This document discusses common areas of financial statement disputes that arise during post-closing negotiations following a merger or acquisition. It identifies eight financial statement accounts - cash, revenue recognition, inventory, accounts receivable/accounts receivable reserves, pensions, contingent liabilities, accounts payable, and industry/GAAP past practices - that are frequently disputed. For each account, it provides examples of issues that cause disagreement between the buyer and seller such as how in-transit cash is defined, how revenue cut-off dates are set, and whether reserves have been over or under accrued. The document advises addressing these potential dispute areas carefully in the purchase agreement.

1. M&A Post-Closing Disputes
Commonly disputed financial
statement accounts
Deloitte Financial Advisory Services LLP
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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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6. Copyright © 2014 Deloitte Development LLC. All rights reserved.
This publication contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means of this
publication, rendering business, financial, investment, or other professional advice or services. This publication is not a substitute for such professional advice or
services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect
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and its member firms. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services
may not be available to attest clients under the rules and regulations of public accounting.

7. Copyright © 2014 Deloitte Development LLC. All rights reserved.
This publication contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means of this
publication, rendering business, financial, investment, or other professional advice or services. This publication is not a substitute for such professional advice or
services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect
your business, you should consult a qualified professional advisor. Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any
person who relies on this publication.
About Deloitte
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a
legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited
and its member firms. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services
may not be available to attest clients under the rules and regulations of public accounting.