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    Post Closing Adjustment Agreement

    Tuesday 15th December 2020

    Another important and sometimes controversial topic is the definition of the elements included and excluded in the correction as well as the accounting methods and procedures to be applied for the calculation of these items. This is a critical step. Inattention to these details and errors can lead to costly litigation after closure and significant economic losses. It is essential that the parties` consultants, management, accountants and financial advisors work as a team to design and negotiate these provisions, paying particular attention to objects that could be manipulated, misinterpreted or challenged in hindsight. However, depending on the wording of the sales contract, one page must write a check on the other page. The buyer is usually the one who writes the cheque; Sellers generally insist that the trust money be reduced instead of paying out of pocket. Adding an example of NWC calculation as a schedule to the sales contract can also be very helpful in minimizing litigation. In the event of an intervention by an audit firm in dispute, the parties should consider potential conflicts of interest and determine whether the commissions of the designated entity would be proportional to the expected amount of an adjustment at issue. The power of the designated audit firm should be limited only to the issues and the resolution of the contentious elements in the area of the values claimed by the parties. The arbitrator`s accountant`s decision on the contentious elements and the amount of the correction is generally final and binding.

    As a general rule, the arbitrator`s fees are allocated in proportion to the amount of the disputed adjustment that is resolved for and against each party. Both buyer and seller must specify the accounting standard used to determine actual net sales from the financial statements. The two most common standards for calculating a net labour capital adjustment are generally accepted accounting principles (GAAP) or GAAP, which are applied consistently with the historical financial statements of the target transaction. Although GAAP is the chosen standard for net labour capital adjustment, the parties must ensure that the interpretations permitted in the GAAP are taken into account. This may require careful attention to the accounting methods underlying the target entity`s financial statements and a separate schedule with acceptable accounting principles or assumptions attached to the sales contract. If GAAP, which is applied in accordance with the historical financial statements of the target transaction, is the chosen accounting standard, changes to these standards should be explicitly specified in the sales contract to avoid ambiguity. After the buyer has submitted his calculation of the adjustment, the seller and his accountants usually have some time to verify the buyer`s calculation, request and verify the supporting documents and make written objections to the buyer`s calculation.


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