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Quality of Financial Statements

Posted by David Humphrey on 17 June 2015 | Comments

As buyers move forward with a purchase of a business they will request copies of financial statements prepared by the seller’s Certified Public Accounting firm.  One of the first items they see on these statements is the name of the firm that prepared these statements, and ask their advisors what they know about the Seller’s CPA firm.  As the size of the target company increases, buyers expect the CPA firm’s reputation will also increase.  Is this a snob test? Partly, but not completely.  There are two things to consider here.  One is firm size and the other is industry knowledge.

CPA firms can nurture specialists in different services accounting firms offer, such as: tax, auditing and consulting.  Many firms also develop a practice niches and become experts in certain industries.  We have recently worked with right sized accounting firms with a practice niche in the oil heat industry, the golf course industry and health care industry, just to name a few.  Regardless of the firm’s size, buyers want to know if the CPA has the appropriate resources and knowledge to adequately prepare reliable financial statements for the business.

Even the work of very small CPA firms with strong reputations in certain niche industries is enhanced by their knowledge of how other similar businesses are performing.  A well respected CPA firm and/or one with a concentration of clients in your industry can be a way to provide a buyer with a level of comfort to rely on prior years financial statements.