Purchase Price Allocation for US Finance Teams: Compare Scope

Set the accounting scope before valuation begins

A US acquisition finance team should settle the ASC 805 classification before modeling, provide complete closing records and forecasts, define the valuation deliverables and assign responsibility for revisions and auditor questions.[1][2][3][4] BDO describes transaction analysis and fair-value assistance, while PCE describes independent ASC 805 valuations with audit-review support.[1][3]

The responsible accountant should first document whether the acquired set is a business combination or an asset acquisition. Under FASB’s Accounting Standards Update 2017-01, a set is not a business when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets.[5] If that screen is not met, a set must include at least an input and a substantive process that together significantly contribute to the ability to create output to be a business under ASC 805.[5]

The analysis should identify the accounting acquirer, acquisition date and transaction price. Consideration may include cash, equity, options, warrants, earn-outs, contingent consideration, assumed debt, noncash consideration and certain seller expenses paid by the buyer.[1][2][4] Pre-existing relationships, concurrently negotiated arrangements, transaction costs and payments tied to future services also need separate analysis.[1][2][6]

For an eligible private company, BDO recommends considering the accounting alternative for certain customer-related intangibles and noncompetition agreements. BDO also says a later public exit may require reversal, retroactive acquisition-date valuation and related goodwill analysis.[1]

Build the pre-modeling handover

A closing summary is not enough. Organize the handover into these folders:

• Governing agreements: Executed purchase, operating and credit agreements, working-capital adjustments and the funds-flow statement.[4]
• Consideration and funds flow: A schedule tying the agreement to closing payments and identifying cash, seller equity, contingent consideration, assumed debt, seller expenses paid by the buyer and agreed shared expenses.[1][2][4]
• Payment evidence: Bank statements or wire records, buyer- and seller-expense invoices, and support for seller equity and contingent consideration.[4]
• Acquisition-date balances: Reconciled opening accounts, contract-asset and contract-liability cutoff work, a search of post-close invoices and cash disbursements for unrecorded liabilities, and an inventory count on or around the acquisition date with slow-moving and obsolete-stock analysis.[4] If control transferred between reporting dates, BDO recommends anticipating an interim-date rollforward or rollback.[1]
• Acquired revenue contracts: Under ASU 2021-08, the acquirer recognizes and measures acquired contract assets and contract liabilities under Topic 606 as if it had originated the contracts, which generally follows the acquiree’s own GAAP accounting; provide the acquiree’s Topic 606 analysis so the specialist does not value deferred revenue on a different basis.[7]
• Historical results: Financial information detailed enough to support analysis of separately identifiable intangible assets.[4]
• Forecasts: Management projections used in the valuation, with identified owners able to support the operating assumptions.[4]

Before modeling, the specialist should log missing or inconsistent items and their expected effect. Management should either resolve each gap or document the limitation. This is a project control, not an accounting threshold.

Define valuation coverage and deliverables

The engagement letter should identify which tangible assets, assumed liabilities and noncontrolling interests require acquisition-date fair-value work.[1][2][3] Tangible coverage may include inventory and property, plant and equipment; some working-capital carrying values may approximate fair value, while other balances may require further analysis.[1][4]

Do not leave intangible coverage as a generic reference to “intangibles.” The scope should address relevant classes such as customer relationships, customer lists, backlog, technology, internally developed software, patents, trademarks, trade names, noncompetition agreements, contractual or vendor relationships, domain names and artistic assets.[3][6]

Require the report to include:

• The selected market, income or cost approach, material inputs, market-participant assumptions and reliance on management forecasts.[2][3]
• Documentation of methods, inputs and assumptions suitable for disclosure and auditor review.[2][3]
• A reconciliation of total consideration to the fair value of net identifiable assets and liabilities, with residual goodwill. Embark, Withum and Redwood advise reassessing completeness before recording a bargain-purchase gain.[2][4][6]
• Draft and final reports, an allocation schedule, an open-items log, revision history and agreed handover files.

The proposal should define how forecast changes, model revisions and auditor questions will be handled. Embark and PCE describe the ASC 805 measurement period as ending when the necessary acquisition-date information is obtained and lasting no longer than 12 months; it should not be treated as the project schedule.[2][3]

Assign revisions and auditor questions

Embark and PCE recommend involving the auditor early to align on scope, methodology, assumptions and required support.[2][3] Management should still control communication through an identified coordinator.

Hypothetical deliverables matrix: The providers’ guidance supports these activities but does not set this exact division of responsibility.[2][3][4]

• Initial requests: Management and its accountant provide the classification conclusion, transaction records, consideration reconciliation, opening balances, forecasts and supporting evidence. The specialist checks completeness.
• Missing data: The specialist logs gaps and model implications; management assigns and tracks resolution.
• Forecast changes: Management documents and approves revised assumptions; the specialist records the valuation effect.
• Model changes: The specialist owns valuation methods, calculations, market-participant assumptions and version control.[2][3]
• Draft review: Management validates factual inputs and reconciliations; the specialist updates the valuation.
• Auditor comments: The coordinator routes questions. Management addresses source evidence and forecast support; the specialist addresses valuation methodology and calculations.[2][3]
• Final issuance: The specialist closes the comment log and provides the agreed reports and handover files.
• Opening-balance-sheet handoff: Management’s accountant coordinates posting and retains the reconciliation package.[4]

The comment log should identify the owner, requested evidence, model effect, due date and resolution status for each item.

Compare BDO, Embark, PCE Valuations and Withum

Use the firms’ published scope to create a shortlist, not a performance ranking. The cited provider pages do not provide independent comparative performance evidence; reported case-study outcomes are vendor claims.[3][6]

BDO

• Service scope: Transaction analysis for ASC 805 application, including assistance with complex accounting and fair-value determinations.[1]
• Auditor handover: The cited page does not state specific auditor-response responsibilities or model-revision terms.[1]
• Suited to (provider description): Private-equity firms and target-company CFOs preparing for acquisitions.[1]

Embark

• Service scope: Valuation services and purchase-price accounting or post-close reporting.[2]
• Auditor handover: Its process emphasizes continuous auditor involvement and analysis of whether payments represent consideration or compensation.[2]
• Suited to (provider description): Teams seeking an early-start process. Its page describes a four-to-six-week analysis but does not present that timing as a contractual commitment.[2]

PCE Valuations

• Service scope: Independent ASC 805 financial-reporting valuations for public and private companies, private-equity firms, early-stage enterprises and closely held businesses.[3]
• Auditor handover: Audit- and regulatory-review support appears in its service description.[3]
• Suited to (provider description): Organizations seeking a valuation-focused specialist serving the listed client types.[3]

Withum

• Service scope: Specialist PPA valuation of separately identifiable intangible assets alongside detailed purchase-accounting preparation procedures.[4]
• Auditor handover: Its guidance emphasizes audit preparation.[4]
• Suited to (provider description): Private-equity purchase-accounting engagements.[4]

No provider is a universal choice on this evidence. Compare written proposals against the same transaction-specific scope.

What to confirm with each provider

The cited BDO, Embark, PCE Valuations and Withum pages do not state comparable commercial and service terms for the following items.[1][2][3][4]

• Coverage: Included assets and liabilities, contingent consideration, complex capital structures, inventory, fixed assets, specialist intangible work and private-company-election analysis.
• Deliverables: Draft and final reports, allocation schedules, models, supporting files and document-retention expectations.
• Revisions: Included rounds, how changed forecasts are handled, acceptance criteria and additional-fee triggers.
• Auditor support: Included response hours, responsible personnel, turnaround expectations and escalation procedures.
• Schedule: Target dates, management dependencies and any contractual turnaround commitment.
• Commercial terms: Price, fee components, billing basis, minimum fees, contract length, cancellation rights and refund terms.
• Eligibility and coverage: Client restrictions and geographic service availability.

Score proposals on scope completeness, named-team qualifications, fair-value documentation, ownership of audit support, commercial certainty and transaction fit. Missing documentation can lead to material adjustments, according to Withum.[4]

Keep tax allocation and diligence separate

A tax allocation, quality-of-earnings report, transaction valuation or 409A valuation should not replace the financial-reporting PPA. Redwood describes financial-reporting PPA as using ASC 820 fair value and tax allocation as using fair market value, which can produce different purchase-price, goodwill and asset-assignment outcomes.[6]

For the tax side, the IRS instructions for Form 8594 say that generally both the purchaser and the seller must file the form with their income tax returns when a group of assets making up a trade or business is transferred and the purchaser’s basis is determined wholly by the amount paid.[8] Consideration is allocated under the residual method across seven asset classes, with goodwill and going concern value in Class VII, and no asset other than a Class VII asset may receive more than its fair market value on the purchase date.[8] If the allocation changes in a later year, the affected party files a supplemental statement for that year.[8]

Embark identifies incomplete quality-of-earnings work and unreliable transaction valuation as upstream risks; its ASC 805 discussion treats PPA as acquisition-date accounting and fair-value allocation.[2] Commission tax allocation, diligence and 409A option-grant work under separate scopes, owners and deliverables, with reconciliations where outputs interact.

Choose after reviewing the auditor handover

Before signing, management, the responsible accountant and the proposed valuation lead should review the scope together. Involve the auditor early on the expected methodology, assumptions and supporting detail.[2][3]

The final engagement should identify the classification owner, request-list responsibilities, valuation coverage, forecast support, revision rules, auditor-question routing, fees and handover files. Open items should have a named owner and documented commercial consequence.

References

1. ASC 805: What Firms and CFOs Must Know Before Transactions | BDO (bdo.com)
2. Purchase Accounting: Valuations, Adjustments & Accounting for M&As | Embark (embarkwithus.com, 2023)
3. When to Hire a Valuation Firm for Financial Reporting | PCE (pcecompanies.com)
4. PE Playbook Series: Purchase Accounting and Purchase Price Allocation | Withum (withum.com)
5. ASU 2017-01 Business Combinations (Topic 805): Clarifying the Definition of a Business — FASB (fasb.org, 2007)
6. ASC 805 Valuation & PPA Valuation Services | Redwood Valuation (redwoodvaluation.com)
7. ASU 2021-08 Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers — FASB (fasb.org)
8. Instructions for Form 8594 — Asset Acquisition Statement Under Section 1060 | IRS (irs.gov)