Completion accounts are a set of financial statements prepared for a specific date, usually the date a business sale completes, used to calculate a final purchase price adjustment based on the target's actual net assets, working capital or cash position at that point, rather than relying solely on estimates made before completion.
How completion accounts work
The Sale and Purchase Agreement sets out the accounting policies and mechanism for preparing completion accounts, which are usually drawn up shortly after completion and compared against a pre-agreed target or estimate figure. Any difference results in a purchase price adjustment, paid between buyer and seller, and acts as an alternative to a "locked box" mechanism, which instead fixes the price based on accounts from a date before completion. Completion accounts often interact closely with any earn-out arrangement in the same deal, since both depend on clean, consistent post-completion financial reporting.
How UK businesses use completion accounts
- An SPA specifies that completion accounts will be prepared within 60 days of completion, with any difference from the target working capital figure adjusting the final purchase price.
- A buyer and seller each appoint their own accountants to review draft completion accounts, with an independent expert appointed to resolve any disagreement over specific line items.
- A seller negotiates the accounting policies used in the completion accounts mechanism carefully, since the specific treatment of items like stock or provisions can materially affect the final price they receive.
- An advisory firm helps a client compare a completion accounts mechanism against a locked box mechanism when structuring a sale, weighing the certainty of a locked box against the accuracy of completion accounts.
How Advantage supports completion accounts preparation
Advantage's EdgeFusion accelerator gives accountancy and advisory firms a clean, structured financial data set to work from when preparing or reviewing completion accounts, reducing the scope for disputes over the figures a final purchase price adjustment depends on.
Frequently Asked Questions
What is the difference between completion accounts and a locked box mechanism?
Completion accounts adjust the purchase price after completion based on the target's actual figures at that date, giving accuracy but some scope for dispute. A locked box mechanism instead fixes the price based on accounts from a pre-completion date, giving both parties more certainty but shifting economic risk to the buyer earlier.
Who prepares completion accounts?
Completion accounts are typically prepared by the buyer following completion, in line with the mechanism set out in the Sale and Purchase Agreement, though the seller usually has a contractual right to review and challenge the figures.
What happens if the buyer and seller disagree on completion accounts?
The Sale and Purchase Agreement usually sets out a dispute resolution process, often referring specific disputed items to an independent expert or accountant for a binding decision on the final figures.
