Avoid the Audit Fire Drill: How to Prepare for a Purchase Price Allocation Without Losing Your Mind

You’ve just closed the deal. Everyone’s high-fiving. But before the champagne goes flat, someone mentions a purchase price allocation—and suddenly, your post-acquisition honeymoon is over. Welcome to the world of compliance, where excitement turns into spreadsheets, audit trails, and a hunt for goodwill.

A purchase price allocation (PPA) is a technically demanding and often misunderstood process. At its core, it determines one thing: how much goodwill will appear on the balance sheet after an acquisition. But that simple goal masks a complex sequence of valuation and audit procedures that can derail an otherwise smooth post-deal transition—especially if you're unprepared.

The reality is that most business buyers don’t think about PPAs until they have to. And by then, the clock is ticking. The audit team wants answers. Deadlines loom. And what could’ve been a manageable compliance step becomes a fire drill. But it doesn’t have to be this way. With early planning and the right guide, PPAs can be navigated without panic, conflict, or surprise costs.

Goodwill itself is a slippery concept. You can’t measure it directly—it’s what’s left over after everything else has been valued. The PPA process starts by determining the total consideration paid, including cash, stock, earnouts, and assumed liabilities. From there, the valuation specialist subtracts the fair value of all identifiable tangible and intangible assets. Whatever remains is recorded as goodwill.

This process unfolds in three key phases. First, a valuation specialist is engaged—ideally right after the transaction closes—to perform the PPA. Next, the auditor reviews and tests the specialist’s work. If the assumptions, methods, and math hold up, the PPA is accepted into the audit workpapers. If not, expect questions—and delays. The more proactively you’ve prepared, the easier this phase becomes.

Here’s where many companies get blindsided: figuring out the actual purchase price. It’s not always obvious, especially in deals involving stock, earnouts, or deferred payments. Valuing contingent consideration now requires more than gut feel or Excel gymnastics—it demands a rigorous, supportable process. Similarly, if stock is part of the deal and the acquirer is private or illiquid, additional valuations may be required. These steps take time and should be anticipated early.

Intangible assets are another landmine—or opportunity—depending on how they’re handled. Customer relationships, trade names, proprietary tech, and non-competes all require valuation and documentation. But not all intangibles are transferrable or measurable. If a customer list lives only in the founder’s head, and they’re not sticking around, how valuable is that list, really? Regulatory issues—like sanctions or data laws—can further limit what can be transferred.

Auditors don’t ask tough questions because they enjoy it. They’re gatekeepers, responsible for ensuring financial statements are reliable. That means verifying the specialist’s independence, checking assumptions, and confirming that generally accepted valuation methods were used. They’re not trying to play “gotcha”—they’re fulfilling a duty. And the more complete and clear the valuation report is, the smoother their job (and yours) becomes.

The consequences of a weak PPA aren’t theoretical. Financial restatements damage credibility, erode trust, and cost real money. Misstatements can distort investor decisions. At worst, they invite litigation. The stakes are high, and auditors know it—so this will be a point of emphasis, guaranteed.

The smartest move? Get ahead of the process. Start the PPA immediately after the deal closes. Don't wait for year-end close or the auditor’s last-minute checklist. Keep communication open between the client, specialist, and auditor from day one. This avoids duplicated work, scope creep, and awkward surprises when timelines are tight.

Choosing the right valuation specialist is also critical. Credentials matter. So does experience. PPAs aren’t for dabblers or first-timers. A specialist who’s worked with your auditor before can streamline the process even further. Trust and familiarity reduce friction.

Clients must stay involved. Yes, it’s tempting to throw the whole thing over the wall. But you own the work product. You’ll be answering questions about it. And you may be the only one with key context—the “why” behind the acquisition, the strategic intent, or qualitative inputs that never made it into a contract. That context shapes valuations and outcomes.

Documentation is everything. Be ready with your purchase agreement, closing documents, financials, cap table, and internal memos. Each intangible asset may require its own set of supporting data. The goal is to give the specialist and auditor a clear, credible story—and eliminate the need for guesswork.

Mistakes are common and avoidable. Don’t fudge assumptions. Don’t mismatch models with transaction terms. Don’t ignore the market participant concept or assume your target company is a perfect industry proxy. These errors distort value and lead to hard questions late in the audit.

Look at real-world PPAs and you’ll see the impact. Microsoft’s $18.8 billion acquisition of Nuance included significant allocations to developed technology and customer relationships—alongside a large goodwill balance reflecting strategic value. In contrast, Microsoft’s earlier Nokia deal and AT&T’s DirecTV acquisition both led to massive goodwill impairments. The lesson? PPA results shape long-term financial outcomes.

The final report matters. A good PPA isn’t just accurate—it’s understandable. That means footnotes. Lots of them. Assumptions, sources, definitions—document them all. Don’t assume your specialist will do this automatically. Ask. Push for it. Because footnotes aren’t extra—they’re how you avoid rework, fees, and fire drills.

PPAs may never be fun. But they don’t have to be painful. With early engagement, open communication, and the right people in place, this complex process becomes manageable. You’ve already done the hard part—closing the deal. Now give the post-acquisition work the same attention, and you’ll avoid surprises, preserve credibility, and protect your audit from becoming a crisis.