M&A Due Diligence and the Post Acquisition Internal Audit Checklist

Due diligence of M&A transactions is an opportunity for internal audit to help ensure their objectives and synergies are fulfilled, but can often be time-sensitive process.

Letting integration linger too long drains energy, distracts staff, and limits services provision. Our post acquisition internal audit checklist can help ensure you avoid these pitfalls.

1. Identify the key risks
Due diligence is the cornerstone of successful acquisition, from initial review through post-acquisition integration. Internal audit should play a vital role at this phase to ensure there is a sound risk analysis, taking into account key risks such as governance and reputation; customer, supply chain, IT, financial; regulatory/compliance as well as any applicable compliance obligations that might impact this process. Depending on its severity, due diligence can either be undertaken as advisory or assurance service depending on its potential ramifications.

At this point, internal audit must also conduct an assessment of the new subsidiary’s control environment and culture as well as how its processes will integrate into their new parent company’s infrastructure. This should be conducted on an advisory basis and may involve visiting them to perform an initial review of key business processes – providing management of newly acquired subsidiaries with a roadmap for harmonizing their infrastructure with that of their acquiring company.

2. Identify the key controls
As M&A transactions become more complex and companies expand, internal audit can play a crucial role in helping ensure key risks are effectively managed. This includes performing proper due diligence on acquisition sides as well as identifying any issues which could impact final sales price or integration into an acquiring organization.

One of the key aspects of M&A due diligence is assessing a target company’s control posture compared to that expected by the acquiring organization. This can be accomplished by reviewing its risk analysis and risk mitigation strategies employed.

This includes assessing how the target accounts for reserves and other intangible assets, financial reporting and controls, operational reporting as well as operational budgeting and forecasting. A Finance Acquisition Integration checklist covers 88 integration tasks across areas like Treasury, Synergy Tracking Chart of Accounts Cash Management Policy Variances Accounting Policy Variations.

3. Identify the key issues
Typically, an audit will center around health and safety as well as processes. Questions will focus on procedures and policies addressing critical-to-quality characteristics as well as PDCA (plan-do-check-act) cycles. Furthermore, this audit will focus on training effectiveness as well as staff participation within this process.

Auditor experts should provide useful insights into how a process operates and provide recommendations for improvements to help managers of systems reduce costs while increasing productivity.

An effective internal auditor will be able to anticipate some of the key pressure points associated with M&A transactions, such as purchase accounting and valuation issues, to reduce risks of missed reporting deadlines and resources strain. Cross notes that one of his clients experienced problems related to valuation due to not fully* integrating acquired organizations.

4. Identify the key recommendations
An internal audit checklist can assist in conducting an effective and efficient internal audit. It allows you to pinpoint areas which are underperforming, identify those responsible and make suggestions for improvement that can save costs while increasing efficiency, as well as prepare you for ISO 9001 certification.

Private equity groups can become extremely busy when they prepare to acquire portfolio companies, yet it is crucial that the internal audit process not be neglected. Failing to conduct adequate due diligence could lead to missed reporting deadlines or compliance issues; additionally, having an experienced team managing your audits will decrease risk by meeting key deadlines more efficiently and making valuation decisions effectively – thus relieving strain from company resources.