Completion Accounts

Completion accounts are a price mechanism in which the final purchase price is determined only after closing based on a balance sheet as of the reference date. The buyer initially pays a provisional price, which is later adjusted to the actual figures. This ensures that the price reflects the true condition of the company at the transfer date. Three items are typically adjusted: net financial debt, working capital against a pre-agreed normal level and, depending on the agreement, further debt-like items.

The process is set out precisely in the contract: one party, usually the buyer, prepares the completion accounts within a period of some weeks after closing, the other has a review period with access to the underlying records, and an independent accountant is appointed as expert determiner whose finding binds both sides. The accounting rules applied matter greatly, because options, provisioning and measurement methods shift the balance. A hierarchy is customary under which specific contractual definitions apply first, then the accounting practice actually applied to date, and only last the general accounting standard. The advantage of the mechanism is accuracy, the disadvantage effort, delay and conflict potential, because after completion both sides have opposing interests in the same balance sheet.

Completion accounts should be distinguished from a locked box, which fixes the price at a past date and protects the buyer instead through a prohibition on leakage. It has proven best to prepare the completion accounts on the same principles used to derive the agreed reference figure, because otherwise the adjustment measures differences in method rather than differences in substance. An express list of items not to be remeasured is also advisable, such as provisions already reflected in the reference figure. In practice disputes almost always arise at this point rather than in the arithmetic itself.