Aligned for growth: Reporting on post-deal success
Scrutinize accounting processes and policies
Of the survey respondents who experienced issues with accounting and financial reporting matters, nearly half encountered unexpected differences in the application of accounting policies.
In every case, deal completion marks the start of an intense period of activity for finance teams.
Those who experienced such issues would seek to gain a better understanding of accounting policies and procedures of the target company in their future M&A transactions.
Responses indicate that understanding the impacts of GAAP and accounting policy differences is high on the priority list of CFOs, FDs, and financial controllers and the importance of process and systems alignment should not be underestimated.
This involves mapping formats, aligning charts of accounts and management reporting templates. The success of this activity affects the accuracy of the management and financial reports that are subsequently produced.
Purchase accounting presents a one-time opportunity for acquirers to align GAAP and accounting policies of the target with their own in the opening balance sheet. Delaying a GAAP conversion and policy alignment exercise creates a risk that in future periods unexpected adjustments to the income statement may result. These should be understood as early as possible post deal. We recommend that companies rapidly identify areas of GAAP and policy differences and address them as part of their opening balance sheet accounting.
The amount of time required to align GAAPs and accounting policies properly, and then implement related systems and processes, should not be underestimated. Unless the acquirer has dedicated resources to perform integration, we often find companies seeking external assistance to complete this work in a timely manner then implement related system and process changes.
Activities companies typically require help with include
- A target company’s systems and processes
- The target’s chart of accounts
- Mapping the chart of accounts to the acquirer’s financial statements
- Financial information used in the budgeting and forecast process
So what now for the next big deal?
Every M&A transaction is unique. There is no single solution or uniform process that can be applied. But in every case, deal completion marks the start of an intense period of activity for finance teams.
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. Our research shows that the principles of planning well and early, targeting the right information, effective communication and coordination, and scrutinizing accounting processes and policies can help control deal-related accounting risks.
These practices pave the way to reducing the number of unexpected post-deal accounting issues, reduce the risk of restatements in subsequent reporting periods and will enhance an organization’s controls associated with post-deal accounting and financial reporting