Post #2: TESTING RECEIVABLES ON AN ASSET PURCHASE

Author: Deepak Kumar

An audit of accounts receivable (AR) ensures the accuracy of the financial statements, particularly during M&A due diligence. AR testing goes beyond a checklist item, requiring insights from both operations and management to truly assess the validity and collectability of receivables.

For example, in a construction company acquisition, we tested AR over 24 months, considering factors like revenue concentration and customer sources. This approach, which combined financial analysis with on-the-ground insights, provided a clearer picture of potential future collections and risks. A thorough AR audit helps forecast future value, aiding in better decision-making during M&A transactions.