Sell-Side Readiness: Preparing for a First-Time PCAOB Audit for Acquisition
AUSTIN, Texas, September 2017 – Founded in 2009, OVS Group is a software and services company providing integration and automated workflow solutions for oil and gas clients operating in conventional and unconventional plays worldwide. When a strategic acquirer approached OVS, the deal was conditional, in part, on an audit by a Public Company Accounting Oversight Board (PCAOB)-compliant audit firm, as mandated by the Buyer’s Big 4 audit firm, within 60 days of signing the term sheet. Like most fast-growing technology companies, OVS dedicates its resources to delivering technology and process innovation – to one of the most complex industries in the world – and not to building an innovated finance and accounting function.
A Fast-Turnaround Audit
OVS needed a solution to (i) convert two years of finance and accounting records from a cash, primarily tax-focused, system to accrual (GAAP) ahead of the audit; (ii) lead fulfilling all audit requests, (iii) not just prepare the “books” for a year-end audit, but ensure any adjustments needed for the audit were incorporated into the 24-month historical accounts on a monthly basis to expedite the Buyer’s due diligence quality of earnings analysis; and (iv) identify process and reporting opportunities to improve the finance and accounting function regardless of whether or not the deal went through.
OVS considered engaging its local tax CPA to prepare them for the audit but quickly realized its needs required a team experienced in working with Big 4 audit firms, and also supporting sellers.
The 9Gauge Advantage
With the urgent deadline, 9Gauge provided an experienced “SEAL” team to address the client’s needs. A team working in parallel allowed for simultaneous focus on the key areas of revenue recognition (multi-element software arrangements) and international subsidiary consolidation while a more junior (cost-effective) resource dove into researching and adjusting the general ledger to a GAAP basis. This approach allowed for efficient (time and costs) delivery of the Client’s short-term needs while assessing improvement areas for the long-term benefit of OVS.
In 3 short weeks, 9Gauge:
- Adjusted 2 years’ accounting records to a GAAP basis and organized the majority of financial reporting and corporate documents we knew the auditor would request.
- Delivered scalable financial models (revenue recognition, international consolidation) that properly (in accordance with GAAP) accounted for revenue under the highly complex multi-element software arrangements guidance and foreign exchange accounts within equity.
- Advised on process and control improvements to maintain the monthly accounting and financial reporting in accordance with GAAP.
OVS benefited from the 9Gauge team approach in multiple ways:
- Successful completion of the M&A process by fulfilling it’s financial and accounting reporting obligations under the 60-day exclusivity period.
- Minimal disruption to its management team and staff to prepare for and execute the audit, allowing the OVS team to focus on running daily operations and serving clients.
- Leveraged the scalable financial models (rev rec, consolidation) to maintain the monthly accounting and financial reporting in accordance with GAAP so subsequent audits are conducted as seamlessly.
“The 9Gauge team removed the burden from our staff to allow us to focus on our business. The 9Gauge support reduced substantially our effort to prepare for the audit, reduced the audit time, and even left our auditors impressed,” recalls Alexandria Alvarez Gerbasi, Chief Administrative Officer
- Successful preparation for (and completion of) financial statement audit required by Buyer, as a condition to signing, within the specified exclusivity period.
- Leveraging new accounting processes and tools built (as part of the audit preparation) to efficiently close month-end with meaningful financial and operational reporting.