Meaning
An independent accountant appointed to resolve disputes regarding financial statements or purchase price adjustments in corporate transactions. When parties to a merger or acquisition cannot agree on the final working capital, an accounting arbitrator is appointed to make a binding determination. This specialist is limited to choosing between the positions of the two parties or calculating a figure within that range.
Appointing Protocol
The purchase agreement specifies how the neutral professional is selected if the parties reach an impasse. Usually, the parties choose a mutually agreeable representative from a pre-approved panel of accounting firms. If they fail to agree, a designated body makes the appointment.
Valuation Decision
The professional conducts a detailed review of the disputed financial items using the definitions and standards set out in the acquisition document. This review relies on written submissions and supporting documentation from both parties rather than live hearings. The professional evaluates whether the calculations conform to the agreed accounting standards, such as generally accepted accounting principles or international financial reporting standards.
After analyzing the figures, the accountant issues a detailed report with the final numbers.
Binding Award
The decision of the neutral professional is final and binds both parties to the transaction. It cannot be appealed except in cases of fraud or clear error. This finality protects the transaction from prolonged litigation.
