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Mergers & Acquisitions Written evidence of review

Mergers & Acquisitions Written evidence of review

You are going through an M&A transaction and wondering, “What are the top five mistakes that can be found by external auditors?”

In an M&A there are typically 16 types of documents, or types of information, that will be used. In this video we will go over examples of how to provide evidence that you reviewed the Valuation Report that was prepared by a 3rd party.

This example has three sections:

  1. Reviewer procedures
  2. Preparer procedures
  3. Deferred revenue procedures

The sign-off sheet will include the reviewer’s process, initials, date, and comments. The comments can help you document how detailed your review is. If you do not want to use a sign-off sheet, PDF comments that indicate the name of the reviewer and date of the comment can also be used.

EXAMPLE – Reviewer procedures

Management will review the valuation report from a 3rd-party consulting firm. Summary conclusions are documented in the acquisition memo that is reviewed by the Controller or Assistant Controller. Evidence of review is maintained in the final purchase accounting workbook.

This example has seven reviewer procedures:

  1. Reviews the valuation assumptions used, such as what financial model (cost approach or income approach) is used for each identifiable intangible asset.
  2. Reviews whether the company’s projections and projected lives of intangibles are reasonable and consistent with industry practices.
  3. Reviews whether all intangible assets, such as trade name, developed technology and customer relations, have been property identified by reviewing the purchase agreement and through discussions with Corporate Development and Product Business Operations and/or key employees/founders of the acquired company.
  4. Looks at the forecasts, assumptions, any intangibles, and goodwill to ensure they are consistent with source document provided. Are the assumptions that you used the same as those in the valuation?
  5. Reviews the reasonableness of the valuation results/data used in the valuation by ensuring that the comparable companies used in the analysis are consistent with management’s assessments/consideration of what the comparable companies are.
  6. Review includes making sure that the forecasts for the acquired company, such as revenue growth rates, gross margins, operating expenses, are in line with those of the comparable companies.
  7. Any questions or follow-up items are communicated to the consulting firm for clarification and adjustments, if necessary.

In this photo you can see how the reviewer procedures are outlined and what kinds of comments might accompany each procedure.

EXAMPLE – Preparer procedures

This example shows the 15 steps they documented, beginning with the Opening Balance Sheet.

EXAMPLE – Deferred revenue procedures