Can Small Accounting Concerns Add Up to Bigger Problems?
We are strong believers of the 90/10 rule, where 90% of the impact of accounting concerns on valuation will be found in 10% of the issues identified. We have never seen a situation where a collection of small accounting issues have added up to a material impact on valuation in a company. In such instances, it is much more likely that small areas where the company uses conservative accounting are being missed, and those would cancel out any small concerns of potentially aggressive accounting.
The argument of "where there's smoke, there's fire" can be a dangerous one, and often results from insufficient analysis, or a biased initial approach to a company. Our broad expertise and forensic accounting discipline allows us to avoid instances where an accounting argument is being stretched in order to simply publish a report with a predetermined recommendation.