Completion Accounts
AdvancedCompletion accounts are financial statements prepared shortly after an acquisition completes, showing the business's actual cash, debt and working capital at the completion date, used to calculate the final purchase price.
In acquisitions using completion accounts, the price paid at completion is based on estimates. Completion accounts determine the actual figures, and the price is adjusted up or down accordingly.
Usually, the buyer prepares draft completion accounts within a set period after completion, often 60 to 90 days. The seller reviews them and can dispute items. Disagreements that cannot be resolved are often referred to an independent accountant.
For example, the estimated price assumed cash of 5,000,000, but completion accounts show cash of 5,600,000. The buyer pays the seller an additional 600,000.
Completion accounts give buyers protection, because they pay for what they actually receive. However, they create uncertainty for sellers about the final price, take time to prepare and can lead to disputes over accounting policies. The agreement should define clearly how each item is calculated. In the United States, the same approach is usually described as a closing balance sheet with a purchase price adjustment.
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