Audit Committee Bulletin: July 2013
Focused scrutiny improves post-acquisition reporting
Audit committees can help to reduce the risk of inaccurate disclosure by ensuring that the company’s finance and accounting functions have sufficient plans and controls in place to manage post-deal accounting and reporting.
But many companies struggle here. Our report Aligned for growth: reporting on post-deal success suggests that 51% of the companies that completed an M&A transaction in the last three years had difficulty integrating their financial reporting.
Four areas of activity could improve performance in this area:
Plan well and plan early: Our study found that 39% of companies started their finance and integration planning only at, or after, the completion of the deal. Of these “late planners,” 78% had problems gathering the information they needed for financial statement disclosures, compared with 52% of companies that planned earlier.
The best practice is to develop a risk-focused financial reporting and integration plan at an early stage of the process. This will help to reduce “surprises” and maintain stakeholder confidence.
Communicate and coordinate: Better communication was a priority for a third (33%) of the companies that had run into post-transaction management reporting problems. Greater openness between the target company and acquirer seem to help here.
Wherever possible, members of the acquiring company’s finance team should work together with their peers at the target business at an early stage and establish clear ownership of the accounting and reporting integration plan.
The right team, with the right information: Being able to access and share the target company’s financial data is a key requirement for successful finance and accounting integration. A quarter (24%) of the companies with budgeting and forecasting problems said, in future, they would try to understand the target’s accounting policies and reporting procedures better.
The need to have a well-qualified and experienced team in place cannot be underestimated. Access to specialist external advice can aid rapid issue identification and remediation.
Check accounting processes and policies: Two-thirds (65%) of companies that had issues with their financial reporting integration struggled with differences between their application of accounting policies and the approach taken by their target company. Management accounting practices were a particular problem.
It’s important to align charts of accounts and management reporting templates. Improvement here can help to underpin robust post-deal reporting.
Questions for the audit committee to ask the CFO:
- How do we gain an understanding of the financial and management reporting practices at companies we acquire? Could we accelerate this process?
- Where does a comparison of GAAP and accounting differences feature in our due diligence process? Does it need a higher profile?
- How effectively do we work with the finance teams at target companies? Could we form better partnerships?