When entering into a business transaction, whether it’s an acquisition, investment, or merger, it’s common to encounter financial statements audited by a recognised accountancy firm. But while audited accounts may offer some level of reassurance, they’re not a substitute for robust financial due diligence. In fact, relying solely on audited accounts could leave critical blind spots.
At Williamson & Croft, we regularly support clients in transactions where understanding the difference between audit and due diligence is the key to unlocking deal value, or avoiding costly surprises. In this article, we’ll explain how these two services differ, why both are important, and why financial due diligence is essential for anyone making a strategic financial decision.
What is an Audit?
An audit is a regulated, independent review of a company’s annual financial statements. Its objective is to provide assurance to stakeholders, such as shareholders, regulators, lenders, and management, that the accounts give a ‘true and fair view’ of the financial position as at the reporting date.
Audits are governed by formal standards (such as International Standards on Auditing in the UK) and focus on past performance, internal controls, and compliance with accounting frameworks like UK GAAP or IFRS.
Audits are:
- Backward-looking
- Conducted annually
- Focused on historical financial statements
- Aimed at ensuring compliance and accuracy within a specific threshold of materiality
They are useful, but they are not designed to help a buyer assess whether a business is worth acquiring or what risks may affect future performance.
What Is Financial Due Diligence?
Financial due diligence (FDD) is an in-depth investigation of a business’s financial health, tailored to the needs of a specific transaction. It aims to validate the assumptions behind a deal, whether you’re looking to buy, invest, or lend.
Unlike an audit, financial due diligence is:
- Forward-looking – assessing the sustainability and quality of earnings
- Customised – shaped by the transaction type, sector, and strategic concerns
- Risk-focused – evaluating deal-specific exposures, liabilities, or operational red flags
- Commercially minded – considering the underlying performance drivers, trends, and sensitivities
In short, FDD gives you insight, not just assurance.
Audit vs. Due Diligence – Key Differences
| Area | Audit | Financial Due Diligence |
| Purpose | Assurance for shareholders | Insight for buyers, investors, lenders |
| Scope | Historical financial statements | Earnings quality, working capital, tax exposure, forecasts |
| Focus | Compliance with standards, internal controls | Risks, deal implications, and commercial viability |
| Timing | Annual | Pre-transaction |
| Users | Regulators, shareholders, company stakeholders | Buyers, investors, acquirers, corporate finance advisors |
| Materiality Thresholds | Often broader | Tailored to deal size and buyer concern |
| Perspective | Backward-looking | Forward and backward-looking |
Auditors focus on whether accounts are materially misstated, not whether revenue is sustainable, working capital is volatile, or EBITDA is prone to fluctuation. These are all questions that matter deeply to a buyer but fall outside an auditor’s remit.
What Does Financial Due Diligence Typically Include?
At Williamson & Croft, we design our FDD scope around what really matters to our clients. This can include:
- Normalised earnings: Adjusting EBITDA to reflect one-off items or non-recurring costs
- Working capital analysis: Assessing whether the target’s working capital profile could result in cash stress post-deal
- Revenue quality: Reviewing customer concentration, contract terms, seasonality, and churn
- Forecast sensitivity: Evaluating how credible and achievable forecasted results are
- Tax and compliance risks: Highlighting liabilities around VAT, PAYE, R&D claims, and capital allowances
- Balance sheet scrutiny: Validating debt levels, provisions, related-party transactions, or hidden liabilities
Where relevant, we also work closely with legal advisors to align our findings with sale and purchase agreement (SPA) terms.
Why Financial Due Diligence Adds Value
For acquirers, investors, and M&A advisors, robust financial due diligence doesn’t just identify risks, it can also support negotiation and drive value. For example:
- Identifying unsustainable revenue or overstated EBITDA can justify a price reduction
- Flagging working capital issues can lead to revised SPA terms
- Surfacing tax liabilities may prompt escrow arrangements or indemnity clauses
- Spotting unrecorded liabilities or misstatements helps avoid post-deal disputes
In other words, FDD provides a commercial lens, not just financial validation. It helps you go into a deal with open eyes, informed judgement, and a clear understanding of both opportunity and exposure.
Why Choose Williamson & Croft for Financial Due Diligence?
At Williamson & Croft, we bring together specialist accountants and tax advisors with deep experience across M&A, investment transactions, and corporate restructuring. Our clients value our:
- Tailored approach – We don’t produce generic reports. We focus on what matters to you and your deal.
- Senior involvement – Our partners are directly involved in all assignments, bringing real commercial insight.
- Integrated tax input – Our due diligence covers tax risk and opportunity across corporation tax, VAT, PAYE, SDLT, and more.
- Clear communication – We produce practical, jargon-free reports with actionable insights for your legal and finance teams.
- Responsiveness – We work to deal-driven deadlines, often in fast-paced environments, without compromising on quality.
We support clients ranging from owner-managed businesses and private equity investors to international buyers and corporate acquirers, always with a focus on delivering clarity, confidence, and value.
Conclusion
Relying solely on audited financials during a transaction is like buying a house based only on the estate agent’s brochure. It might look good at first glance but without lifting the floorboards and checking the plumbing, you could be in for an expensive shock.
That’s why financial due diligence matters and why Williamson & Croft should be your first call.
We help M&A advisors, investors, and business owners make better-informed decisions by going beyond compliance to deliver real commercial insight. Whether you’re acquiring a fast-growth tech business, investing in a family-owned manufacturer, or restructuring your group, we offer a due diligence service that’s rigorous, relevant, and results-driven.
Get in touch today to find out how our financial due diligence team can protect your investment, enhance your negotiation position, and support a successful transaction.