No one audited the financial statements you were sent.

Four engagement levels exist for private-company financial statements: preparation, compilation, review, and audit. Preparation and compilation carry no assurance at all. A review carries limited assurance. Only an audit tests the underlying records. Most statements in a small-business sale package sit low on that ladder, and none of them are warranted to you until the purchase agreement says so.

What level of assurance stands behind the financial statements in a CIM?

Financial statements delivered in a confidential information memorandum come from one of four engagement levels. Preparation and compilation produce no assurance whatsoever. A review produces limited assurance, drawn from inquiry and analytical procedures. An audit is the only level that tests the underlying accounting records. Many packages contain no accountant work product at all.

The first three levels come from the AICPA’s Statements on Standards for Accounting and Review Services: AR-C 70, AR-C 80 and AR-C 90. Neither AR-C 70 nor AR-C 80 requires the accountant to verify anything. AR-C 90 requires inquiry, analytical procedures, whatever else yields sufficient review evidence, and further work if something suggests a material misstatement. Not an audit. Independence also differs: a review requires an independent accountant, a compilation does not, and any lack of independence must be disclosed.

At this deal size, an audit is the exception. Stated as of September 2026, SBA loan program requirements do not condition an acquisition loan on an audit of the seller’s statements, and the independent work the rules do require sits on the lender’s side of the table. That is a position with a date on it, so confirm the operating procedure in force with your lender. Expect a compilation, a preparation, or a spreadsheet.

Standards: AICPA SSARS, AR-C sections 70, 80 and 90 (SSARS No. 21, as amended); AICPA AU-C sections 200 and 500.

How do I tell which document I am actually holding?

The accountant’s cover letter names the engagement in its own words. A compilation report says the accountant did not audit or review the statements and expresses no opinion and no assurance. A review report says the accountant obtained limited assurance through inquiry and analytical procedures. A preparation engagement produces no report at all.

I read the accountant’s cover letter before I read the first number under it. If there is no letter and no legend, no accountant stood behind the document and you are holding management’s own arithmetic.

Ask for the engagement letter, and read which reporting framework the report names. A compilation or review can be presented on the income tax basis rather than on generally accepted accounting principles, and the two produce different revenue and expense timing. A statement proper on a tax basis can still be the wrong basis for the multiple you are quoted.

Why do the internal profit-and-loss statement and the tax return disagree?

Owner-operated accounting is built to produce a tax return, not to price a company. That purpose tends to push reported income down, and personal spending ends up inside business expense lines. The internal profit-and-loss statement and the filed return diverge. The return carries the bridge: Schedule M-1 reconciles income per books to income per return.

Read both, plus the reconciliation. Not every entity has to complete Schedule M-1. Filers under the receipts and asset thresholds in the Schedule B questions can skip it, the thresholds differ by return form, and filers above the large-asset threshold use Schedule M-3 instead. Where it is absent or blank, ask for the book-to-tax workpapers and year-end adjusting entries. Those are where depreciation elections, owner compensation, and related-party rent get moved around.

Then treat the add-back schedule for what it is. A broker’s adjusted EBITDA presentation argues that certain costs will not recur under you. It is not a fact and not an accountant’s conclusion. Each add-back you accept raises the price, the loan, and the balance behind your personal guaranty.

The books were built to lower a tax bill. You are using them to set a price. Those are different jobs, and only one of them was done.

Tax forms: Schedule M-1 and Schedule M-3, Forms 1120, 1120-S and 1065.

Can I rely on what the broker sent me?

The confidential information memorandum carries its own disclaimer, and the nondisclosure agreement typically states that no representation or warranty is made as to the accuracy or completeness of the information delivered. The agreement itself binds you on confidentiality. What it does not do is warrant a single number inside the package.

The nondisclosure agreement is a real contract, and its confidentiality and non-solicitation terms bind you from the day you sign. Its disclaimer is narrower: it tells you the seller is not standing behind the information yet, and that obligations about the business arrive only with a signed definitive agreement. That is the design. The repair is mechanical. Convert the figures you care about into named representations: financial statements, no undisclosed liabilities, taxes, receivables.

Remedies do not attach on their own. A seller indemnity, an escrow or holdback, and a right of setoff against a seller note are negotiated terms, and at this size plenty of deals close with no escrow, leaving the seller note as the only practical recovery. Setoff must be written into the note, and your lender’s standby requirements will shape what you can do with it. Representation and warranty insurance belongs to larger transactions and is uncommon here. Negotiate the escrow, the survival period for each representation, and the basket the seller must exceed before paying.

What happens to a fraud claim when the purchase agreement disclaims reliance?

Anti-reliance language changes which claim remains available. Delaware courts enforce clear provisions in which the buyer states it relied only on the representations written into the signed agreement, and those can bar fraud claims built on extracontractual material such as a memorandum. The same law refuses to let a seller escape liability for lying inside the agreement.

Fraud in the inducement means a deliberate lie about a fact, told to get you to sign. The Delaware Court of Chancery held in Abry Partners that a seller may cap a buyer’s remedies for an innocently inaccurate contractual statement, but that public policy will not permit a cap where the seller intentionally misrepresented a fact embodied in the contract. That buyer stayed free to press its claim, including for rescission.

The mirror image is Prairie Capital, where the buyer sued on statements outside the contract. The court read an exclusive representations clause with an integration clause, held the combination added up to clear anti-reliance, and noted that Delaware law requires no magic words. That claim failed. In Anvil Holding the clauses were not specific enough to foreclose extracontractual reliance, and the claim survived.

Three limits matter to you. The line is narrow and fact-bound: you must plead and prove a deliberate lie, not a disappointing forecast. These are Delaware decisions, while your agreement will likely select the law of the state where the business operates. And states differ on whether a disclaimer of reliance defeats a fraud claim at all, so ask counsel how your governing law treats it.

A number in the CIM is a sales argument. The same number inside the financial statements representation is a promise you can sue on.

Cases: Abry Partners V, L.P. v. F & W Acquisition LLC, 891 A.2d 1032 (Del. Ch. 2006); Prairie Capital III, L.P. v. Double E Holding Corp., 132 A.3d 35 (Del. Ch. 2015); Anvil Holding Corp. v. Iron Acquisition Co., 2013 WL 2249655 (Del. Ch. 2013).

What documents should I request before I make an offer?

The pre-offer request list is short and specific. Filed tax returns covering the same periods as the statements, bank statements, payroll tax filings, sales tax returns, the receivable and payable agings, and general ledger detail behind the largest expense lines. Each item tests a different claim in the package.

• Filed returns. They show what the seller told the government when the incentive ran the other way. Match them line by line.
• Bank statements. Deposits are harder to dress up than a profit-and-loss line. Tie them to reported revenue, stripping out loan proceeds, owner contributions and transfers between accounts.
• Payroll tax filings. Federal quarterly and annual filings confirm headcount and wage cost, and expose family members on payroll who do not work there.
• Sales tax returns. In a taxable-sales business, an independent revenue series the seller did not prepare for you.
• Receivable and payable agings. Receivables show what was booked and not yet collected. Payables show which vendors have been funding the seller’s working capital.
• General ledger detail. Transaction-level detail on the largest expense accounts: rent, payroll, vehicles, travel, and anything labeled miscellaneous.

I ask for the filed returns and the bank statements before I discuss price. Until they arrive, any number you put on paper is provisional, and the letter of intent should say so: a diligence condition, a financing condition, and a statement that the price rests on unverified figures.

What does the SBA lender verify, and when?

SBA lenders verify applicant and, in a business acquisition, seller financial information against tax transcripts obtained directly from the IRS rather than against copies the seller hands over. Stated as of September 2026, the authorization runs on IRS Form 4506-C through the Income Verification Express Service or on IRS Form 8821, and transcripts are generally reconciled before first disbursement.

Exceptions and lender discretion live inside that rule, including for newer businesses, so ask which years your lender will pull and on whom.

Currency matters, because the SBA rewrites its operating procedure and your lender applies the version in force when your loan number issues. SOP 50 10 8 took effect June 1, 2025. SOP 50 10 8.1 was issued August 14, 2026 and takes effect October 1, 2026 for applications issued an SBA loan number on or after that date. Stated as of September 2026, earlier applications run under SOP 50 10 8. Confirm the current text with your lender rather than treating any summary as permanent.

Two changes under SOP 50 10 8.1 touch the financial information directly, stated as of September 2026. Every change of ownership requires an independent business valuation from a qualified source obtained by the lender; the earlier allowance letting a lender value the business in-house on smaller financed amounts does not carry forward. An initial acquisition or business expansion with a purchase price of $3 million or more also requires an independent quality of earnings report. It is due diligence commissioned for the lender’s credit decision. It is not an audit, not a representation from the seller, and it creates no remedy for you. It may surface the gap between the internal statements and the transcripts before you close. It may not.

Where transcripts do not match the information supplied, the lender has to resolve the difference. Neither the timing nor the outcome is yours to control.

SBA: Information Notice 5000-866746 (SOP 50 10 8, effective June 1, 2025); Information Notice 5000-880695 (SOP 50 10 8.1, effective October 1, 2026); SOP 50 10 8 and 8.1, verification of financial information and change of ownership. The Form 8821 alternative came from Procedural Notices 5000-829416 and 5000-844866, amending the superseded SOP 50 10 6.

What should I do with the package sitting on my desk right now?

The first task is classification, not analysis. Identify the engagement level behind every statement in the package, list what is missing, then decide whether any offer can be other than provisional. Work in that order, because analyzing numbers whose provenance you have not established wastes your leverage.

• Find the cover letter on each set of statements. Write down which of the four levels it describes, or that there is none.
• Request the engagement letter, the reporting framework, the filed returns for the same periods, the book-to-tax reconciliation, and the year-end adjusting entries.
• Sign the IRS authorization your lender sends, and ask when seller transcripts get ordered and compared.
• Make the seller support each add-back with a document, and keep the failures out of the price.
• Instruct counsel to convert the figures you are paying for into named representations, with survival and escrow or setoff behind them.
• Read the anti-reliance and governing law clauses together before you sign anything binding.

Do that, and you will know what you are holding and what you are still owed. In all likelihood no one audited these statements. The remedy is not indignation. It is a purchase agreement that says what the seller stands behind.