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Post-acquisition disputes often arise when parties disagree on whether the terms of the sales and purchase agreement (SPA) were properly applied in calculating a closing date working capital or earnings metric during a specified period. Typically, SPAs mandate that closing working capital and/or earnout metrics be calculated in accordance with U.S. Generally Accepted Accounting Principles (GAAP) or IFRS, and applied consistent with “past practice.” For those areas of GAAP requiring the application of judgments and use of estimates, it can be difficult to ascertain whether and to what extent judgments and estimates applied to calculate a closing date working capital or earnout metric accurately reflect past practice.

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