Financial due diligence in Thailand has undergone a profound transformation in 2026. Historically, acquisition teams focused primarily on reviewing audited financial statements, testing account balances, and confirming compliance with basic accounting standards. Today, however, investors, lenders, and legal advisors are increasingly concerned with the quality and sustainability of reported earnings rather than merely their accuracy.
This shift has been driven by heightened regulatory scrutiny, stricter enforcement against nominee structures, and the growing expectation that corporate disclosures reflect economic substance rather than formal accounting presentation. Recent initiatives by Thailand's Department of Business Development (DBD) to verify shareholder funding sources and the continuing enhancement of corporate governance oversight by the Securities and Exchange Commission (SEC) have reinforced the need for deeper forensic financial reviews during mergers and acquisitions.
As a result, modern due diligence exercises increasingly focus on the application of TFRS 15 (Revenue from Contracts with Customers) and TFRS 16 (Leases), particularly in the real estate, retail, hospitality, and infrastructure sectors where accounting judgments can materially affect enterprise valuation.
TFRS 16: Uncovering Hidden Leverage Through Lease Liability Reconstruction
One of the most significant changes in financial due diligence involves the forensic review of lease arrangements under TFRS 16.
Prior to the implementation of TFRS 16, many operating leases remained off-balance sheet, allowing companies to present relatively low leverage ratios despite substantial long-term contractual obligations. Under the current framework, most leases must be recognized as both a Right-of-Use (ROU) Asset and a corresponding Lease Liability, significantly increasing reported debt levels and affecting key financial metrics.
For acquirers evaluating retail chains, logistics operators, manufacturing businesses, or hotel groups, lease obligations can represent one of the largest sources of hidden financial exposure. Consequently, financial due diligence teams no longer rely solely on management-prepared lease schedules. Instead, they reconstruct lease portfolios directly from underlying contracts, examining:
- Renewal and extension options;
- Variable rent provisions;
- Sale-and-leaseback structures;
- Related-party lease arrangements;
- Embedded leases within service contracts.
This analysis frequently reveals discrepancies between contractual obligations and recorded lease liabilities. In many transactions, valuation adjustments arise not from operational weaknesses but from previously underestimated lease commitments that materially alter debt-to-equity ratios, EBITDA calculations, and post-acquisition financing capacity.
Furthermore, recent developments affecting lease accounting and sale-and-leaseback transactions have intensified scrutiny over lease measurements, making lease verification a central component of financial due diligence rather than a routine accounting exercise.
TFRS 15 and the Growing Importance of Revenue Quality Testing
Revenue recognition has become one of the most contested areas of due diligence, particularly in the property development sector.
Under TFRS 15, revenue can only be recognized when specific performance obligations have been satisfied. While this principle appears straightforward, its practical application requires extensive judgment regarding construction progress, contractual milestones, transfer of control, and customer acceptance conditions.
For property developers, investors are increasingly concerned about whether customer deposits and pre-sale collections have been recognized prematurely as revenue. Such practices can artificially inflate profitability, distort working capital positions, and significantly impact company valuations.
As a result, modern due diligence teams undertake detailed contract-level testing, tracing customer payments, construction progress reports, project certifications, and accounting entries to determine whether reported revenue aligns with TFRS 15 requirements.
The objective is no longer simply to verify accounting compliance. Rather, investors seek to evaluate the sustainability and recoverability of reported earnings. Revenue that is technically recorded but economically unsupported may ultimately require restatement, leading to purchase price adjustments or indemnity claims after completion.
Escrow Account Verification: The New Frontier of Property Sector Due Diligence
Perhaps one of the most significant developments in Thai real estate due diligence is the increased scrutiny of escrow arrangements associated with off-plan developments.
Thailand's escrow framework, established under the Escrow Act B.E. 2551, was designed to safeguard purchaser funds by ensuring that deposits remain protected until contractual conditions are fulfilled. Escrow mechanisms are particularly relevant in large condominium and mixed-use development projects where significant customer funds are collected long before project completion.
In 2026, sophisticated investors are no longer satisfied with simply confirming the existence of escrow accounts. Financial due diligence teams increasingly conduct comprehensive escrow verification procedures that include:
- Reviewing escrow agreements and release conditions;
- Reconciling escrow balances with customer deposits;
- Examining fund release authorizations;
- Verifying compliance with construction milestones;
- Testing whether escrowed funds have been improperly recognized as revenue or operating cash flow.
The rationale is clear. Misclassification of escrow funds can materially distort liquidity metrics and create a misleading picture of a developer's financial health. For private equity investors and institutional lenders, escrow verification has become a critical safeguard against earnings manipulation and cash flow overstatement.
The New Financial Due Diligence Paradigm
The Thai due diligence landscape of 2026 bears little resemblance to traditional financial reviews conducted a decade ago. Investors are increasingly focused on economic substance, regulatory compliance, and future liabilities rather than merely historical accounting accuracy.
Lease liability reconstruction under TFRS 16, revenue quality testing under TFRS 15, and escrow account verification have emerged as essential investigative tools for identifying hidden risks that may significantly affect transaction value.
In an environment characterized by enhanced regulatory enforcement, heightened corporate transparency requirements, and increasingly sophisticated investors, financial due diligence has evolved from a verification exercise into a forensic investigation. The central question is no longer whether the financial statements are technically correct, but whether they faithfully represent the underlying economic reality of the target business.
For acquirers seeking certainty in Thailand's increasingly complex transaction environment, answering that question has become one of the most important determinants of deal success.
