What percent of debt and equity transactions close without any adjustments to the financial statements? Not enough, as independent due diligence invariably uncovers material errors in the statements.

In some of our recent engagements, we found:

• 2006 EBITDA understated by nearly $1.1 million and 2005 EBITDA overstated by over $1.2 million, impacting trailing-twelve month EBITDA for purchase price calculation. A well-known national firm had reviewed the financial statements. Client: Fundless Sponsor.
• CEO-directed manipulation of audited financial statements resulting in overstated earnings and assets. Undocumented related-party transactions. Client: Mezzanine Lender.
• EBITDA adjustments related to financing and aged inventory. "Big 4" accounting firm had audited financial statements. Client: Private Equity Fund.
• EBITDA overstated by $300,000, reducing purchase price by over $800,000. Client: Fundless Sponsor.

How do these errors happen and why aren't they uncovered sooner by the companies or auditors? The answers range from procedural inadequacies by the independent auditors or internal staff to blatant fraud. What can you do? Clearly, you should conduct your own thorough financial due diligence. Please contact us at (310) 789-1777 or by replying to this email if you would like a checklist of things to look for.

Brandlin & Associates is an exclusive provider of investigative accounting, financial consulting and strategic consulting services. We pride ourselves on offering superior technical expertise, years of practical experience and unparalleled service to decipher financial and operational performance metrics. As a result, our clients are able to make informed decisions in a timely manner.

email: news@brandlin.com

phone: (310) 789-1777

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