Acquiring a business is a major milestone for any business owner, whether they’re the buyer or the one being bought. There’s plenty of work to be done pre-acquisition, but it doesn’t stop once the deal is signed.
Post-acquisition accounting is a critical step in ensuring easier financial integration and long-term success. It involves reconciling the financial operations of both companies, aligning financial strategies, and making sure everything is compliant.
If you’re not sure where to start, this blog explores what post-acquisition accounting is, what the process involves, and why it’s essential for successful mergers and acquisitions (M&A).
What Is Post-Acquisition Accounting?
Post-acquisition accounting refers to the financial activities that happen after an M&A is finalized. The process exists to ensure the acquiring company properly integrates all financial data, processes, and systems of the acquired business.
Key components include:
- Purchase Price Allocation (PPA): This involves assigning the acquisition price to the acquired company’s assets and liabilities.
- Goodwill Recognition: Calculating and recording goodwill as part of the balance sheet, representing the premium paid over the fair value of net assets.
- Compliance with Accounting Standards: Ensuring financial reporting meets standards like IFRS or GAAP.
Post-acquisition accounting lays the groundwork for a cohesive financial operation, which is essential for the success of the newly combined entity.
What Does Post-Acquisition Accounting Look Like?
The post-acquisition accounting process can look different depending on the size and complexity of the acquisition. However, the typical steps include:
1. Financial Reconciliation
Both companies consolidate financial statements to maintain consistency in reporting formats, currencies, and accounting methods.
2. Asset and Liability Evaluation
Assess the acquired company’s assets, liabilities, and contingencies to ensure accurate purchase price allocation and compliance with accounting standards.
3. Integration of Financial Systems
Combining financial systems and processes, matching policies like revenue recognition, depreciation, and tax compliance. Financial integration after M&A often requires software upgrades or transitions if companies use different programs.
4. Goodwill and Intangible Assets
Any intellectual property or brand value must be recorded, as well as any other intangible assets. They should be tested regularly to ensure accurate valuation over time.
5. Ongoing Financial Reporting
As a newly integrated entity, there should be a fresh reporting structure.
Why Post-Acquisition Accounting Matters
Successful financial integration isn’t just about crunching numbers but about creating a strong foundation for a merged business. Here’s why post-acquisition accounting is so important:
1. Ensures Transparency and Accuracy
M&A transactions are regulated, and accurate financial records are essential for audits and compliance. Proper accounting ensures all stakeholders have a clear view of the company’s financial health.
2. Facilitates Operational Efficiency
Financial integrations that are well-executed reduce redundancies, improve decision-making across the organization, and keep operations running smoothly.
3. Supports Strategic Growth
Accurate and consolidated financial data helps leadership make informed decisions about future investments, expansions, and cost optimizations.
4. Minimizes Risk
Post-acquisition accounting going wrong means expensive mistakes, from misvalued assets to tax penalties and fines. Working with virtual accounting experts like SkyFin helps mitigate these risks after acquisitions.
How Remote Accounting Can Help
Managing post-acquisition accounting processes can be confusing, especially for small or medium-sized businesses. Skylight Financial Solutions offers specialized financial integration after M&A, ensuring accurate and efficient financial management so you can focus on building a stronger business.
Virtual accounting for acquisitions means you can leave the hard work to us, prioritizing a smooth transition and setting the stage for future success.
Contact us today to learn more!
