When a small or medium-sized enterprise (SME) decides to go public, that step is exciting and also full of heavy responsibilities. Among the most important tasks before listing is due diligence. But who ensures it’s done thoroughly? In this article, we break down the similar responsibilities, and help you understand who should do what.
We also show why a firm like JD Shah Associates plays a central role, using our background in auditing, taxation, tax audit and income tax declaration to help make your IPO journey smoother.
What is Due Diligence (in SME IPO context)?
Due diligence is the detailed investigation and verification of a company’s financial, legal and operational standing. For an SME IPO, due diligence includes:
- Verifying financial statements.
- Checking tax compliance (income tax, indirect taxes, disclosures, etc.).
- Confirming there are no hidden debts or liabilities.
- Evaluating risk factors , business, legal, regulatory.
- Confirming that all disclosures made to the investor community are accurate.
In short: due diligence ensures that what the company promises to potential investors is real and fair.
Who Bears Responsibility?
1. Company Promoters and Management
Reason: The promoters and top management know the business inside out, its history, operations, cash flow, tax records, risks, liabilities.
What they must do:
- Provide accurate books, records, tax returns, income tax declarations, and full transparency about past or pending liabilities.
- Share information on any contingent liabilities (e.g. pending legal actions, tax assessments, loans, guarantees).
- Disclose any irregularities or financial risks that might affect investor decisions.
Useful tip: If you skip this step, mistakes or omissions, even honest ones, can delay your IPO, result in regulatory scrutiny, or shake investor confidence.
2. The Audit / Due Diligence Team (Often External Professionals)
Reason: External auditors or due diligence professionals bring independence, objectivity, and expertise. They critically review the company’s financials, tax compliance, disclosures, and risk statements.
What they must do:
- Conduct a thorough audit of financial statements (assets, liabilities, profit & loss, cash flow).
- Examine tax compliance history, including prior income tax declarations, past tax audits, pending tax assessments.
- Evaluate internal controls, contracts, legal obligations, contingent liabilities.
- Confirm that all material data is disclosed to investors and regulators.
Useful tip: Using an experienced audit team reduces risk of post-IPO surprises. It builds investor trust, shows regulatory compliance, and safeguards company reputation.
3. Underwriters or Merchant Bankers (if involved)
Reason: Many SME IPOs go through intermediaries, underwriters, merchant bankers or book runners — who often carry responsibility for validating key disclosures before marketing shares to investors.
What they must do:
- Review due diligence reports and financials provided by the company and auditors.
- Cross-check with market requirements and regulatory guidelines (for example, regulatory thresholds around debt, reserves, contingent liabilities).
- Advise the company on readiness and flag any red flags prior to submission to regulators or investors.
Useful tip: Having transparent and clear reports at this stage can prevent postponement or rejection of your IPO application.
4. Regulatory Authorities and Investors (Oversight Role)
Reason: Ultimately, regulators (e.g. securities regulators, stock exchanges) and investors rely on audited data, trusting that due diligence was done properly. They act as the check and balance.
What they must do (or expect):
- Demand audited financials, tax compliance history, disclosures about liabilities and risks.
- Review IPO application documents, prospectus, and due diligence reports.
- If needed, ask for clarifications or additional documentation.
Useful tip: Preparedness helps avoid last-minute complications. A well-documented IPO application gives regulators and investors confidence.
Why SMEs Often Rely on Firms Like JD Shah Associates
- Holistic expertise: We combine services — tax audit, income tax declaration, audit & assurance, bookkeeping and pre-IPO readiness reviews — providing a one-stop solution.
- Experience: Over the years, we’ve worked with SMEs preparing for audits, IPOs, tax compliance and financial restructuring. One founder of a recently listed SME commented, “Going through the due diligence felt overwhelming — but the audit team’s clear guidance made all the difference.”
- Trust and transparency: We treat every client’s data with confidentiality, honesty, and professionalism. Another entrepreneur shared, “Because of their thorough review of our income tax declarations and audit trail, we had no surprises — investors appreciated the transparency.”
- Smoother IPO journey: With our deep knowledge of both auditing and taxation, we help companies address gaps early, reducing risk of delays or regulatory objections.
In Summary
Due diligence in an SME IPO is not a responsibility for just one party, it’s a shared and layered responsibility: from promoters and management, to audit teams, to underwriters, to regulators and investors, but ultimately, the quality, accuracy and transparency of information depends heavily on how well the company prepares and who guides them. That’s where professionals like JD Shah Associates become invaluable.
If you are considering an IPO, or even thinking about future growth, it’s never too early to start preparing. Reach out to us we’ll help you every step of the way.
