what is due diligence 
due diligence is an investigation audit or review performed to confirm facts or details of a matter under consideration in the financial world due diligence requires an examination of financial records before entering into a proposed transaction with another party investopedia ellen lindnerunderstanding due diligencedue diligence became common practice and a common term in the united states with the passage of the securities act of 1933 with that law securities dealers and brokers became responsible for fully disclosing material information about the instruments they were selling failing to disclose this information to potential investors made dealers and brokers liable for criminal prosecution 1the writers of the act recognized that requiring full disclosure left dealers and brokers vulnerable to unfair prosecution for failing to disclose a material fact they did not possess or could not have known at the time of sale thus the act included a legal defense as long as the dealers and brokers exercised due diligence when investigating the companies whose equities they were selling and fully disclosed the results they could not be held liable for information that was not discovered during the investigation due diligence is performed by equity research analysts fund managers broker dealers individual investors and companies that are considering acquiring other companies due diligence by individual investors is voluntary however broker dealers are legally obligated to conduct due diligence on a security before selling it types of due diligencedepending on its purpose due diligence takes different forms due diligence can be categorized as hard or soft based on the approach used we discuss more on how these two types of due diligence are put into practice in the context of m a deals below 