M&A: How Accounting Decisions Can Create or Destroy Value
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November 10, 2026
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Guidance on the technical accounting requirements of International Financial Reporting Standard 3 Business Combinations (“IFRS 3”) is widely available — but the practical challenges and opportunities that come with its application are rarely explored with the same depth. This article does exactly that, offering practical insights into key accounting and commercial considerations drawn from the deep M&A experience accumulated by members of FTI Consulting’s Australian Accounting Advisory team.
Closing a deal is no small feat. For an acquirer, the path to a signed agreement demands months of management time, due diligence and adviser costs.
Unfortunately, the hard work is far from over for finance teams.
The weight of accounting uncertainties and assumptions that an acquisition introduces is often underappreciated. The acquired business carries its own history and judgements and if not addressed with the same rigour applied to the deal, they become the acquirer’s problem to manage, often for years.
Every acquisition also presents a rare opportunity – a one-time chance to clean up, simplify and align accounting decisions across the group.
The Post-Acquisition Window
The acquirer has a narrow window to make these changes immediately after acquisition, with adjustments being more explainable and credible at the outset rather than in periods following. Miss that window and the consequences can be significant:
- Cash and deal value can be lost through completion adjustments or post-acquisition disputes.
- Assets may be impaired.
- Financial risks and exposures inherited through contracts may not be mitigated.
- Where management incentives are tied to future earnings, accounting decisions made in haste can distort the very metrics that determine whether those incentives pay out.
Why do many acquirers miss that window?
- Auditors and regulators tend to focus less on post-acquisition accounting decisions at the point they are made and more on the downstream issues they give rise to, particularly impairment and revenue recognition.
- The urgency that defined the pre-signing phase gives way to a quieter assumption that what remains is largely administrative and as a result is often under-resourced: recognise the acquisition accounting, satisfy the auditors and move on.
- Finance teams may not be set up with the right clarity on roles and responsibilities to execute on critical actions.
- There is often misplaced confidence in the 12-month measurement period that IFRS 3 allows, and finance teams let the work build up until this period is almost closed.
Getting the Keys
Once the acquirer has control of the target, there is no shortage of competing priorities across all aspects of the enlarged business.
How does an acquirer put the accounting plan together and what is the order of priority?
The top priorities will always be time-critical activities, especially those that could impact deal value, cash or compliance in the immediate term. Efforts can then shift to challenging the history of the acquired business and working through day-one decisions for acquisition accounting to get the opening balance sheet right. The real challenge is that as you learn more about the history and start to consider day-one decisions, additional time-critical matters start to appear.
Time-Critical Activities
The priority is to address time-sensitive activities that will impact deal value, cash outflows and any compliance obligations. These often stem from assumptions made during diligence, limitations in available information, accounting judgements, contractual complexity or operational realities that only become visible once control transfers.
Completion Adjustments
Most deals will have some kind of completion mechanism, allowing parties to agree on a headline price at signing and then true up for “actuals” (most commonly cash, debt and working capital transferred) as of the closing date. Sometimes these mechanisms are straightforward, and at other times they introduce more complex one-off, judgemental calculations. Scrutinising the acquisition balance sheet post-transaction can have the added benefit of reducing the purchase price.
(The strategic use of purchase price adjustments is explained in detail in this article1 authored by Dawna Wright, FTI Consulting’s Head of Australia Forensic & Litigation Consulting.)
Reporting Obligations
Group reporting requirements, lender covenants, tax lodgements and year-end deadlines do not wait for integration to be complete. Balancing systems and process integration with complex accounting and compliance is a significant challenge — and acquirers who have not mapped their reporting obligations early risk being reactive and facing the consequence of compliance failures.
Representations & Warranties
Many of the accounting issues outlined in this paper could constitute a breach of warranties in the sale agreement, including revenue irregularities, undisclosed liabilities and compliance failures. Acquirers should understand the scope of their rights and entitlements, and have legal, insurance and accounting advisers available to assess potential claims as issues emerge in an attempt to recover value.
Challenge the History
An acquirer should focus on identifying historical areas that could be quietly eroding cash flow or profitability. Addressing these exposures early can prevent such issues from compounding, and they rarely arise from a single cause. Knowing where an acquirer’s judgement and decisions will have long-lasting impact is critical. In many cases, taking an approach that may be easier in the short term can lead to more complexity and cost down the track. The following are common risk areas that should be considered.
Commercial Contracts
While key commercial contracts such as customer and supplier agreements and leases will usually be assessed as part of commercial and legal due diligence, the ongoing accounting and reporting implications are often overlooked. The acquirer has an opportunity to mitigate the future financial statement impact by assessing all contracts acquired on acquisition and accounting for issues such as contract unfavourability, onerous contract provisions, impairment and revenue recognition at the time, rather than in the months and years following the deal.
Revenue Irregularities
Aside from any accounting issues arising from customer contracts, the nature and extent of any revenue risks or irregularities identified during due diligence can now be fully investigated. One example is channel stuffing: excessively pushing product into the sales channel to prematurely recognise revenue. A small amount of pushing might be considered reasonable business behaviour, but this can quickly drift into unacceptable conduct, particularly in an M&A environment where there are more stringent behavioural and disclosure requirements.
Such patterns require further analysis of the underlying customer contracts, incentives, side-deals and arrangements, rights-to-return and any bill-and-hold arrangements. A review of the target’s accounting policies for variable consideration including rebates, return provisions and credit notes should also be considered, as this is fundamentally a revenue recognition and measurement issue.
Other Balance Sheet Exposures
Beyond contracts and revenue, acquirers should scrutinise other high-risk accounting areas such as provisions and contingent liabilities. Environmental or leasehold restoration obligations, legal claims or proceedings and more general provisions may be understated or unrecognised completely. A specific and common area of concern is wage underpayments, which often only surface post-acquisition when payroll systems, employee-related contracts, and workforce classifications are integrated. As a result, the related liabilities inherited on acquisition are often understated.
Early identification of these issues can allow an acquirer to correctly recognise them as part of acquisition accounting and start to deal with the underlying problem. Where warranted, early self-reporting to a regulator on an inherited problem is almost always a preferable approach with regard to both financial exposure and reputational damage.
Day-One Decisions
Knowing where an acquirer’s judgement and decisions will have long-lasting impact is critical. In many cases, taking an approach that may be easier in the short term can lead to more complexity, with undesirable consequences in future periods.
Asset Accounting
Contract-based assets that should be recognised separately from goodwill can be missed entirely. Other tangible asset issues commonly overlooked include useful life assessment, residual values and componentisation.
The consequence is poor quality asset data that drives ongoing financial reporting and business decisions. Inaccurate asset values and depreciation profiles can distort performance metrics and investment benchmarks, leading to suboptimal decisions about capital expenditure, maintenance spending, and asset replacement.
Identifying CGUs and Allocating Goodwill
Any goodwill arising from an acquisition must be allocated to a cash generating unit (“CGU”) or groups of CGUs expected to benefit from the synergies of the business combination. In reality, this is often oversimplified, with goodwill allocated to a single CGU representing the acquired business. Where synergies flow to other parts of the group, this can create a mismatch between where goodwill sits and where the associated cash flows are generated. The result is recognising potentially avoidable goodwill impairment in one CGU despite a healthy group overall, with a resultant impact on enterprise value, covenant reporting and market price. Regulators are keeping a close eye on goodwill impairment (and impairment of other non-financial assets), with the Australian Securities and Investments Commission flagging it as an enduring financial reporting focus area.2
What Are the Critical Lessons for Acquirers?
FTI Consulting has worked with many clients to develop a practical action plan to solve their acquisition accounting and reporting challenges. Those who do it well prioritise the following:
- Interrogate the books, records and contracts: Take ownership from day one and understand what assumptions underpin these documents, and where the exposures sit. Validate the due diligence findings and get the issues on the table early.
- Build accountability from the start: Establish clear roles and responsibilities within teams. Identify any capability gaps or capacity constraints to be filled in by additional resources or advisers early.
- Get the opening balance sheet right: The day-one “fair valued” balance sheet, including newly identified intangible assets, sets a new foundation. Make sure you understand the impact on post-acquisition earnings.
- Align and optimise policies: Take the opportunity to step back and ask whether existing policies are serving the business, or whether they need to be rebuilt to better reflect how the future business will operate.
The accounting decisions made in the first few days or months following an acquisition can have lasting impact, and if done correctly, can be advantageous beyond financial reporting. When approached in a way that is timely, disciplined and intentional, it provides the opportunity to shape the financial narrative that accurately reflects the value created at acquisition.
Footnotes:
1: Wright, Dawna and Laubscher, Constant, “Strategic Use of Purchase Price Adjustments in Share Purchase Agreements: A Forensic Accountant’s View,” FTI Consulting (10 Sept. 2025).
2: Australian Securities and Investments Commission, “Financial Reporting and Audit Focus Areas” (May 2026).
The views expressed herein are those of the author(s) and not necessarily the views of FTI Consulting, Inc., its management, its subsidiaries, its affiliates, or its other professionals.
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