21 Dec Conducting an Effective Post-Merger & Acquisition Audit
So, you are about to merge with another company. What is next? The integration process typically starts with audited financial statements that reflect the results and financial position of the combined entity. This exercise requires a close partnership between the external audit team and in-house accounting personnel from both companies. Collaboration is key to a seamless transition.
Prepare the audit team
It is important to notify your audit team about merger and acquisition (M&A) plans long before a transaction takes place — even if there is still a chance the deal might fall through. This gives the audit team time to pull specialists together who can help you generate timely, accurate postacquisition financial statements.
For example, you will need someone with experience applying the business combination rules under U.S. Generally Accepted Accounting Principles (GAAP) and tax experts who know the rules for reporting different types of deal structures under today’s federal and state tax rules. Likewise, if you are acquiring a company that uses different accounting systems, you will need someone who is familiar with the acquired company’s software, especially if it is no longer supported by the vendor.
Anticipate auditor needs
Even if your team of specialists has been assembled in advance, once you have merged, expect audit fieldwork to take more time than usual. The auditors will review documents associated with the merger, such as due diligence workpapers and legal documents governing the purchase. They also will ask to review prior financial statements and audit reports for the acquired company.
The audit partner might even ask to review board minutes discussing the acquisition, as well as minutes from meetings conducted by the team responsible for the integration of the newly acquired entity.
Documents do not tell the full story, however. The audit team will interview key members of your team, such as accounting personnel and members of the due diligence team. To streamline the process, designate an employee to serve as the audit liaison. They will be the primary point of contact to gather your auditor’s requests for information and access to company employees and executives.
M&As provide opportunities to enhance your company’s value, but it is hard to gauge the relative success of a transaction without reliable, timely financial statements. Our auditors can help you allocate the purchase price to acquired assets and liabilities and otherwise report combined financial results in accordance with U.S. GAAP.