The deal moved past the diligence report: scope a current-trading update

A transaction takes longer than expected. The diligence report covers the year ended December, but the parties are still discussing terms in May. Management has supplied newer accounts, and one of the report's open questions has developed into a material customer issue. Appending those accounts to the old PDF does not explain whether the original conclusions still support the decision.

Ask the transaction owner and diligence provider to define the update needed. Record the original report date, information cutoff, periods covered, entities and intended users. Then list the new periods and events that could affect the deal. The assignment should connect the earlier findings to current evidence rather than produce an unrelated monthly performance pack.

ICAEW's financial due diligence guideline describes top-up work that can augment an existing vendor report and sometimes update it with newer data. Its discussion is primarily oriented toward UK and continental European transaction practice. Use it as a scoping reference, while agreeing the actual engagement, reporting and reliance arrangements for your own transaction.

New monthly results and corrections to historical results need different explanations. If the March accounts include a correction relating to December, the update should show whether the original reported period or an earlier diligence adjustment is affected. Otherwise a change can be mistaken for new trading when it actually repairs the old base.

Provide a controlled set of monthly management accounts, the latest relevant balance sheet and the supporting customer, margin and working-capital information agreed in scope. Identify which periods are closed, which remain preliminary and what material entries are still expected. The provider should know the status of the data before using it to update an earnings measure.

Retain the original schedules and create a bridge for changes. Do not overwrite an old adjustment merely because management has adopted a new view. Show the earlier amount, revised amount, reason and evidence. This allows the reader to distinguish a factual correction from a changed assumption or a newly negotiated position.

Suppose an illustrative report shows $1.20 million of a defined earnings measure for the year ended December. The first quarter of that year contributed $250,000. The new first quarter contributes $180,000 on the same basis. The latest twelve-month amount at March is $1.20 million minus $250,000 plus $180,000, or $1.13 million.

Adding the new $180,000 to the full year would produce a fifteen-month amount, not a latest twelve-month comparison. Annualizing the new quarter would answer another question and could be misleading if trading is seasonal. Label each period and keep the calculation tied to monthly data that uses consistent definitions.

Ask the provider to explain changes in any adjusted measure separately from changes in reported earnings. An adjustment accepted for an unusual event last year may not remain appropriate when similar spending appears again. The update needs evidence about the current event and the measure's definition; it should not mechanically reproduce every adjustment from the earlier report.

Use the original report's unresolved findings as a starting point. A major overdue balance may have been collected, disputed or written down. A customer whose renewal was uncertain may have signed or left. A cost-saving initiative may have produced actual changes or remained only a proposal. Ask for evidence of the event and its financial effect.

Do not limit the update to old issues. New contracts, financing, staff departures, unusual payments or operating interruptions may create matters the first report could not address. Agree a management inquiry and information process suited to the transaction. Specify where the diligence team needs legal, tax or other specialist input rather than asking it to infer conclusions outside its work.

Keep findings and consequences separate. A late customer payment is an observed event; a conclusion about future collection risk requires judgment. A new contract may support demand while also creating delivery costs or working-capital needs. The update should explain the connection instead of treating favorable revenue news as an automatic improvement in every part of the deal model.

A current earnings figure does not establish current cash, debt or working capital. Define which balance-sheet areas the update will examine and how they connect to the transaction terms. Where the parties use specific definitions for debt-like items or working capital, retain those definitions and show changes under the agreed comparison basis.

Ask whether seasonal movements or unusual payment timing explain the latest position. A single month can look favorable because inventory was temporarily low or supplier payments were delayed. Compare the relevant history and upcoming obligations before allowing that snapshot to stand in for the amount the business will need after completion.

Give the financial model owner the dated findings and the assumptions affected. Update the funding requirement using the actual transaction timetable, rather than simply changing the label on an old forecast. The UK Government Actuary's model-quality guidance highlights review and assurance around model use; in this setting, a controlled change record helps establish which diligence findings entered the model and which remain unresolved.

Decide whether the provider will issue a supplemental report, a revised report or a defined set of update schedules. Specify how the new document relates to the original. A reader should be able to tell which conclusions remain unchanged, which are modified and which areas were outside the refresh. A new cover date should not imply that every original procedure was repeated.

Confirm the intended recipients and any permitted reliance on both documents. If a new lender or investor has joined the transaction, ask the provider and legal advisers to resolve access and reliance explicitly. Do not assume that an existing engagement automatically covers a different user because the business under review is unchanged.

Compare fees against the agreed update work. Rebuilding every historical schedule may be unnecessary if the relevant base remains sound, but a material change in the transaction perimeter can require broader work. Ask the provider to identify the specific events that would expand scope and how additional work will be authorized.

At delivery, record the latest period reviewed, the information received after that period and any outstanding item that could change the conclusion. Assign an owner to obtain the remaining evidence. If the transaction slips again, use that record to decide what another update needs to cover rather than starting the discussion from memory.

The completed refresh should explain how the business moved from the original report to the current decision date. It should preserve the earlier evidence, reconcile new results and show the effect on the buyer's or funder's assumptions. That makes the additional diligence useful for the transaction without implying that a report can remain current indefinitely.