Checklist
Financial due diligence checklist
The categories a financial DD review typically works through, with the specific items and questions each one covers.
01Historical financial statements
The starting point of most financial DD reviews. Reviewers typically request:
- Audited financial statements for the past 3–5 fiscal years
- Monthly or quarterly management accounts for the trailing 12–24 months
- Reconciliation between management accounts and audited statements, where they differ
- General ledger detail for material accounts
The comparison between audited statements and management accounts matters — see financial due diligence for why that distinction is significant to a reviewer.
02Quality of earnings (QoE)
QoE analysis adjusts reported earnings to reflect the business's normalized, ongoing performance — removing one-time items, non-recurring expenses, and accounting choices that distort the picture. Typical adjustments include:
- One-time or non-recurring revenue and expense items
- Owner or related-party compensation adjusted to market rates
- Non-operating gains or losses (asset sales, litigation settlements)
- Discretionary expenses that wouldn't continue under new ownership
03Working capital and debt
| Item | What's reviewed |
|---|---|
| Net working capital | Trend over time, seasonality, target-date calculation methodology |
| Accounts receivable | Aging schedule, collection history, allowance for doubtful accounts |
| Accounts payable | Aging schedule, payment terms, any deferred or stretched payables |
| Inventory | Valuation method, aging, obsolescence reserves |
| Debt schedule | All outstanding debt, terms, covenants, and any events of default |
| Off-balance-sheet items | Leases, guarantees, contingent liabilities |
04Tax
- Federal, state, and local tax filings for the past several years
- Status of any open tax audits or disputes
- Tax positions taken that could be challenged (nexus, transfer pricing, credits)
- Sales and use tax compliance, particularly for multi-state or multi-jurisdiction businesses
05Revenue recognition
How and when revenue is recognized can materially change reported performance, especially for subscription, long-term contract, or multi-element businesses. Reviewers typically check:
- Revenue recognition policy and consistency with accounting standards
- Deferred revenue balances and how they reconcile to contract terms
- Customer concentration and contract-level revenue detail
- Any changes in recognition policy across the historical period reviewed
Cross-checking revenue figures against underlying contracts and bank records is exactly the kind of cross-document consistency check that benefits from automation — see how AI detects conflicting information for how that works.
06Frequently asked questions
Is this checklist a substitute for a professional QoE engagement?
No. This is an overview of what a financial DD review typically covers. A formal quality-of-earnings analysis is performed by qualified accounting professionals, and this checklist doesn't replace that judgment.
How far back should historical financials go?
Three to five fiscal years is common, though it can extend further for businesses with long sales cycles or significant year-over-year variability.
What's the difference between this and a general due diligence request list?
This checklist focuses specifically on financial items. A full due diligence request list also covers legal, commercial, operational, HR, and IP categories.