Cleaning Up an International Acquisition's Balance Sheet
Recently, Brown Smith Wallace was engaged to help a public company with its due diligence and post-closing accounting efforts required to respond to a purchase agreement's working capital requirements. We also helped the company with key synergy assumptions for the opening balance sheet that involved legal entities in over 25 countries. The company had been audited by a major firm in the last six months.
Over 100 Post-Closing Adjustments Found
Our transaction advisory team, which consists of professionals who have served on both sides of the desk leading and advising on transactions, was hired by our client to travel to London, Amsterdam, Singapore, Hong Kong, Japan, Idaho and California to perform on site post-closing diligence, along with detailed testing of all 28 foreign trial balances. The team was able to identify over 100 post-closing adjustments from our testing to clean up the opening balance sheet. We also identified a number of strategic accounting opportunities for the acquired entity, including managing their balance sheet reporting to track and support all the adjustments, maintaining their working capital calculation to allow them to present a lower working capital “Peg” back to the seller resulting in purchase savings, as well as a couple of other key forensic findings that allowed them to recoup some additional reimbursements from the seller.
This international public company has worked with us on other assignments because we have proven that we can deliver quality service from experienced professionals with a wide range of expertise. Executives at the company also appreciate that we provide high value at a significant savings from a major firm because of our lower cost structure.
A Renewed Focus on Independence
Independence is another important reason this company uses our firm rather than its outside auditing firm that conducts its financial statement audit. It’s a conflict of interest and violation of independence regulations when the external audit firm provides services where the results are subject to audit procedures as part of the same firm’s financial statement audit. Also, if you are not the attest auditor for the financial statements, an accounting firm can present business risk considerations to the board and others on behalf of management.
Increasingly, companies are looking at using firms other than their external auditors due to the revitalization of audit reform efforts to require more independence from accounting firms. For instance, according to an article by Emily Chassan on wsj.com, The Public Company Accounting Oversight Board (PCAOB) has stated that it has started quizzing accounting firms on whether their fast growing consulting practices could hurt the quality of their audits.
Given this uptick in regulatory focus on auditor independence, it is even more important for companies to identify additional, dependable accounting firm resources with the capability to handle appropriate special projects.