By Sergei Mochtchenkov, CFA
Different questions
A QoE asks a transaction question: what do the earnings, cash conversion and working capital mean for this deal? An audit or financial statement review addresses financial reporting within an assurance engagement. A business can have audited statements and still need diligence on owner add-backs, customer concentration, seasonality or the working capital peg.
Assurance versus diligence
Quality of earnings work is advisory analysis, not an audit, review or other attestation engagement, and it does not express an assurance opinion. A source-backed schedule supports a diligence conclusion, but it does not turn that conclusion into an audit opinion. Tell buyers and lenders exactly what work was performed and what was outside scope.
When each fits
Choose the engagement based on the requirement, not the label. If an audit, review or attestation is required, use a provider qualified to deliver that engagement. If the question is transaction pricing, normalized EBITDA or investment-committee analysis, discuss a focused QoE scope. Confirm any lender's requirements before assuming one report substitutes for another.
How they work together
Existing audited or reviewed statements can be a useful starting point, but diligence still needs monthly and transaction-level records. Reconcile the analysis to the financial statements, explain differences and keep the periods consistent. Where a proposed adjustment raises an accounting question, separate that question from the commercial judgment about sustainable earnings.