Glossary
Quality of earnings review
A quality of earnings review is an independent analysis, usually by an accounting firm, of whether a business's reported earnings are accurate and sustainable. It tests revenue against bank records, examines expenses and add-backs, and identifies one-time items and trends.
It is common in larger acquisitions and increasingly used in smaller ones. For small deals, a buyer can do a lighter version: match bank deposits to reported revenue and document every add-back.
The trap: skipping it to save money on a deal large enough to need it.