Financial due diligence for Indian CAs: the documents that actually matter

Financial due diligence is one of those engagements where the scope is obvious in principle and murky in practice. You're verifying what you're told. You're finding what you're not told. And you're forming a professional opinion on whether the numbers are what they appear to be, and what risks the acquirer is taking on.

For a CA unfamiliar with M&A work, the challenge isn't the accounting knowledge — it's the structured process for getting to a conclusion that a client can rely on for a significant financial decision.

The document stack that tells the real story

Standard audited accounts are the starting point, not the conclusion. For any meaningful DD engagement, you need:

• Last three years of audited financial statements — P&L, balance sheet, schedules.
• GST returns (GSTR-1, 3B) for the last 12-24 months — this cross-checks turnover against what's in the books.
• Income-tax returns and assessment orders for the last three years — including notice history.
• TDS returns (Form 26Q, 24Q) to verify payroll and vendor payments.
• Bank statements for all accounts — twelve months minimum, reconciled against the books.
• Debtor aging schedule and the top 10 debtor confirmations.
• Creditor aging schedule and any disputed vendor payables.
• Stock records, inventory count, slow-moving/obsolete stock provisions.
• Fixed asset register vs physical existence vs insurance coverage.
• All material contracts — customer contracts, vendor contracts, lease agreements.

The GST cross-check is often the most revealing

Comparing GSTR-1 turnover against the P&L turnover is one of the most productive checks in Indian DD work. Target companies sometimes show different revenue figures in the two places — either the books are inflated to look more valuable, or the GST returns are understated to reduce tax liability. Either scenario is a significant finding.

The check works both ways: GSTR-1 turnover higher than books means unreported income (a tax liability the acquirer is taking on), and P&L turnover higher than GSTR-1 means either non-GST supplies are being mis-classified or the accounts are inflated.

The liability discovery process

The biggest DD finding in most Indian SME transactions is undisclosed liabilities. These come in several forms: pending GST demand orders that weren't disclosed, income-tax reassessments in progress, undeclared bank guarantees or personal guarantees given on behalf of the business, and employee-related liabilities (PF/ESIC arrears, unpaid gratuity).

The only way to surface these is to ask the right questions directly, check the notice history through AIS and the GST portal, and review the bank statements for any unexplained large outflows or inflows that suggest contingent liability settlements.

How DribbleAudit's Due Diligence tool structures the engagement

DribbleAudit's DD tool builds the engagement from a client profile: the target entity's GSTIN, PAN, and the period to be reviewed. It generates a structured checklist of documents to request, a set of analytical procedures to run on the received documents, and a findings template to document what was found versus what was expected.

The tool flags GST-books discrepancies automatically when you upload GSTR-1 data alongside the P&L. It structures the liability discovery checklist by category (tax, employment, contractual) so nothing is missed. The output is a structured findings report that serves as your professional working paper for the engagement.