Once the deal structure is set and diligence is underway, the
focus shifts to protecting value. This is where accountants and
lawyers work side by side crafting representations, making
adjustments, and preparing for post-close reconciliation.
Representations and Warranties: Built on Financial
Reality
Representations and warranties are legal tools, but accounting
plays a vital role. Financial representations cover everything from
GAAP compliance to tax filings to inventory valuation. And when
they're vague or misaligned, they open the door to
disputes.
Imagine a transaction where the seller warrants that their
financial statements are "GAAP-compliant." On the
surface, everything checks out. But after closing, the buyer
reviews the revenue timing and realizes it was unusually
aggressive. Although technically within GAAP, it was not reflective
of the company's typical performance. That disconnect could
lead to questions about whether the financials fairly
