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Year End Audit: Integrated Companies

Tim Williams's Profile

My company acquired two companies during 2010 and I am trying to get ready for my year end audits. I work at a privately held  company and we bought two privately held companies, but we may be looking to do an IPO in 2011 or 2012 and I want to get my financial reporting in order. Any guidance for how to find resources (other than being told to contact auditors to charge me huge $$$) to help me get started and understand how to consolidate statemements.

Answers

Yoav Cohen
Title: Managing Partner
Company: NYC Advisors, LLC
(Managing Partner, NYC Advisors, LLC) |

Your best bet is to deploy best practices of public companies - have your financial audited by a reputable audit firm (not necessarily one of the big 4), have them do also quarterly reviews and start implementing SOX. Doing so will insure that you follow good accounting and operational controls and make your IPO much smoother.

Jim Scanlon
Title: Consultant
Company: JBS Consulting
(Consultant, JBS Consulting ) |

Tim - I will interpret your request to help you get started and understand how to consolidate statements literally and suggest the following …

We can assume the merged general ledger(s) will be used to crate your financial statements . But, in the new merged environment, you also will need to consider how/if the general ledger will support production of operating statements and related business metrics.

Once you fully define the ‘products’ of your general ledger system, your next challenge will be harmonizing the general ledgers and the charts of accounts of the merged entities. This will need to be done on an account-by-account basis and, will need to recognize new internal or external reporting requirements presented by the newly merged entities.

During the process of designing the new chart of accounts you will identify the number and define the operation of intercompany accounts. Intercompany accounts facilitate transactions between related entities and are designed to be eliminated in consolidation. You may also need to design transactions and controls around settling intercompany transactions as well.

Once you get to this point, then I agree with Yoav’s suggestion to engage your auditors. Your auditors can inspect the design of your intercompany consolidating process to ensure it ‘works’ properly (e.g., eliminates any intercompany profits, all intercompany accounts balance, etc.) and do the testing needed to certify your overall controls environment is ‘SOX-ready’. They can also observe and comment, as needed on the intercompany settlement process to ensure proper cash management between parent and its new subsidiaries.

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