Due Diligence Guidance - China Fortune Investment Group
Due Diligence Guidance
From the outset, having a very clear understanding of exactly how your organization intends to benefit from an investment in China is critical. Our consultants utilize this information to advise on customized Due Diligence plans and assess potential investment targets. Any of the following areas may necessitate advisory services during mergers, acquistions, joint ventures:
· Financial Due Diligence – Depending on the importance of financial data, we may suggest everything from full multiple year audits, to simple fluctuation analysis. Performing meaningful financial Due Diligence in China however, is encumbered by two main problems:
o For tax avoidance reasons, audited financial statements generally do not accurately reflect operations;
o Internal management books require significant testing to establish credibility.
· Tax Due Diligence – an assessment should be made whether the current operations and the tax positions of the target company are in compliance with the relevant China tax laws and policies. Acquiring companies must be alert on the related consequences as a result of any non-compliance practice.
· Legal Due Diligence – where as legal Due Diligence may be more of a formality in the west, it can be a starting point for a deal in China. Basics such as ownership structures can be very complex and determining who has the right to sell a company, who holds the land rights and who owns the assets are not always clear.
· Operational Due Diligence – a company’s operational capabilities can be the basis of a deal and specific auditing tests must be devised to measure the value chain. On-site observation of production capacity, measurement of raw material flows, customer/supplier interviews and tests of other empirical data are utilized.
· Environmental Due Diligence – although the outside world may perceive China as hands off to environmental issues, this is simply not true. The government is actively concerned about pollution and businesses can be held liable for indiscretions. Investigation of environmental impacts should therefore not be overlooked.
· HR Due Diligence – develop and understanding of employee obligations including social welfare payments, employee compensation policies, termination compensation, employee contracts and other compulsory employee benefits such as heating allowances.