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.
The Role of the Technical Accounting Experts in Business Combinations
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.
Key CPA Contributions in the M&A Process
There are several key components of the M&A transaction accounting process where it can be prudent to involve a CPA:
- Purchase Price Allocation – The allocation of the purchase price to the acquired assets and liabilities demands a deep understanding of fair value measurements. CPAs collaborate with third-party valuation firms to ensure that the allocation is not only accurate but also aligns with accounting standards and the purchase agreement.
- Fair Value Assignments – Assigning fair value to tangible and intangible assets requires specialized knowledge. This includes evaluating tangible assets like real estate, leases, equipment and accounts, as well as intangible assets like customer relationships and trademarks. CPAs provide invaluable insights into these evaluations and play a key role in achieving realistic projections based on market conditions.
- Accounting for Acquisitions – Under the accounting rules (ASC 805), the accounting for business combinations requires a comprehensive valuation of acquired assets at fair value, considering both management’s projections and historical performance. CPAs play a crucial role in assessing whether these projections are reasonable and how they impact valuation. Involving accountants from the outset can prevent valuation discrepancies and facilitate a smoother audit process and accurate financial reporting.
- Navigating Different Accounting Rules: Private companies have unique accounting choices available to them that public companies do not. These differences can significantly impact financial reporting and compliance. Leveraging the expertise of CPAs who specialize in the technical accounting aspects of business combinations can be invaluable. These professionals understand the specific accounting elections available to private companies and can navigate the complexities of regulatory requirements, ensuring that your organization remains compliant and avoids financial reporting surprises post-acquisition.
The Benefits of Timely CPA Engagement
Involving CPAs early in the M&A process, particularly to address the components explored above, can offer organizations several advantages:
- Efficiency – Early CPA involvement streamlines the post-transaction reporting requirements, helping reduce the time and effort required to catch up on complex accounting issues.
- Compliance – CPAs help ensure adherence to accounting standards and reduce the risk of a delayed or difficult audit due to inaccurate journal entries and other issues.
- Accuracy – Timely CPA engagement helps enhance the reliability of financial information and supports better decision-making and valuation accuracy.
- Risk Mitigation – CPAs help identify and address potential financial and tax implications early in the process, avoiding costly surprises down the line.
Achieving a Successful M&A Transaction
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.