Common PPA Audit Questions
The 10 most common questions auditors ask during Purchase Price Allocation review—and how our documentation pre-answers them.
Purchase Price Allocation (PPA) engagements under ASC 805 represent some of the most scrutinized valuations in financial reporting. Auditors from Big 4 firms have standardized their review procedures, and the questions they ask are remarkably consistent.
Understanding these questions—and building answers into your deliverable from the start—separates defensible valuations from those that trigger extended review cycles.
The 10 Questions Every PPA Faces
1. "How did you identify the intangible assets?"
What they're really asking: Did you apply a rigorous identification framework, or did you simply accept management's list?
How we pre-answer: Every FairvalueX PPA includes an Intangible Asset Identification Matrix documenting the contractual-legal and separability criteria applied to each potential asset, with explicit "include" or "exclude" designations and supporting rationale.
2. "What is the basis for the useful life?"
What they're really asking: Is this a negotiated number or an analytically supported conclusion?
How we pre-answer: Our useful life analysis includes multiple data points: contract terms, technology refresh cycles, customer attrition data, and comparable transaction evidence. Each factor is weighted and the conclusion shows its derivation.
3. "How did you determine the royalty rate?"
What they're really asking: Can you demonstrate this rate is market-based rather than convenient?
How we pre-answer: We include a Royalty Rate Support exhibit showing comparable licensing arrangements, third-party database evidence (RoyaltyStat, ktMINE), and profit split analysis corroboration. Multiple approaches triangulating to the selected rate.
4. "What discount rate did you apply and why?"
What they're really asking: Is this rate appropriately risk-adjusted for the specific asset, or a generic company WACC?
How we pre-answer: Each intangible asset receives an asset-specific discount rate build-up, starting from the weighted average return on assets (WARA) framework and adjusting for relative risk. The WARA reconciliation is included in every deliverable.
5. "How does your WARA reconcile to the IRR?"
What they're really asking: Do your component valuations actually add up to the purchase price?
How we pre-answer: The WARA/IRR reconciliation is a standard exhibit, showing the implied return on each asset class and demonstrating mathematical consistency with the transaction value.
6. "What customer attrition rate did you use?"
What they're really asking: Is this rate based on actual data or assumption?
How we pre-answer: Customer attrition analysis includes historical cohort analysis where available, industry benchmarks with source citations, and sensitivity analysis showing value impact at alternative rates.
7. "How did you value the contributory assets?"
What they're really asking: Are the contributory asset charges reasonable and consistently applied?
How we pre-answer: Contributory asset charges are derived from return-on-asset analysis for each contributing asset class, with rates benchmarked against industry evidence and applied consistently across all intangible asset valuations.
8. "What is the basis for the tax amortization benefit?"
What they're really asking: Did you correctly apply the appropriate tax regime and amortization period?
How we pre-answer: TAB calculations reference specific tax code sections, show the iterative calculation methodology, and document the applicable tax rate and amortization period for each jurisdiction.
9. "How did you handle assembled workforce?"
What they're really asking: Is this properly treated as part of goodwill rather than a separate intangible?
How we pre-answer: Assembled workforce is explicitly addressed in our identification matrix, with documentation of why it fails the separability criterion under ASC 805 and how its value is reflected as a contributory asset charge rather than a standalone intangible.
10. "What sensitivity analysis did you perform?"
What they're really asking: How robust is this conclusion to changes in key assumptions?
How we pre-answer: Every material intangible asset includes sensitivity tables showing value impact of +/- 10-20% changes in discount rate, growth rate, and attrition rate. The ranges are documented and conclusions remain within reasonable bounds across scenarios.
The FairvalueX Standard
Our PPA deliverables are structured around these questions because we know they're coming. Rather than responding to audit queries after the fact, we build the answers into the initial work product.
This approach produces three outcomes:
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