When preparing for a merger, acquisition, business sale, or major financing event, one of the most critical decisions you’ll face is choosing the right level of financial statement assurance. The difference between an audit, review, and Quality of Earnings (QoE) report can significantly impact your transaction’s success, timeline, and ultimate valuation. Understanding these distinctions helps you make informed decisions that protect your interests and enhance stakeholder confidence.

Selecting the right assurance method depends on timing, transaction goals, and who will rely on the financial statements. Financial assurance services operate on a spectrum, with each level providing different depths of analysis and confidence:

Audits provides the highest level of assurance, offering reasonable assurance that financial statements are free of material misstatement, whether from errors, fraudulent financial reporting, misappropriation of assets, or violations of laws or governmental regulations, and comply with accounting principles generally accepted in the United States of America (U.S. GAAP). An audit is designed to give outside parties — including lenders and potential buyers — independent confidence in the financial statements. Auditors develop an understanding of the company and its internal controls to identify areas where the financials could be materially misstated due to error or fraud and then tailor their procedures to those higher-risk areas. They also evaluate whether the company’s accounting policies are appropriate and whether management’s significant estimates are reasonable.

To support their opinion, auditors perform substantive testing. This includes inspecting supporting documentation for transactions, observing inventory counts, and independently confirming balances such as receivables, debt, and cash with customers, lenders, and financial institutions. Auditors may also communicate with the company’s legal counsel and obtain written representations from management.

Because these procedures rely on third-party verification and direct evidence, rather than only information provided by management, buyers and lenders often view audited financial statements as a reliable starting point when evaluating a transaction.

Reviews offer limited assurance that no material modifications are needed in order for the financial statement to be presented in accordance with U.S. GAAP. The independent accountant relies primarily on analytical procedures and management inquiries and does not evaluate internal controls, assess fraud risk, or test the underlying accounting records and supporting documentation. During a review, CPAs will examine year-over-year trends, ask pointed questions about unusual fluctuations, and utilize their experience to ensure explanations seem reasonable, but they don’t verify information with third-party documentation.

Quality of Earnings (QoE) reports focus specifically on transaction due diligence rather than U.S. GAAP compliance. These analyses examine the sustainability and quality of earnings by identifying one-time events, non-recurring items, and potential red flags that could affect business valuation, ensuring transparency between buyers and sellers. QoE reports have become essential components of modern M&A advisory services.

Audits become particularly valuable when you’re planning ahead for significant business events. Ideally, companies considering exits, sales, or major financing begin preparing years in advance, so the business is positioned to maximize value.

If a company has the resources to complete annual audits well in advance of a potential sale, it can significantly improve the transaction process. Completing audits two to three years in advance provides time to resolve accounting issues, ensure the financial statements align with U.S. GAAP, and build a dependable financial track record. All of these efforts help streamline diligence and reduce surprises later.

However, transactions do not always follow a plan. An unexpected opportunity, financing requirement, or buyer request may arise. If sufficient lead time and resources exist to prepare the financial records and complete the audit procedures, a first-year audit can still be performed and may provide the most efficient path to supporting the transaction.

If you are looking to sell, audited financials make your company more attractive to potential purchasers or private equity firms. Buyers can usually rely on audited financial statements, potentially reducing the need for extensive buy-side Quality of Earnings analyses. This reliability can accelerate your transaction timeline and strengthen your negotiating position.

Several scenarios typically require audited financial statements:

The audit process requires significant preparation. Companies should ensure their accounting records are complete, accurate, and U.S. GAAP-compliant. Companies that have not been following U.S. GAAP may need to bring in consultants to analyze key transactions, evaluate accounting methodologies, and prepare their books for audit.

Timeline expectations vary considerably based on company size and complexity. First-year audits typically range from approximately one month for smaller organizations to two to four months for larger, multi-entity companies, though each engagement is unique.

Maintaining the timeline is a shared responsibility between the audit team and company management. Companies with organized financial records and established accounting processes generally move through audits more efficiently. Timely communication and the ability to provide requested information help the engagement progress smoothly, while incomplete records or competing internal priorities may extend the timeline.

Quality of Earnings analyses have become standard practice for all public and private equity buyers for transactions above certain sizes. These reports serve different purposes than traditional audit and assurance services by focusing specifically on transaction-related concerns and the company’s overall financial health rather than U.S. GAAP compliance. QoE reports examine adjusted EBITDA, identify and exclude one-time events and non-recurring income, and provide clearer pictures of sustainable operational earnings. They identify issues like non-operational expenses, accounting methods, and accounting errors and assess recurring earnings trends. The information compiled during a QoE analysis will also be useful for evaluating tax attributes and compliance matters. Professional M&A advisory services increasingly rely on these analyses to guide transaction decisions, because identified addbacks adjust EBITDA, and even a modest adjustment can have a meaningful impact on the final purchase price. Sell-side QoE reports have become increasingly common, allowing sellers to identify and address issues early, speed up transaction processes, justify the asking price, and tell the company’s story. Conducting a sell-side QoE will signal seriousness to buyers.

Reviews typically serve specific scenarios where banks only require limited assurance rather than an audit. Companies often negotiate for reviews instead of audits because they require less time commitment, documentation, and cost.

During reviews, CPAs perform analytical procedures and make inquiries to assess whether financial statements appear reasonable or require material modifications. Reviews provide limited assurance that no major changes are needed to align with financial reporting frameworks.

However, reviews have significant limitations. While the independent accountant conducting the review will ask questions about unusual trends and require explanations, they don’t corroborate responses with supporting documentation or perform the detailed testing characteristic of audits.

Sales prices typically depend on projections and EBITDA multiples. Audited financials provide reliable bases for current-year performance, enabling more accurate comparisons between historical results and projected growth rates. Significant forecasted growth over the historical audited results will signal red flags to sophisticated buyers. Companies anticipating sales often engage valuation firms to determine enterprise value. However, these valuations rely heavily on management projections, and without audited historical data or audited forecasts, there is no assurance on the underlying numbers. This is where comprehensive M&A advisory services become crucial in identifying potential valuation risks.

Determining the right approach often involves evaluating whether an audit, review, a QoE analysis, or a combination of these services best supports your business objectives, timeline, and transaction requirements. Working with experienced professionals who understand both audit and assurance services and M&A advisory services ensures you select the most appropriate approach. Consider these factors:

Choose audits when:

Consider QoE reports when:

Reviews may suffice when:

The goal isn’t to add more compliance work. The goal is to avoid surprises in a transaction.

Companies benefit most when they plan ahead. Sometimes a transaction moves quickly or an unexpected offer arises; M&A advisors need to understand how each level of assurance can strengthen the financials and minimize surprises during due diligence. Audited financials generally provide the strongest foundation for major transactions. However, QoE reports serve critical roles in transaction-specific due diligence, and when a transaction opportunity presents itself with a short decision window. Reviews can fit some transaction requirements or be a stepping stone to a future audit. One must consider potential buyers and investors, and what criteria they will consider acceptable in order to participate in a transaction. Being prepared with reliable reporting will broaden the pool of potential buyers and investors.

At Haskell & White, we help clients navigate these decisions based on their unique circumstances, timelines, and transaction objectives. Investing in appropriate audit and assurance services often ensures smoother transactions, stronger valuations, and enhanced stakeholder confidence.

For guidance on choosing the right financial assurance service for your specific situation, contact our experienced team at Haskell & White.

Imagine this: Your company is in the middle of a transaction, expected to close before year-end. You’ve been working with an array of M&A specialists—investment bankers, attorneys, tax accountants, due diligence teams, valuation experts, and a CPA experienced in business combinations.

Mergers and acquisitions (M&A) are transformational moments in a company’s lifecycle, offering opportunities for growth, expansion, and increased market share. However, they also introduce complex financial reporting, tax, and regulatory challenges.

From a financial reporting standpoint, early CPA involvement is critical to ensuring a smooth post-transaction transition. Too often, the deal closes before accounting is finalized—only for an audit requirement to surface afterward. Let’s take a closer look at the key areas where CPAs add value in an M&A transaction.

As providers of business advisory services with experience helping guide organizations through a multitude of mergers and acquisitions along with other business transactions, we’ve seen firsthand how early engagement of CPAs enables technical accounting experts to meticulously review all financial aspects and address them in an efficient manner, from purchase price allocation to compliance with relevant accounting standards.

There are several key components of the M&A transaction accounting process where it can be prudent to involve a CPA:

Involving CPAs early in the M&A process, particularly to address the components explored above, can offer organizations several advantages:

For organizations exploring or in the middle of mergers and acquisitions, building your team of M&A advisors should not be an afterthought, but rather a strategic decision made at the outset. By integrating CPAs into your M&A team early, you can navigate the financial and regulatory complexities with greater confidence, ensuring a smoother transition and a stronger post-merger foundation. At the end of the day, it’s helpful to approach the technical accounting perspective as a strategic asset that can significantly influence the success of your M&A transaction.

If your organization is planning or actively engaged in an M&A transaction, our experienced CPAs can help you navigate financial complexities with confidence. Contact Haskell & White today to learn how our M&A advisory services can support your success.

Engaging in a merger or acquisition (M&A) can help your business grow, but it also requires a careful review of all the considerations at play. All parties must perform due diligence and understand the strengths and weaknesses of their intended partners or acquisition targets before entering into a transaction.

A robust due diligence process involves more than assessing the reasonableness of the sales price. It can also help verify the seller’s disclosures, confirm the target’s strategic fit, and ensure compliance with legal and regulatory frameworks — both before and after the deal closes. As M&A advisory services providers, we’ve walked many clients through this process. Here’s an overview of some key phases of due diligence.

Before the due diligence process begins, make sure to establish clear objectives, The work during this phase should include a preliminary assessment of the target’s market position and financial statements, as well as the expected benefits of the transaction. You should also identify the inherent risks of the transaction and document how due diligence efforts will verify, measure, and mitigate the buyer’s potential exposure to these risks.

The primary focus during this step is evaluating the target company’s financial statements, tax returns, legal documents, and financing structure. Additionally, scrutinize the contingent liabilities, off-balance-sheet items, and the overall quality of the company’s earnings. The M&A team should also analyze budgets and forecasts, especially if management prepared them specifically for the M&A transaction. Finally, interviews with key personnel and frontline employees can help a prospective buyer fully understand the company’s operations, culture, and value. Whether you engage external M&A advisory services or work with your current team, a thorough due diligence process is imperative to the ultimate success of the transaction.

Information gathered during due diligence, typically through a quality of earnings (QoE) report can help the parties develop the terms of the proposed transaction. For example, M&A teams can help identify and validate adjustments to EBITDA and assess the measurement of net working capital. Additionally, the M&A team unearths issues — like excessive customer turnover, significant related-party transactions, compliance matters — could warrant a lower offer price or an earnout provision (where a portion of the purchase price is contingent on whether the company meets future financial benchmarks). Likewise, cultural problems such as employee resistance to the deal or incongruence with the existing management team’s long-term vision could cause a buyer to revise the terms or walk away from the deal altogether.

Comprehensive financial due diligence is the cornerstone of a successful M&A transaction. If you’re thinking about merging with a competitor or buying another company, contact our expert business advisory services team to help you gather the information needed to minimize the risks and maximize the benefits of a proposed transaction. Our CPAs specializing in M&A advisory services will understand your ultimate objective in buying a company or merging and help ensure the decisions you make during the M&A transaction process work towards your larger business goals.

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