Quality of Earnings Report

searcher profile

January 31, 2023

by a searcher in Dallas, TX, USA

Lite vs full scope Quality of Earnings (QofE) report.

Questions regarding QofE reports:

1) What's the difference between a lite and full scope?
2) When is a full scope necessary or beneficial?

I'm under LOI and trying to determine if a full scope is necessary.

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commentor profile
Reply by a searcher
from Columbia University in New York, NY, USA
Lots of good comments here (and thanks for the tag ^redacted‌). The only thing I haven't seen mentioned is that the structure of your deal may affect your comfort level on the depth of financial DD, notwithstanding that if you have a capital partner here, they are a key customer of the QoE. I've done a few of these and the scopes can vary.

If you're keeping the seller and their team, and there are significant longer term outcomes for them, then I'm more willing to believe that the baseline incentive alignment reduces their upside in lying to you.

Also - what do the current financials look like? A few years of audited statements is different than something unintelligible from QB.


I know several good firms, happy to help.
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Reply by a professional
from Villanova University in New York, NY, USA
A good QoE provider/accounting firm will help you tailor the scope to your needs. they will do so based on the quality of the Company's financial statements and reporting capabilities (cash basis, accrual basis, something else that's not so great?), how you are paying for the deal (other investors, lenders, personal funds), and size of the deal (revenue/ebitda/purchase price). They will also recommend other forms of due diligence like federal tax and state & local tax due diligence if the characteristics of the business or intended structure of the deal warrant it. Doing financial due diligence without consideration for tax due diligence can be risky. At the end of the day its your scope, but having a strong, experienced firm guide you is invaluable. Let me know if I can be of any assistance. -Dave
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