An accountant, not a judge, decides your price true-up

Your post-closing price true-up is decided by an independent accountant applying the purchase agreement’s accounting rules, not by a judge weighing what feels fair. Most agreements confine that accountant to the disputed line items, and Delaware enforces the limit the parties wrote. Your protection is the drafting done before signing, plus a timely written objection.

How does a working capital true-up actually work after closing?

A working capital true-up runs on a fixed sequence: an estimated closing statement delivered before closing, a final closing statement prepared after it, a seller review period, a written objection notice, and an independent accountant who resolves only the items still in dispute. Payment follows on the schedule the agreement sets.

The estimate drives the wire at closing. The final statement decides who owes whom afterward. If final working capital lands above the estimate, the buyer owes you the difference. If it lands below, you owe it back, within the days the agreement allows after the determination.

Where that money comes from is negotiated separately. Deal studies report a dedicated adjustment escrow in most agreements they sample, but those samples start well above the size of an owner-operated company. In smaller deals the obligation is often an unsecured promise to pay, or a setoff against an indemnity escrow or a seller note. An escrow caps your exposure only if it is the buyer’s exclusive recourse.

Data: ABA Private Target Mergers and Acquisitions Deal Points Study (2025) (139 agreements; prices from about $25 million to $900 million).

Who prepares the final closing statement, and how long do you get to review it?

The buyer prepares the final closing statement in most private deals, through its controller or an outside accountant, because the buyer holds the company’s books the day after closing. The seller then gets a stated review period running from delivery. That clock usually runs whether or not supporting schedules came with the statement.

That is the asymmetry to fix at signing. The party with the ledgers writes the number; the party without them has weeks to disprove it. Two drafting moves close the gap. An access covenant: access to the trial balance, subledgers, work papers, and the staff who prepared the statement. A tolling sentence: the period does not begin until the supporting detail arrives.

I ask for the closing trial balance and the buyer’s supporting schedules before I read the buyer’s number, because the number is only an output of the schedules.

What happens to line items you do not object to in time?

Line items not challenged in a timely written objection notice are treated as final and binding under most purchase agreements. That result is deliberate drafting, not an accident. The independent accountant has no authority over items nobody disputed, and a court asked later to reopen them generally enforces the deadline the parties wrote.

The exceptions are narrow: fraud, waiver, or a failure to deliver something the agreement made a condition to starting the clock. None is a plan. Assume the deadline is real.

So the objection notice is the most consequential document you sign after closing. Identify every disputed item, state your position, attach your calculation, and include a dollar amount if the clause requires one. An item raised first in front of the accountant is usually outside its mandate.

What does “GAAP consistently applied” mean in a purchase price adjustment?

“GAAP consistently applied” in a working capital definition ordinarily means consistent with how the company being sold has actually applied GAAP, not consistent with the buyer’s preferred accounting. The words of your definition control. Well-drafted definitions state an order of authority: the enumerated rules in the agreement first, then the company’s historical accounting practices, then GAAP.

The hierarchy matters because each level is narrower than the one below it. The enumerated rules are what the parties actually agreed: which reserves count, how inventory is valued, whether an accrual is capped. Historical practice is how your controller has closed the books. GAAP holds many defensible positions.

In Chicago Bridge and Iron Co. N.V. v. Westinghouse Electric Co., the agreed principles required working capital to be determined consistent with GAAP as applied by the target and, to the extent not inconsistent, the target’s past practices and policies. The Delaware Supreme Court read them together as requiring consistency with past practice.

Attach a sample calculation as an exhibit, built from a real month-end, using the accounts and reserve levels the final statement will use. It is the most efficient interpretive tool you have, and where the agreement says the sample controls a conflict, it binds the accountant.

Case: Chicago Bridge & Iron Co. N.V. v. Westinghouse Electric Co., 166 A.3d 912 (Del. 2017).

Can a buyer use the true-up to attack your historical financial statements?

A buyer cannot convert the true-up into a general audit of the seller’s historical accounting when the purchase agreement confines the adjustment to closing-date working capital. Chicago Bridge and Iron v. Westinghouse is the controlling illustration. The Delaware Supreme Court called the true-up an important but narrow, subordinate, and cabined remedy.

The facts matter more than the deal’s size. Chicago Bridge sold its Stone and Webster subsidiary to Westinghouse. The price payable at closing was zero, and the buyer’s sole remedy for breach of the representations was to refuse to close. The estimated statement showed working capital above target, pointing to several hundred million dollars owed to the seller. After closing, the buyer called the target’s historical accounting non-GAAP and demanded more than two billion dollars through the auditor.

The Court of Chancery let that proceed. The Delaware Supreme Court reversed. Reading the agreement whole, the true-up existed to capture developments affecting working capital between signing and closing, and the buyer’s reading, in the Court’s phrase, “eviscerates the basic bargain” the parties struck. The buyer was to be enjoined from putting arguments to the auditor that were really representation claims.

The true-up measures what changed between signing and closing. It is not a second audit of the years you owned the company.

The drafting lesson is direct. Put an express sentence in the agreement stating that the true-up may not be used to assert, and the accountant may not decide, any claim that a representation was breached. Without it, a buyer who dislikes your reserves can dress a warranty claim as an accounting adjustment.

Is the independent accountant an arbitrator, and can you challenge what it decides?

An independent accountant designated an “expert, not an arbitrator” is making an expert determination, which Delaware treats as fundamentally different from arbitration. The label narrows the accountant’s authority to discrete, non-legal questions inside accounting expertise. Absent clear contrary language, it does not create a forum for contract interpretation, and it is not a place to relitigate the deal.

Ray Beyond Corp. v. Trimaran Fund Management is the clean statement of the rule. The buyer had acquired ChanceLight, with part of the price escrowed pending a subsidiary signing a qualifying contract with a school district. The buyer sued to force the seller side into the accountant’s process, and the Court of Chancery refused. The “expert, not an arbitrator” label, a tight twenty-day deadline, and the absence of arbitration’s procedural protections pointed one way: whether a qualifying contract existed was a legal question for the court. That clause governed an escrow release, but the limit reads the same.

The flip side is how little review follows. In SM Buyer LLC v. RMP Seller Holdings, LLC, the Court of Chancery reluctantly confirmed an award requiring the seller of a roughly forty million dollar grocery business to pay the buyer about eighty-seven million dollars. The fight turned on the drafted definition of closing date indebtedness. That clause operated as an arbitration, so review ran only for manifest disregard, and the Supreme Court affirmed.

Assume the determination stands. It is enforced as the contract term the parties chose, and a challenge generally succeeds only where the accountant went outside its mandate, or on narrow grounds such as fraud. The place to win is the clause, months earlier.

Cases: Ray Beyond Corp. v. Trimaran Fund Management, L.L.C., C.A. No. 2018-0497-KSJM (Del. Ch. Jan. 29, 2019); SM Buyer LLC v. RMP Seller Holdings, LLC, 2024 WL 8652024 (Del. Ch. Feb. 28, 2024), aff’d, No. 117, 2024 (Del. Nov. 8, 2024).

Which true-up terms cost sellers the most money?

Three true-up terms quietly transfer dollars from sellers to buyers: a review period too short to obtain the closing books, an accountant unconstrained by the parties’ own submitted positions, and a fee split that is fifty-fifty no matter who was right. Each one looks administrative on the page. Each is priced.

The between-the-positions cap deserves the emphasis. Without it, the accountant may land outside both submissions. With it, your downside on each disputed item is fixed at the buyer’s own number.

A fee split tied to outcome converts a costless buyer claim into a priced one. That single sentence changes what gets asserted.

What should you fix in the true-up clause before you sign?

Six changes to the purchase agreement do most of the protective work in a price adjustment, and each is an ordinary ask in a negotiated private deal. They get drafted before signing, while you have leverage. After closing, the clause is the whole universe, and the accountant reads only the page.

• A workable review period. Long enough to obtain the work papers and the closing books, tolled until the supporting detail arrives, with access to records and personnel.
• A sample calculation as an exhibit. Built from a real month-end balance sheet, showing every account and reserve at its historical level, and stated to control any conflict.
• A stated accounting hierarchy. Enumerated rules first, then historical practices, then GAAP, with the enumerated rules controlling.
• The between-the-positions limit. The accountant may not value any item above the buyer’s position or below yours.
• An anti-overlap sentence. The true-up may not be used to assert a breach of a representation, and no item may be recovered twice under both the adjustment and the indemnity.
• Outcome-based fees. Allocated in proportion to how the disputed amounts are resolved.

Does a post-closing adjustment change your tax reporting?

A post-closing true-up changes the total consideration in the transaction, and in an asset sale the allocation among asset classes has to be adjusted to match. Section 1060 governs that allocation for federal tax purposes, and both buyer and seller report on Form 8594. A supplemental statement covers consideration that changes after the year of sale.

Stated as of September 2026, that is the framework. Where consideration changes after the year of the sale, each party files a supplemental Form 8594 with the return for the year the change is taken into account. An equity sale without a deemed asset sale election is not an applicable asset acquisition; there the true-up adjusts your amount realized instead. Because the true-up often settles in a later tax year than the closing, bring your CPA in before the objection notice goes out.

Law: 26 U.S.C. 1060; 26 C.F.R. 1.1060-1(e); IRS Form 8594, Asset Acquisition Statement Under Section 1060.

What should you do next, before the purchase agreement is signed?

Concrete first steps exist for every seller holding a draft purchase agreement. Start with the definitions, not the price. The true-up is decided by defined terms, deadlines, and exhibits, and every one of them is negotiable while the agreement is unsigned.

• Read the working capital definition, the indebtedness definition, the closing mechanics, and the dispute provision as one document.
• Have your controller build the sample calculation now, from last month’s balance sheet, and attach it as an exhibit.
• Diary the objection deadline a week early, from the day the final statement arrives.
• Ask for the between-the-positions cap and outcome-based fees in the same markup.
• Add the sentence barring representation claims from the accountant’s process.
• Ask whether the escrow is the buyer’s only recourse for the adjustment.
• Tell your CPA the closing date and the likely true-up date.

Do this while nothing is signed. The accountant who decides your true-up will never hear what you meant, and will never ask.