How to best prepare for an audit post-acquisition

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Sabiha McConnell

Managing Director, Finance Solutions

Sabiha McConnell

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Managing Director, Finance Solutions
Sabiha brings over 20 years public accounting and consulting experience across various industries, including manufacturing, oil field services, retail, oil and gas, and energy.  Her areas of focus include SEC reporting, technical accounting, internal controls and internal audits, pre-audit and IPO readiness, system implementations, and business process transformation and improvement. Sabiha’s technical background, experience, and […]
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Audits are an essential part of ensuring that a company’s financial statements are accurate and compliant with accounting standards. We recently wrote about how to prepare for an audit however, in the context of an acquisition, the first audit after the transaction can be particularly challenging, as it often involves additional complexities due to the combined financials and potential integration of different accounting systems. Proper preparation is critical in navigating the post-acquisition audit process smoothly, minimizing disruptions, and providing timely, accurate information to stakeholders. An acquisition adds complexity to the financial reporting and audit process, so it’s important to be proactive and prepared. Here are some key steps to get ready for an audit post acquisition.

  1. Create an Audit Readiness Team: Identify an audit readiness team and assign responsibilities to ensure accountability. This team should include representatives from the acquired company, new ownership, and other relevant stakeholders.
  2. Address Due Diligence Findings: Review any buy-side due diligence findings and address them as soon as possible. This proactive approach helps streamline the audit process.
  3. Develop a Plan and Timeline: Establish a clear project plan and timeline for management and the audit team. This step ensures that everyone is aware of their responsibilities and deadlines.
  4. Engage Third Parties Early: Engage valuation firms and appraisers early in the process, as these experts can help support audit preparation and reduce hassles later on.
  5. Focus on Key Audit Areas: Concentrate on significant audit areas such as purchase price accounting, transaction costs, fair market value of assets, and complex equity or compensation structures.
  6. Close Books Regularly: Perform routine “hard” closes and establish a regular reporting process throughout the year to identify issues early on.
  7. Use a Closing Checklist: Use a closing checklist to ensure all month-end processes are completed and all journal entries are posted.
  8. Document Key Information: Organize and file important documents, such as debt agreements, leasing arrangements, and complex transactions.
  9. Establish Strong Internal Controls: Make sure you have robust internal controls in place, including IT General Controls (ITGC).
  10. Stay Updated on Accounting Pronouncements: Be aware of new accounting pronouncements and changes to existing ones, and start working on them early due to increased workload potential.
  11. Orientation and Training: Provide management with detailed training on acquisition-related accounting topics that impact financial reporting and the audit process.
  12. Maintain Open Communications: Prioritize communication between all parties, including new owners, portfolio company management, audit teams, and other third-party service providers.

Following these steps can help ensure a smooth and efficient post-acquisition audit process that reduces costs, strengthens internal controls, and promotes timely reporting for investors and lenders. Additionally, remember to tackle valuation early and reach out to auditors for guidance on non-recurring or unusual transactions. Perform balance sheet reconciliations monthly, review accounts receivable and payable aging, and verify accurate revenue recording. By taking a proactive and strategic approach to preparing for an audit after an acquisition, a company can facilitate an effective and streamlined audit process that adds value to its financial reporting function.

Learn more about how to E78 Partners can help your organization properly prepare for an audit.

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Meet the Author

Sabiha McConnell
Managing Director, Finance Solutions
Sabiha brings over 20 years public accounting and consulting experience across various industries, including manufacturing, oil field services, retail, oil and gas, and energy.  Her areas of focus include SEC reporting, technical accounting, internal controls and internal audits, pre-audit and IPO readiness, system implementations, and business process transformation and improvement. Sabiha’s technical background, experience, and […]
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