{"id":1044,"date":"2024-05-01T04:18:51","date_gmt":"2024-05-01T04:18:51","guid":{"rendered":"https:\/\/kardiaadvisory.com.au\/?p=1044"},"modified":"2024-05-01T05:54:08","modified_gmt":"2024-05-01T05:54:08","slug":"series-part-4-clear-as-mud","status":"publish","type":"post","link":"https:\/\/kardiaadvisory.com.au\/2024\/05\/01\/series-part-4-clear-as-mud\/","title":{"rendered":"Series Part 4: Clear As Mud"},"content":{"rendered":"\t\t<div data-elementor-type=\"wp-post\" data-elementor-id=\"1044\" class=\"elementor elementor-1044\" data-elementor-post-type=\"post\">\n\t\t\t\t<div class=\"elementor-element elementor-element-7e857cd0 e-flex e-con-boxed e-con e-parent\" data-id=\"7e857cd0\" data-element_type=\"container\">\n\t\t\t\t\t<div class=\"e-con-inner\">\n\t\t\t\t<div class=\"elementor-element elementor-element-201af420 elementor-widget elementor-widget-theme-post-featured-image elementor-widget-image\" data-id=\"201af420\" data-element_type=\"widget\" data-widget_type=\"theme-post-featured-image.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<img fetchpriority=\"high\" decoding=\"async\" width=\"2000\" height=\"1139\" src=\"https:\/\/kardiaadvisory.com.au\/wp-content\/uploads\/2024\/03\/AdobeStock_73161620.jpg\" class=\"attachment-full size-full wp-image-1045\" alt=\"\" srcset=\"https:\/\/kardiaadvisory.com.au\/wp-content\/uploads\/2024\/03\/AdobeStock_73161620.jpg 2000w, https:\/\/kardiaadvisory.com.au\/wp-content\/uploads\/2024\/03\/AdobeStock_73161620-300x171.jpg 300w, https:\/\/kardiaadvisory.com.au\/wp-content\/uploads\/2024\/03\/AdobeStock_73161620-1024x583.jpg 1024w, https:\/\/kardiaadvisory.com.au\/wp-content\/uploads\/2024\/03\/AdobeStock_73161620-768x437.jpg 768w, https:\/\/kardiaadvisory.com.au\/wp-content\/uploads\/2024\/03\/AdobeStock_73161620-1536x875.jpg 1536w\" sizes=\"(max-width: 2000px) 100vw, 2000px\" \/>\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-488fe83e elementor-widget elementor-widget-text-editor\" data-id=\"488fe83e\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t<p>Navigating the landscape of completion accounts can sometimes feel like deciphering a code, especially when relying solely on accounting standards.<\/p><p>This may seem contradictory \u2013 the accounting standards are the framework most companies apply to their financial statements and often the seller warrants the adherence of those financial statements to accounting standards \u2013 so why not use them as the basis for preparation of the completion accounts?<\/p><p>Whilst those statements are true, unfortunately the accounting standards fall short as the definitive solution for measuring a transaction balance sheet for the reasons below.<\/p><ul><li><strong>Judgement is Allowed:<\/strong> The accounting standards allow judgement, which can lead to a range of acceptable outcomes. For instance, consider a provision for doubtful debts \u2013 a group of accountants may justify different provisions that all satisfy the accounting standards. This begs the question: how do parties agree on a position when both are right? How does an independent expert determine who is \u2018more right\u2019.<\/li><li><strong>Optionality:<\/strong> Accounting standards also provide a choice of measurement methodologies, such as fair value versus historical cost and FIFO versus LIFO for inventory. This optionality invites parties to adopt methodologies generating the most value for them. As with judgement under the accounting standards, how do the parties agree who is right and how does an independent expert determine who is \u2018more right\u2019.<\/li><li><strong>Contingent assets and liabilities:<\/strong> Accounting standards only mandate the disclosure of contingent assets and liabilities, but not their inclusion on the balance sheet. This could result in an unfair allocation of risk and rewards between the parties.<\/li><li><strong>Deal-Specific Positions:<\/strong> Negotiated positions for a transaction may demand a departure from the accounting standards. For example, parties may agree not to include the fair value of derivatives in the completion accounts.<\/li><li><strong>Misalignment with Cashflows:<\/strong> Accounting standards may require non-cash generating assets and liabilities to be included in the completion accounts. For instance, the recognition of an asset for capitalised debt issuance costs, which reduces the borrowings liability, even though there is no cash inflow to the target business post Completion.<\/li><\/ul><p>\u00a0<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-3dbcae15 elementor-widget elementor-widget-image\" data-id=\"3dbcae15\" data-element_type=\"widget\" data-widget_type=\"image.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<img decoding=\"async\" width=\"2000\" height=\"1139\" src=\"https:\/\/kardiaadvisory.com.au\/wp-content\/uploads\/2024\/03\/AdobeStock_213640022.jpg\" class=\"attachment-full size-full wp-image-1046\" alt=\"\" srcset=\"https:\/\/kardiaadvisory.com.au\/wp-content\/uploads\/2024\/03\/AdobeStock_213640022.jpg 2000w, https:\/\/kardiaadvisory.com.au\/wp-content\/uploads\/2024\/03\/AdobeStock_213640022-300x171.jpg 300w, https:\/\/kardiaadvisory.com.au\/wp-content\/uploads\/2024\/03\/AdobeStock_213640022-1024x583.jpg 1024w, https:\/\/kardiaadvisory.com.au\/wp-content\/uploads\/2024\/03\/AdobeStock_213640022-768x437.jpg 768w, https:\/\/kardiaadvisory.com.au\/wp-content\/uploads\/2024\/03\/AdobeStock_213640022-1536x875.jpg 1536w\" sizes=\"(max-width: 2000px) 100vw, 2000px\" \/>\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-477d8943 elementor-widget elementor-widget-text-editor\" data-id=\"477d8943\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t<p class=\"MsoNormal\"><span lang=\"EN-US\" style=\"font-family: 'Inter SemiBold';\">The Kardia Solution: Accounting Hierarchy<\/span><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-21f76e1 elementor-widget elementor-widget-text-editor\" data-id=\"21f76e1\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t<p class=\"MsoNormal\"><span lang=\"EN-US\" style=\"color: #364f59; mso-themecolor: accent1; mso-ansi-language: EN-US;\">Kardia recommends a three-step accounting hierarchy (for most transactions) to bring value-winning clarity to the SPA.<\/span><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-71a17565 elementor-widget elementor-widget-text-editor\" data-id=\"71a17565\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t<h4 class=\"MsoNormal\"><i><span lang=\"EN-US\">Step 1: Specific Accounting Policies<\/span><\/i><\/h4>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-21a37a8c elementor-widget elementor-widget-text-editor\" data-id=\"21a37a8c\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t<p class=\"MsoNormal\"><span lang=\"EN-US\" style=\"color: #364f59; mso-themecolor: accent1; mso-ansi-language: EN-US;\">The first step of any accounting hierarchy should be specific accounting policies contained in the SPA. Kardia\u2019s collaborative process begins with a deep dive into the financial statements with the target&#8217;s finance team, unraveling the intricacies that define the balance sheet. This meticulous understanding allows us to codify specific accounting policies and procedures in the SPA.\u00a0<\/span><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-21ba729a elementor-widget elementor-widget-text-editor\" data-id=\"21ba729a\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t<h4 class=\"MsoNormal\"><i><span lang=\"EN-US\">Step 2: Consistency with Reference Accounts\u00a0<\/span><\/i><\/h4>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-7c854685 elementor-widget elementor-widget-text-editor\" data-id=\"7c854685\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t<p class=\"MsoNormal\"><span lang=\"EN-US\" style=\"color: #364f59; mso-themecolor: accent1; mso-ansi-language: EN-US;\">Moving forward, we engage with finance and diligence teams to identify the most appropriate set of reference accounts for the transaction. It is a crucial part of the hierarchy, fostering the objective of consistency. Kardia can work with you to clarify common misconceptions of the use of management accounts versus audited accounts and options when the accounting records are not reliable.<\/span><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-694e6a8 elementor-widget elementor-widget-text-editor\" data-id=\"694e6a8\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t<h4 class=\"MsoNormal\"><i><span lang=\"EN-US\">Step 3: Accounting Standards\u00a0<\/span><\/i><\/h4>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-96f54f4 elementor-widget elementor-widget-text-editor\" data-id=\"96f54f4\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t<p class=\"MsoNormal\"><span lang=\"EN-US\" style=\"color: #364f59; mso-themecolor: accent1; mso-ansi-language: EN-US;\">The accounting standards are generally positioned as the final step in the hierarchy, as they are the least precise.<\/span><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-740f414 elementor-widget elementor-widget-text-editor\" data-id=\"740f414\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t<p class=\"MsoNormal\"><span lang=\"EN-US\" style=\"font-family: 'Inter SemiBold';\">Conclusion:<\/span><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-6cf1ba2 elementor-widget elementor-widget-text-editor\" data-id=\"6cf1ba2\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t<p class=\"MsoNormal\"><span style=\"color: #364f59; mso-themecolor: text2;\">Kardia stands ready to revolutionise your approach, ensuring precision in completion accounts beyond the uncertainties of standard practices. We hope this series has shed light on the intricate nature of completion accounts, advocating for an active, precise game plan to mitigate dispute risks.<\/span><\/p><p class=\"MsoNormal\">\u00a0<\/p><p class=\"MsoNormal\"><span lang=\"EN-US\" style=\"color: #364f59; mso-themecolor: accent1; mso-ansi-language: EN-US;\">As you navigate the complexities of M&amp;A, you can trust Kardia to be your dedicated partner, providing clarity and strategic insight. <\/span><span style=\"color: #364f59; mso-themecolor: text2;\">For any queries spared by this series, Sarah Grant (founder) welcomes your questions at <\/span><a href=\"mailto:sarah.grant@kardia.au\">sarah.grant@kardia.au<\/a><span style=\"color: #364f59; mso-themecolor: text2;\">. Explore further on our website <\/span><a href=\"http:\/\/www.kardiaadvisory.com.au\/\">www.kardiaadvisory.com.au<\/a><span style=\"color: #364f59; mso-themecolor: text2;\"> We are here for you.<\/span><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-2c27308b elementor-widget elementor-widget-post-navigation\" data-id=\"2c27308b\" data-element_type=\"widget\" data-widget_type=\"post-navigation.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t<div class=\"elementor-post-navigation\">\n\t\t\t<div class=\"elementor-post-navigation__prev elementor-post-navigation__link\">\n\t\t\t\t<a href=\"https:\/\/kardiaadvisory.com.au\/2024\/04\/23\/series-part-3-the-only-constant-is-change\/\" rel=\"prev\"><span class=\"elementor-post-navigation__link__prev\"><span class=\"post-navigation__prev--label\">Previous<\/span><\/span><\/a>\t\t\t<\/div>\n\t\t\t\t\t\t<div class=\"elementor-post-navigation__next 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32H31.9C14.3 32 0 46.5 0 64.3v383.4C0 465.5 14.3 480 31.9 480H416c17.6 0 32-14.5 32-32.3V64.3c0-17.8-14.4-32.3-32-32.3zM135.4 416H69V202.2h66.5V416zm-33.2-243c-21.3 0-38.5-17.3-38.5-38.5S80.9 96 102.2 96c21.2 0 38.5 17.3 38.5 38.5 0 21.3-17.2 38.5-38.5 38.5zm282.1 243h-66.4V312c0-24.8-.5-56.7-34.5-56.7-34.6 0-39.9 27-39.9 54.9V416h-66.4V202.2h63.7v29.2h.9c8.9-16.8 30.6-34.5 62.9-34.5 67.2 0 79.7 44.3 79.7 101.9V416z\"><\/path><\/svg>\t\t\t\t\t\t\t<\/span>\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t","protected":false},"excerpt":{"rendered":"<p>Navigating the landscape of completion accounts can sometimes feel like deciphering a code, especially when relying solely on accounting standards. This may seem contradictory \u2013 the accounting standards are the framework most companies apply to their financial statements and often the seller warrants the adherence of those financial statements to accounting standards \u2013 so why [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":1045,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6],"tags":[],"class_list":["post-1044","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-completion-accounts"],"_links":{"self":[{"href":"https:\/\/kardiaadvisory.com.au\/wp-json\/wp\/v2\/posts\/1044","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/kardiaadvisory.com.au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/kardiaadvisory.com.au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/kardiaadvisory.com.au\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/kardiaadvisory.com.au\/wp-json\/wp\/v2\/comments?post=1044"}],"version-history":[{"count":13,"href":"https:\/\/kardiaadvisory.com.au\/wp-json\/wp\/v2\/posts\/1044\/revisions"}],"predecessor-version":[{"id":1092,"href":"https:\/\/kardiaadvisory.com.au\/wp-json\/wp\/v2\/posts\/1044\/revisions\/1092"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/kardiaadvisory.com.au\/wp-json\/wp\/v2\/media\/1045"}],"wp:attachment":[{"href":"https:\/\/kardiaadvisory.com.au\/wp-json\/wp\/v2\/media?parent=1044"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/kardiaadvisory.com.au\/wp-json\/wp\/v2\/categories?post=1044"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/kardiaadvisory.com.au\/wp-json\/wp\/v2\/tags?post=1044"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}