What is Completion Accounts?
Short answer: Completion accounts are contract-specific financial statements prepared after, or sometimes immediately before, completion to calculate the final purchase-price adjustment. They commonly measure cash, debt and working capital at the moment economic ownership transfers.
Unlike a locked box, which fixes the equity bridge from historical accounts, completion accounts update the bridge for the actual position delivered. They are not ordinary statutory accounts. The sale agreement defines their purpose, format, classifications and accounting hierarchy. A buyer may prepare the first draft after taking control, while the seller receives review and challenge rights. The mechanism is useful when balances can move materially before completion or the historical accounts are not strong enough for a locked box. It can also create disputes if apparently simple terms such as cash, debt and working capital are not defined against the target's real ledger.
How it works
Before signing, the parties agree a pro forma statement, line-item definitions, specific policies, consistency with a reference set of accounts, applicable accounting standards and an order of precedence. They set cut-off rules, access rights, preparation deadlines, review periods and a process for unresolved items, often expert determination. An estimated statement may support funds flow at completion and later be trued up. Both sides maintain a issues schedule to prevent double counting across debt, working capital, provisions and transaction costs. Common mistakes include leaving the accounting hierarchy vague, changing methods after completion, ignoring post-balance-sheet information and asking an expert to decide legal interpretation beyond the expert's mandate.
Illustrative final consideration = estimated consideration + (final eligible cash - estimated eligible cash) - (final debt - estimated debt) + (final working capital - agreed peg), each measured under the agreement
Example
The completion payment assumes cash of 4, debt of 20 and working capital equal to a peg of 12. Final completion accounts show eligible cash of 3.5, debt of 21 and defined working capital of 13. On a one-for-one basis, final cash less estimated cash is negative 0.5, final debt less estimated debt is positive 1 and final working capital less the peg is positive 1. The formula adds negative 0.5, subtracts positive 1 and adds positive 1, producing a net true-up of negative 0.5. A disputed customer deposit is not counted as both debt-like and a working-capital liability because the agreement's hierarchy assigns it only to debt. The parties resolve a separate revenue cut-off question using the specified recognition policy.
Why it matters
Sellers use the mechanism to receive value for balances actually delivered while defending against classifications that were not negotiated. Buyers use it to ensure they receive the agreed capital structure and normal operating funding. Boards need to understand that headline consideration remains provisional. Private-investment teams connect the expected adjustment to financing sources, returns and liquidity. Finance teams should build the illustrative statement before signing, since problems discovered only after completion are harder and more expensive to resolve.
The contract, not general accounting preference, determines the calculation, although statutory accounting and tax consequences may differ. Local law governs expert determinations, set-off rights and payment enforcement. Exchange rates, restricted cash, leases, factoring, deferred revenue, tax balances and intercompany items often need deal-specific rules. Accountants can assess amounts and policies, but counsel must resolve legal ownership and interpretation. Neither side should assume an audit opinion covers the completion calculation.