procedure. Secondly, it implies the due diligence where in the procedure involves ascertaining whether care is being taken or not.