A closing balance sheet is not the last set of monthly numbers the target produced. It is a purpose-built statement, prepared to agreed accounting policies, that exists to make the purchase price true.
Key takeaways
Every acquisition agreement fixes a purchase price against some financial condition of the target as of the closing date — usually a target level of net working capital, sometimes a cash-free, debt-free adjustment on top. The completion accounts, sometimes called the closing statement, are how that condition gets tested after the fact: a balance sheet prepared specifically as of the closing date, using the accounting policies the agreement specifies, not whatever policies the seller's bookkeeper happened to apply the year before.
That distinction matters more than it sounds like it should. A target that changed how it recognized a slow-moving receivable, or capitalized an expense it used to write off, can move the completion accounts a meaningful amount without anything dishonest happening — which is exactly why the agreement needs to say, in advance, which policies govern.
One Ontario M&A closing-mechanics page describes the mechanic plainly: “One side prepares a closing statement within a set number of days, the other has a set period to object in writing with reasons, and unresolved items go to an independent accountant acting as an expert rather than an arbitrator — whose determination is usually final and binding with no appeal.” The independent accountant is not deciding who is right in some abstract sense — they are applying the agreed accounting policies to a defined set of facts. That is a materially different role from an arbitrator, and drafting the referral clause to say so avoids a fight about which standard applies before the parties even get to the substance.
In most deals it is the buyer who prepares first, since the buyer now controls the books and the bank accounts the day after closing. But the agreement can just as easily put the burden on the seller, particularly where the seller's own accountant already has the year's records in hand. Neither approach is a market standard; both need to be spelled out.
The same accounting records the completion accounts are drawn from carry their own statutory retention rule — the Canada Business Corporations Act requires a corporation to keep its accounting records “six years after the end of the financial year to which the records relate,” which is worth knowing if a post-closing dispute surfaces on an item from an earlier fiscal year than the deal itself.
For a business that carries physical stock, the completion accounts are rarely a pure desk exercise. A treadstonelaw.ca piece on inventory counts notes that “representatives from both sides (or an agreed third party) count and record quantities on hand.” — usually a physical count on or near the closing date, not an estimate rolled forward from the last stocktake.
What the count produces feeds straight into the price: “The actual quantity and value of stock on hand at closing can trigger a purchase price adjustment if it differs materially,” A well-drafted agreement fixes in advance who counts, how disputed items get resolved — “often a joint recount of the disputed items, or referral to an independent third party,” — and, critically, that the count is valued on the same basis as the historical financial statements. “A mismatch is a frequent source of later disagreement” the article warns, and it is exactly the kind of gap a buyer's accountant should be checking for before, not after, closing.
Most Canadian business sales are structured to avoid GST/HST on the transaction entirely, using the joint election under section 167(1) of the Excise Tax Act. The election is only available where the buyer is acquiring “all or substantially all of the property that can reasonably be regarded as being necessary” to carry on the business, and it explicitly does not apply “where the supplier is a registrant and the recipient is not a registrant.”
That makes the buyer's own GST/HST registration a precondition of a clean closing, not paperwork to sort out afterward — and it has to be filed “not later than the day on or before which the return … is required to be filed for the recipient's first reporting period” after the sale. Building the completion accounts before confirming the election is available risks discovering, after the fact, that a tax line the price assumed away is actually payable.
The sister firm's escrow and holdback guidance puts the reason plainly: “Almost no business sale pays the seller the full price on closing day. Some of it is held back against risks that have not surfaced yet.” The completion accounts and the holdback are two different mechanisms answering two different risks — one true-ups a number the parties can define precisely, the other protects against a claim that has not yet surfaced — and a buyer should not expect the same clause to do both jobs.
The numbers below are a drafting illustration, not a benchmark for any real transaction — the purchase agreement fixed a working-capital target of $420,000, based on a trailing 12-month average agreed during negotiation. The share purchase agreement gave the buyer 45 days after closing to deliver the completion accounts, and the seller 20 days after that to object in writing with reasons.
The buyer's accountant delivered the completion accounts on day 40, showing net working capital of $391,000 — a $29,000 shortfall against the target. The seller's objection, filed on day 12 of the 20-day window, disputed the treatment of a $34,000 receivable the buyer's accountant had written down as doubtful. Because the agreement specified that receivables be valued “consistent with the target's historical bad-debt policy, applied without change,” the dispute turned on a single factual question — had the target actually changed its policy — rather than on which side's accountant was more conservative by instinct.
The parties referred the single disputed item to an independent accounting firm named in the agreement, acting as expert rather than arbitrator, with instructions limited to that one line. Its determination, once issued, was final under the agreement's own terms — illustrating why the accounting-policy language, agreed months earlier during drafting, ended up doing more work than the dollar figure itself. How that referral is actually structured, and what it can and can't decide, is covered separately in resolving a dispute over the post-closing adjustment; getting the target level right in the first place is covered in setting the working capital target fairly.
Neither side's accountant was found to have acted in bad faith — both were applying a reasonable professional judgment to a genuinely ambiguous instruction, which is the ordinary shape of a completion-accounts dispute. The lesson the buyer's counsel took into the next deal was procedural rather than substantive: define collectibility, and every other judgment-dependent accounting term the completion accounts will turn on, in the agreement itself, in enough detail that two competent accountants reading it independently would reach the same figure.
There is no fixed market rule — it depends on who the purchase agreement assigns the task to, and that is a negotiated point, not a convention. In practice it is often the buyer, since the buyer controls the books from the day after closing, but agreements regularly put the burden on the seller instead, particularly where the seller's own accountant already holds the current year's records.
The agreement typically routes an unresolved item to an independent accountant acting as an expert, not an arbitrator, whose determination on the disputed accounting question is usually final and binding with no appeal. The fights are rarely about arithmetic — they tend to be about accounting policy, such as whether a receivable is collectible or how inventory should be valued.
No. The completion accounts are prepared to test one specific price mechanism as of one specific date, applying whatever accounting policies the agreement specifies — they are not an independent audit opinion on the target's financial statements generally, and the agreement should not be read as substituting for one.
A short call is enough to walk through the accounting-policy language before it goes into the agreement, not after a dispute starts.
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