A balance sheet accounts review after an acquisition is the quickest way for a group finance team to find out whether the numbers it just bought are real. The profit and loss account shows what the acquired company says it earned, but the balance sheet is where last year’s errors sit waiting: overstated receivables, inventory that will never sell, accruals that were never released, a suspense account nobody has looked at since the last audit. This article lists the twelve balance sheet accounts worth reviewing first after an acquisition, what to request for each, and the specific error that most often hides inside it. It assumes the acquired entity keeps a general ledger with supporting sub-ledgers.
Key takeaways
- Review the balance sheet before the P&L: the balance sheet carries the accumulated errors of every prior period, the P&L only the current one.
- Work in risk order, not account-number order. Receivables, inventory, accruals, provisions and intercompany hold most of the surprises.
- For each account, ask for the supporting detail from the source sub-ledger, not the figure from the reporting pack.
- The single most common finding is a balance that reconciles to itself but to no external document, such as a stock figure at a standard cost last updated two years ago.
- Where there is no sub-ledger, only a trial balance, this review cannot run until the detail is rebuilt.
In this article
Why review balance sheet accounts first
A balance sheet is a cumulative record. Every uncorrected entry from every prior period is still sitting in it, which is why it holds more risk per line than the profit and loss account. A receivable booked three years ago that was never collected is still an asset on the balance sheet; the sale that created it left the P&L long ago. When you take over an acquired company, the opening balance sheet becomes your problem, so it is the first place to look.
The structure of the review matters more than its length. Going account by account in the order they appear in the trial balance wastes time on small, low-risk lines. Work in risk order instead: the accounts that are large, judgemental, or built from thousands of underlying items are where the money and the errors are. This is the same substantiation work set out in the first 100 days finance integration roadmap, narrowed to the specific accounts that reward attention.
The twelve accounts, in risk order
The table below ranks the twelve accounts by how often they carry a material error after an acquisition, and names the first document to request for each. Request the detail from the local accounting system, dated at completion, not the summarised figure from a reporting pack that may have been rebuilt by hand.
| # | Account | First document to request |
|---|---|---|
| 1 | Trade receivables | AR aging from the sub-ledger at completion date |
| 2 | Inventory | Stock listing with cost basis and last count date |
| 3 | Accruals | Accrual listing with the invoice or event behind each line |
| 4 | Provisions | Provision calculation and the assumption behind it |
| 5 | Intercompany balances | Counterparty confirmation for each open balance |
| 6 | Trade payables | AP aging and a search for unrecorded liabilities |
| 7 | Deferred revenue | Contract list with billing and delivery dates |
| 8 | Tax balances | Filed returns agreed to the ledger balance |
| 9 | Fixed assets | Fixed asset register agreed to the GL control account |
| 10 | Prepayments | Listing with the period each prepayment covers |
| 11 | Cash and bank | Bank reconciliation at completion, not the statement balance |
| 12 | Suspense and clearing | Line-by-line contents of every suspense account |
What to check in each account
1. Trade receivables. Pull the aging from the sub-ledger, not the pack. Anything past 90 days needs a reason and a view on recoverability. The common error is a bad-debt provision set as a flat percentage years ago and never revisited, so a receivable the sales team already knows is lost still sits at full value. The detailed procedure is in the guide to reviewing accounts receivable after an acquisition.
2. Inventory. Ask for the cost basis and the date of the last physical count. The balance that reconciles to itself but to no external evidence usually lives here: stock valued at a standard cost last updated two years ago, with no provision for the items that have not moved in 18 months. A 10% obsolescence gap on a EUR 2m inventory is EUR 200,000 that the opening balance sheet overstates.
3. Accruals. Get the listing and the event behind each line. The classic failure mode is an accrual that was released in the prior year but whose reversing journal was never posted, so the same cost sits accrued twice. Accruals with no supporting invoice after two closing cycles should be challenged, not rolled forward.
4. Provisions. Every provision is a judgement, so ask for the calculation and the assumption under it. Warranty, restructuring, and legal provisions are the ones most often stale. Recognition and measurement of provisions follow the EU framework set out in the Accounting Directive on the annual and consolidated financial statements of undertakings.
5. Intercompany balances. Confirm each open balance with the counterparty. Pre-acquisition intercompany is a frequent source of unexplained differences, and the fix is methodical rather than clever, as set out in the guide to reconciling intercompany balances after an acquisition.
6. Trade payables. Review the AP aging, then run a search for unrecorded liabilities: invoices received after completion that relate to the period before it. A supplier balance that is too clean is often a sign that invoices are sitting in a drawer, not that nothing is owed.
7. Deferred revenue. Agree the balance to the contracts behind it. Deferred revenue that is recognised on a billing date rather than a delivery date will be wrong, and the error moves straight into your first combined result if it is not caught.
8. Tax balances. Agree VAT, corporate tax, and payroll tax balances to the filed returns. A ledger balance that does not match the last return is either an error or an unprovided exposure, and both need an answer before the opening balance sheet is signed.
9. Fixed assets. Agree the fixed asset register to the general ledger control account. Registers and ledgers drift apart over years of disposals that were booked in one but not the other. Assets still on the register that were scrapped long ago overstate both the asset and the depreciation base.
10. Prepayments. Check the period each prepayment covers. Prepayments that have already been consumed but not released are simply overstated assets, and they are easy to miss because each one is small.
11. Cash and bank. Start from the bank reconciliation at completion, never the statement balance. Reconciling items more than a month old, especially unpresented payments, often turn out to be errors rather than timing. This is the one account most people assume is safe and it rarely is.
12. Suspense and clearing accounts. Read every line. A suspense account that nets close to zero can still hold a real unreconciled difference, masked by offsetting entries that happen to cancel. These accounts exist to be temporary, so anything older than one closing cycle is a question.
Illustrative example: a EUR 12m bolt-on
The figures below are illustrative, not a real engagement. A group acquires a EUR 12m-revenue distributor. The balance sheet accounts review finds four adjustments in the first three weeks: inventory overstated by EUR 180,000 (no obsolescence provision on slow-moving lines), a bad-debt provision EUR 95,000 short against aged receivables, a EUR 40,000 accrual double-counted after a missed reversal, and a EUR 25,000 suspense balance that resolved to an unrecorded supplier invoice. The net effect was a EUR 340,000 reduction in opening net assets, found before the first group close rather than during the following year’s audit. None of it touched the P&L the seller had presented; all of it sat in the balance sheet.
What to keep in-house, what to resource
The judgement calls, which provision to take, what to write off, how to treat a disputed balance, stay with the group finance team. The volume work, rebuilding an aging, reconstructing a fixed asset register, reading every suspense line across several entities, is where a short burst of extra capacity pays for itself, because it is what pushes the first group close late.
Where this review stops working
This account-by-account review assumes the acquired company keeps a general ledger with supporting sub-ledgers, so each balance can be agreed to its detail. Where there is no sub-ledger and only a trial balance, the detail does not exist to review, and it has to be rebuilt first before any account can be substantiated. In that case the starting point is a post-acquisition data check to establish what the numbers are actually built from. For the wider sequence of what a finance leader examines first, see what a CFO should review after an acquisition.
Taking on an acquired company and want a second pair of hands on the opening balance sheet? Discuss your finance integration project with our team.
FAQ
Which balance sheet accounts should you review first after an acquisition?
Start with the accounts that are large, judgemental, or built from many underlying items: trade receivables, inventory, accruals, provisions, and intercompany balances. These carry most of the risk because they accumulate errors across prior periods. Low-value, mechanical accounts such as small prepayments can wait until the high-risk balances are substantiated.
Why review the balance sheet instead of the profit and loss account?
The profit and loss account shows one period, but the balance sheet carries the uncorrected entries of every prior period. An overstated asset or an unreleased accrual can sit there for years. After an acquisition the opening balance sheet becomes your responsibility, so it is the first statement to substantiate.
What is the most common error found in a balance sheet accounts review?
A balance that reconciles to itself but to no external document. The frequent example is inventory held at a standard cost last updated years ago, with no provision for slow-moving items, so the figure is internally consistent yet overstated. Suspense accounts that net to near zero hide a similar problem.
How long does a balance sheet accounts review take after an acquisition?
For a mid-sized target with intact sub-ledgers, the high-risk accounts can be reviewed in two to three weeks. The timeline depends entirely on data quality. Where sub-ledgers are missing and detail has to be rebuilt, the same work can take two to three months before any account can be properly substantiated.
Brahim Rami | Member of institute of chartered accountants in Morocco
He is a CPA and tax advisor, founder of NeoExpertise.net, a Legal and Tax firm helping foreign companies with business setup, due diligence, payroll, and tax compliance in Morocco and Africa.
