Due Diligence and Audit Glossary

About this glossary

A single reference for the vocabulary of due diligence and audit. Definitions are concise and practical; use the links above to jump to a term.

Terms

Due diligence

The investigation a buyer or auditor performs to verify facts and assess risk before a transaction or an opinion.

Virtual data room (VDR)

A secure online repository for storing and disclosing documents to multiple parties during a deal.

Data room

The controlled space, physical or virtual, where deal documents are made available for review.

Data room index

The structured table of contents that organises documents in a data room by category.

PBC list (Prepared By Client)

The list of documents and schedules a client prepares and provides for an audit.

Request list

A structured list of documents or information requested from a client or counterparty, each tracked to completion.

Q&A log

The record of questions raised by reviewers and the responses given, tracked during due diligence.

Disclosure schedule

A document accompanying a purchase agreement that lists exceptions to the seller's representations and warranties.

Red flag report

A due diligence report highlighting the material risks and issues that could affect a deal.

Representations and warranties

Statements of fact and assurances given by a seller in a transaction agreement.

Escrow

Funds or documents held by a neutral third party pending completion of agreed conditions.

Reliance letter

A letter permitting a party who did not commission a report to rely on its findings.

Management representation letter

A letter from management confirming to the auditor the accuracy and completeness of information provided.

Engagement letter

The agreement setting out the scope, terms, and responsibilities of a professional engagement.

Materiality

The threshold above which an omission or misstatement could influence the decisions of users of financial statements.

Working papers

The records documenting the evidence, procedures, and conclusions of an audit.

Information barrier (Chinese wall)

Controls that prevent confidential information passing between parties or teams who must remain separated.

Vendor due diligence

Due diligence commissioned by the seller and shared with bidders to streamline a sale process.

Closing checklist

The list of documents and actions required to complete, or close, a transaction.

Completeness

The audit assertion that all transactions and items that should be recorded are included.