Meaning
Systematic review of a corporate transaction executed after the deal has been finalized ensures the accuracy of the transfer parameters. This procedure, known as a post-close audit, verifies that the asset values and liabilities transferred during the acquisition match the agreements in the final contract. The exercise protects the buyer from paying for non-existent inventory or overvalued accounts receivable.
Examination Scope
Detailed verification of the balance sheet as of the closing date forms the core of this investigation. Auditors focus on high-risk categories such as net working capital, outstanding debt, and unpaid taxes to ensure the post-close audit uncovers any discrepancies. The investigation must be completed within the contractually specified period, often sixty days, to remain legally binding.
Financial Reconciliation
Discrepancies identified during this review often lead to cash transfers between the parties. If the post-close audit reveals that the actual net working capital was lower than estimated at closing, the seller must refund the difference to the buyer. This mechanism ensures that the final price reflects the true state of the business.
Valuation Adjustment
Settling these disputes through the contract’s indemnity clauses prevents the need for litigation. The findings of the post-close audit provide the objective data needed to settle the accounts.
