Page 68 - M & A Disputes

er in writing as soon as practicable after the items in dispute have been referred to the
Arbitrating Practitioners. The Practitioner’s Determination shall be made in accordance
with GAAP consistently applied and shall be final and binding on Buyer and Seller. The
fees and costs of the Arbitrating Practitioners shall be allocated to Seller and Buyer based
upon the inverse proportion of success with respect to the disputed items.

Although the illustrative provision previously noted refers to the practitioner or consulting firm selected
as the neutral arbitrating practitioners, it is important to note that a variety of terms are used in practice.
The terms commonly used to refer to a practitioner who is retained to be the neutral decision maker in-
clude, but are not limited to, arbitrator, arbiter, neutral practitioner, reviewing practitioner, independent
practitioner, and expert. fn 1 There may also be additional terms used, but they essentially all refer to the
same role, subject, of course, to any contractual limitations that may be provided in the acquisition
agreement.

Regardless of which term is used to describe the neutral practitioner’s role, it is generally accepted that,
unless the neutral practitioner’s rights are specifically limited by the parties, the neutral practitioner pos-
sesses the rights that are bestowed upon an arbitrator. These rights are addressed in the Federal Arbitra-
tion Act (FAA) and in the each state’s Uniform Arbitration Act (UAA). These rights include, for exam-
ple, the ability to issue subpoenas to witnesses, hold hearings or produce documents, and hear and de-
cide on requests for the production of documents made by the parties.

Similar dispute resolution language may exist in acquisition agreements relating to earnout provisions
(see the discussion of earnout provisions in chapter 3). A common element of these two types of provi-
sions is the resolution of unresolved disputed items by a neutral third party, typically a practitioner. Par-
ties generally select practitioners to be the neutral third party rendering a final and binding resolution
because the issues disputed in these provisions tend to be of an accounting or a financial reporting na-
ture. When the disputed items go beyond the accounting or financial reporting realm, the resolution of
these items can be more complicated, as discussed subsequently. This practice aid also discusses dis-
putes arising from, and relating to, financial representations and warranties made by parties in the acqui-
sition agreement. However, those disputes are typically resolved through litigation or arbitration by at-
torney arbitrators and are not resolved through the use of a neutral practitioner.

Engagement Acceptance Issues

The practitioner should understand and be able to professionally discharge the myriad preengagement
acceptance issues prior to the acceptance of an assignment to serve as a neutral accountant. Such a neu-
tral accountant is retained to resolve accounting disputes between parties to a merger or an acquisition-
related transaction. When the preengagement acceptance issues are effectively handled by the practi-
tioner, it sets the stage for a successful assignment, and it establishes a firm foundation upon which the
assignment can be built. Conversely, in instances when the preengagement acceptance issues are not
dealt with in either a timely or an appropriate manner, serious difficulties may arise.

fn 1 For purposes of this practice aid, we use the term neutral practitioner in referring to the practitioner engaged by parties to serve in
the neutral capacity to resolve disputed items. Practitioners serving as a neutral practitioner are considered to be performing forensic
services subject to Statement on Standards for Forensic Services (SSFS) No. 1 (FS sec. 100).

All FS sections can be found in AICPA Professional Standards.

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