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Financial statement audits versus quality of earnings analysis

How to utilize audit and earnings analysis in the transaction process


When a company is going through a merger or acquisition, the more informed a buyer or seller is during the process the better. A close examination of a business’s records can instill confidence in the quality of the target company’s financial information as well as its historical earnings performance. These two factors can significantly affect valuation and forward-looking analyses.

To be confident that they’re making the right decision, buyers and sellers often consider a third-party audit or a quality of earnings analysis. These are separate engagements, but they’re similar and related. Knowing what each is and how they work can help strengthen your negotiating position.

Our white paper spells out the details of both engagements and how they compare, including:

  • The three stages of a typical audit, which confirms a company’s adherence to the applicable financial reporting frameworks: planning, fieldwork and reporting
  • The insights that a quality of earnings analysis delivers beyond audits, including adjusted EBIDTA and pro-forma considerations
  • How the scope of work varies for each, including the time period required, materiality and procedures

When discussing a potential transaction, buyers and sellers should be as informed as possible so they can verify that their investment thesis is based in certainty. Our white paper provides the essential information you need to ensure your transaction delivers the results you’re seeking.


Contact our acquisitions and divestitures professionals