2018 Fall issue of Horizons

integrate into the acquirer or continue to operate under its own systems. The likely path will be integration. Integration requires an understanding of both the acquired company’s systems and the acquirer’s systems. The company must first establish a strategy for converting the acquired company’s system into the acquirer’s system. Issues with convergence must be addressed, including consolidating financials and different methods of accounting. Any number of things throughout the integration process could fail, making it imperative that management understands the systems that are being integrated – especially those dealing with financial information. Lack of Due Diligence Financial statement misrepresentation is often cited when a fraud is discovered as part of a M&A transaction. This alone represents the importance of financial statement due diligence to try and avoid post-acquisition failure. Nonetheless, due diligence is often overlooked in the process. Due diligence, when performed by a third party, is transaction-based work that an acquirer can rely upon. Due diligence can include financial measures, such as a quality of earnings investigation, as well as non-financial measures such as related key observations of the business to be acquired. Financial due diligence will extract any one-time, non-business related expenses that will not be covered by the acquirer so as to represent fairly and accurately the true enterprise value of the company to be acquired. The information provided helps the acquirer benchmark future earnings, projects and performance objectives. In addition, due diligence provides an overall risk assessment of the company to be acquired and often exposes things

Revenue Recognition Resource Center Visit RubinBrown’s Revenue Recognition Resource Center for a series of articles on the new accounting guidance for revenue recognition in which the different aspects of the new standard are explored.

www.RubinBrown.com/RevRec

Inconsistent revenue recognition practices that could occur post-acquisition include:

∙ The acquirer must update the entire enterprise’s terms of shipping to include whether it is Free On Board (FOB) Shipping Point or FOB-Destination to ensure consistent practices in accurately booking revenue, inventory and shipping costs. FOB-Shipping Point allows the buyer to record the inventory the moment it is shipped. Conversely, FOB-Destination allows the buyer to book the inventory only once the goods are delivered. ∙ Strong cut-off policies coupled with month-end and year-end closing procedures could prevent timing issues. Fraudulent activity within timing issues include the acceleration or deceleration of revenue to meet sales goals, or smooth earnings and issues surrounding when to recognize revenue for a service firm. Systems Integration Post-acquisition transitions have the opportunity to make or break the success of an acquisition. One of the biggest pieces involved in the transition period, typically ranging from 6-24 months post-closing date, is systems integration. These systems include, but are not limited to, accounting systems, Enterprise Resource Planning (ERP) and Customer Relationship Management (CRM) systems.

The acquirer must decide how the acquired company will operate, if it will

Seven Susceptible Areas for Post-Acquisition Failure

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