Completion Accounts Disputes: Expert Evidence Guide for M&A Lawyers
The Completion Accounts Mechanism
In a completion accounts deal, the purchase price is adjusted after completion based on the actual financial position at the completion date. The SPA specifies a target (typically for working capital, net debt, or net assets) and the price is adjusted pound-for-pound for any difference.
The mechanism requires preparation of completion accounts by one party (usually the buyer), review by the other party, and agreement within a specified period. If the parties cannot agree, the SPA typically provides for expert determination.
The Agreed Accounting Basis
The agreed accounting basis is the accounting framework specified in the SPA. It is typically defined as "in accordance with the accounting policies of the target company as applied in the reference accounts." This is not the same as general GAAP compliance.
The expert must assess whether each disputed item was prepared consistently with the specific policies applied in the reference accounts, not simply whether the treatment complies with IFRS or UK GAAP in the abstract.
Common Disputed Items
Working capital disputes focus on the definition of current assets and liabilities and whether normalisation adjustments are appropriate. Revenue recognition disputes arise where revenue was recorded in the wrong period. Provisioning disputes concern whether provisions were adequate and consistently applied.
IFRS 16 lease capitalisation, deferred revenue calculations, and net debt definitions (what counts as debt versus cash) are frequent sources of disagreement in completion accounts disputes.
ICAEW Expert Determination Process
When parties cannot agree on completion accounts, the ICAEW (or another appointing body specified in the SPA) appoints an independent accountant as expert determiner. Each party submits written representations addressing the disputed items.
The forensic accountant prepares the party's submissions, analyses the opposing position, and provides analytical support throughout the determination process. The determiner's decision is binding on both parties.
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