A technology-enabled services company completed a complex acquisition structured as an asset purchase. While the legal form appeared straightforward, the underlying economics created significant accounting and audit risk.
Challenges
Key challenges included:
• Determining whether the acquired assets constituted a business under U.S. GAAP
• Navigating ASC 805 requirements despite an asset purchase structure
• Accounting for deferred revenue tied to prepaid customer arrangements
• Interpreting contract-defined working capital provisions that differed from GAAP
• Preparing acquisition accounting under tight timelines with investor scrutiny
Without a clear technical framework, the transaction risked misclassification, audit delays, and post-close adjustments.
Our Approach
Ridgeway Financial Services Expert worked closely with management to assess the transaction from both a legal and accounting perspective.
Our work included:
• Evaluating the acquired inputs, processes, and outputs to determine ASC 805 applicability
• Concluding the transaction met the definition of a business combination under GAAP
• Analyzing executed purchase agreements to identify assets acquired and liabilities assumed
• Building a purchase price allocation model aligned with GAAP requirements
• Assessing deferred revenue obligations related to prepaid customer services
• Supporting working capital calculations based on contract-defined accounting principles
All conclusions were documented in audit-ready schedules and memos designed to withstand investor and auditor review.
Outcomes
Through this engagement, the client achieved:
• A conclusion that the acquisition qualified as a business combination
• GAAP-compliant purchase accounting with clearly supported goodwill
• Proper identification and measurement of deferred revenue at acquisition date
• Reduced audit risk and smoother year-end audit execution
• Improved confidence in post-acquisition financial reporting
The client was able to move forward with clarity, knowing their acquisition accounting aligned with U.S. GAAP and audit expectations.
Why This Case Matters
Business combination accounting is often misunderstood, especially when transactions are legally structured as asset purchases. For technology and high-growth companies, misapplying ASC 805 can lead to material audit issues, restatements, or investor concerns.
This case demonstrates how early technical accounting support can:
• Prevent costly post-close corrections
• Align legal structure with GAAP substance
• Create audit-ready financial reporting from day one
Services Provided
• Technical accounting advisory
• Business combination accounting under ASC 805
• Purchase price allocation support
• Revenue recognition and deferred revenue analysis under ASC 606
• Working capital and transaction accounting support
• Audit readiness and documentation
Interested in similar support?
Ridgeway Financial Services helps tech, fintech, and high-growth companies navigate complex transactions, acquisition accounting, and audit readiness with clarity and confidence.
If your company is preparing for an acquisition, audit, or major transaction, we can help.