Advising a regional accounting firm on a challenging transaction
It is an age-old story of an accounting firm trying to complete a financial statement audit and issue an opinion but is roadblocked by their client’s complex accounting issues. A regional accounting firm was trying to meet demanding engagement deadlines while maintaining high audit quality standards, all with a limited amount of resources. Everything was going fine until they got hit with an accounting issue that most CPAs are not comfortable with.
Their audit client, who was still in the start-up phase, had been entering into increasingly complicated capital raising transactions. Convertible preferred shares with down-round and anti-dilution features, detachable warrants, and share-based payments issued for services, just to name a few. Yikes! Analysis of these types of instruments involves some of the most complicated standards in all of U.S. GAAP.
Having seen us in action at past training sessions and knowing of our vast experience with complex accounting issues, the regional accounting firm reached out to see if we could help. Our response? Yes, please! We love complicated accounting issues! We met with the partners of the regional accounting firm to understand their needs, agree on a timeline, and obtain information about their client, including the transactions in need of analysis. We gathered all of the necessary documents and agreements for the transactions and got to work.
The result was a detailed memorandum provided to the regional accounting firm that outlined the accounting and audit issues, answered questions raised by the engagement team, documented the authoritative guidance related to the accounting issues we addressed, and provided other considerations to be taken into account by the regional accounting firm in determining the proper accounting and reporting under U.S. GAAP.
The accounting firm used the memorandum we provided to draft their analysis and conclusions to be included in the audit working papers. We performed a thorough review of their audit documentation and offered additional insight to ensure it was sufficient and complete. With the comfort knowing that these complicated transactions were accounted for correctly and audited appropriately, the accounting firm was able to satisfy their client and issue a timely opinion on the financial statements, without the worry that their work would be called into question by peer reviewers.
We essentially functioned as a “national office” for the regional accounting firm, providing another set of eyes to ensure nothing fell through the cracks. Have an accounting issue that your engagement team is struggling to comprehend, give us a call and let’s walk through it together!