Gain insights into which financial statement accounts often lead to post-closing disputes between the parties to mergers and acquisitions transactions in this thought-provoking Dash on-demand webcast, presented by Jen Larson and Brian Lappen of Deloitte Financial Advisory Services LLP - Learn more: http://www.deloitte.com/view/en_US/us/Services/Financial-Advisory-Services/Litigation-Dispute-Financial-Advisory/7c8c01f0ed5fb110VgnVCM100000ba42f00aRCRD.htm

1. M&A Post-Closing Disputes
Commonly disputed financial
statement accounts
Deloitte Financial Advisory Services LLP

2. • GAAP definition of cash
leaves room for interpretation
• Consider in-transit amounts
• Consider defining cash as
“book cash” or “bank cash”
• Consider company’s past
practice and industry-specific
issues
• Consider Seller’s normal
operating cycle
• Consider a cut-off date for
recognizing revenue for the
purposes of the sale
• How will long-term and
significant contracts/sales be
accounted for?
• Consider how the
corresponding A/R will be
accounted for
• GAAP v. past practice,
consistency
• Consider whether the sale
itself will make it difficult for
the Buyer to follow Seller’s
past practice?
• Consider including in the
Agreement a description of
Seller’s past practice
• Determine subsequent event
period
• Impact of subsequent events
• Do raw material costs
fluctuate?
• Did Seller change it’s
marketing strategy or sales
process pre-close?
• Inventory reserves – how was
excess, obsolete and
damaged inventory
calculated?
• How is work-in-process
accounted for in the Sale?
The following eight financial statement accounts are
commonly disputed by both parties post-closing
Commonly disputed financial
statement accounts
Dispute
Cash
Management
Estimates
Revenue
Recognition
Inventory
Industry
GAAP Past Practice
Contract
Terms

3. • Seller can’t control Buyer’s
post-closing efforts to collect
outstanding A/R
• If Seller maintains cash in the
sale they have incentive to
collect outstanding A/R prior
to close
• Consider the interplay
between A/R write-offs and
A/R reserves when drafting
the Agreement
• How will un-recorded
liabilities be handled?
Through an indemnity claim?
• Consider whether these
liabilities have been over-
accrued or under-accrued
• Look for changes in strategy
shortly prior to or following
closing
• What is the availability of
information?
• Consider the impact of
subsequent events
• Consider involving an actuary
• How will pension liabilities be
valued, at the cost to the
Buyer or Seller?
• Consider international
pension laws and GAAP v.
IFRS differences
• How are “contingent” or
“vesting” pensions accounted
for in the Agreement?
• How are IBNR liabilities
calculated?
• Completeness – does the
Agreement consider
expenses that have been
incurred but not invoiced?
• What is the cut-off date?
• Consider requiring the Seller
to provide evidence of
expected debits to A/P
The following eight financial statement accounts are
commonly disputed by both parties post-closing
Commonly disputed financial
statement accounts (cont.)
Dispute
A/R and
A/R
Reserve
Pensions
Contingent
Liabilities
Accounts
Payable
Industry
GAAP Past Practice
Contract
Terms

4. Contact information
Deloitte Financial Advisory
Services LLP
111 S. Wacker Drive
Chicago, IL 60606
USA
Brian R. Lappen Tel: (312) 486-4981
Senior Manager Fax: (312) 247-4981
Deloitte Forensic blappen@deloitte.com
www.deloitte.com
Deloitte Financial Advisory
Services LLP
111 S. Wacker Drive
Chicago, IL 60606
USA
Jennifer L. Larson Tel: (312) 486-2539
Senior Manager Fax: (312) 247-2539
Deloitte Forensic jenlarson@deloitte.com
www.deloitte.com
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Live recording of this
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