Quality of earnings (QoE)

Financial statements and even normalized earnings are prepared by, or on behalf of, the seller. A quality-of-earnings review brings in an independent set of eyes — typically an accounting firm — to test those numbers against underlying records: bank statements, invoices, contracts, and accounting ledgers.

What a QoE review typically checks

• Whether revenue is recognized consistently and matches actual cash collected
• Whether claimed add-backs and adjustments are properly documented
• Whether one-time items are genuinely one-time, not a recurring pattern relabelled
• Working capital trends and any red flags in accounts receivable or payable

Where it fits in a deal timeline

QoE reviews are typically commissioned after a buyer and seller have agreed on preliminary terms, since the review itself costs money and takes real analyst time. Findings from the review often lead to a price adjustment, revised deal terms, or in some cases the buyer walking away entirely if the numbers don’t hold up.