A more thorough explanation:

Due diligence is the care and attention given to a matter to avoid legal liability. It is not an exhaustive investigation, but rather a reasonable effort to verify information and facts. For example, in a securities offering, parties can avoid fraud liability if they conduct due diligence on the issuer.

When conducting due diligence, audited financial statements are reviewed, and other reasonable investigations are conducted. Due diligence can also refer to investigating a company before a merger or acquisition.

For instance, if a company is considering buying another company, they will conduct due diligence to verify the financial information provided by the seller. This process helps the buyer avoid any potential legal or financial issues that may arise after the acquisition.

In summary, due diligence is a necessary process to ensure that all relevant facts and financial information are verified before making any investment or business decisions.