Early access to financial data from acquisition targets critical for greater transparency and investor confidence in post-deal reporting
London, 21 January 2013
Companies undergoing acquisitions need to provide the right financial information as early as possible to their acquirer during the M&A process to avoid problems occurring with integrating finance and accounting integration according to a new report by Ernst & Young, Aligned for growth – Reporting on post-deal success. Sixty percent of senior finance and accounting executives across Europe surveyed for the report who had recently worked on an acquisition had difficulty acquiring information for financial statement disclosure. Twenty-one percent identified utilization and transparency of data as the most critical success factor in post-transaction accounting integration.
The report surveyed 200 senior finance and accounting executives from 21 countries across Europe whose organizations have completed an M&A transaction in the last three years, and looks at the approaches taken to integrate finance, accounting and reporting functions.
Andy Smyth, Ernst & Young LLP Financial Accounting Advisory Services (FAAS) Partner, says:
“As year-end reporting deadlines approach, companies are under pressure to be fully transparent with stakeholders. The implications of inaccurate reporting immediately following the transaction are potentially very severe, including a loss of management credibility and, in some circumstances, a restatement in a future period. Finance functions’ access to robust information at the right time — both pre-deal and post-deal — reduces the risk of inaccurate reporting and allows management to communicate the financial impacts of an acquisition transaction to a company’s stakeholders with confidence.”
Scrutinize accounting processes and policies
Getting the accounting fundamentals right is high on the priority list of CFOs, FDs and financial controllers. Of respondents who experienced issues with their financial reporting integration, the majority (65%) had major issues with differences in the application of accounting policies between the target acquisition and their own. In particular, 73% of finance directors and controllers who encountered issues with management reporting cited management reporting policies different from their own as the primary source of these problems.
Communicate and coordinate
Clear and open communication between the acquirer and target, prior to and throughout all key stages of the transaction, was a priority among respondents in order to achieve effective post-acquisition finance integration. A third (33%) of respondents who faced challenges with management reporting would, in the future, seek better alignment, coordination and communication between the two businesses, and would better leverage existing management information and due diligence to improve their understanding of the target’s reporting processes.
Andy Smyth says: “Enterprises that are frequent acquirers know that a good partnership with the target’s finance team is vital to a smooth integration process. Establishing clarity over roles and responsibilities at an early stage and working visibly and collaboratively towards shared objectives will enhance the effectiveness of the integration team.”
Plan well and plan early
The survey showed that the timing of planning for post-deal accounting and finance integration has a significant impact on the success or otherwise of the integration program. Of respondents who had issues with management reporting, 77% experienced an inability of the target to produce timely management reporting. Over a third (39%) of respondents began planning only at or after deal completion.
Andy Smyth says: “Failing to plan early enough for post-deal accounting and finance integration increases the risk of inconsistent or inaccurate management and financial information being generated for the target’s business units or geographies and can also present challenges for the completeness of disclosures required for external reporting.”
Peter Wollmert, Ernst & Young Global FAAS Leader says: “There is currently plenty of uncertainty among stakeholders about the value acquisitions bring to their purchasers so management must ensure it has the mechanisms in place to accurately and robustly measure and report on the impact of the acquisition transaction. The successful integration of the accounting and finance function is vital, both to support internal management decision-making and to enable effective external reporting to shareholders.
Notes to Editors
About the report
Aligned for growth – reporting on post-deal success is based on interviews with 200 senior finance and accounting executives from 21 countries across Europe, conducted between May and June 2012. Qualitative interviews were also conducted to explore some issues in detail. All the organizations surveyed were involved in an acquisition in the last three years. The majority (84.5%) were acquirers and 15.5% were part of a business being acquired.
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