What is Due Diligence?

In finance, due diligence refers to an examination of financial records that takes place prior to entering into a proposed transaction with another party. Due diligence broadly refers to an investigation, audit, or review performed to confirm the facts of a matter under consideration. The term originated in the U.S. with the Securities Act of 1933 that made securities dealers and brokers responsible for fully disclosing material information about the securities they were selling at the risk of criminal prosecution. Now, it is a standard process in business transactions and arrangements.