The Accounting-Legal Liaison


Has your company ever finalized an M&A deal, signed a new lease, or completed another complex transaction and then struggled with the accounting for the transaction because the accountants did not understand the legal documents?  Has your company ever signed a good deal and then been disappointed when the accounting for the deal looked a bit less glamorous than the deal team had hoped?

It is simply not reasonable (or fair) for the Legal Department to drop hundreds of pages of deal documents on the Accounting Department and assume the accountants will fully understand the transaction and nail the accounting.  By the same token, it is unreasonable (and unfair) for the Accounting Department to assume that the Legal Department will structure every facet of a transaction to achieve the optimal GAAP and tax outcomes.

The attorneys and the accountants should be in communication early and often during complex transactions to make sure each group understands the implications of a potential deal before it is struck.  The right tone is one of partnership, where each department is generously supporting the other to ensure the best outcome for the organization.  Unfortunately, the posture in many companies is one of disdain by the attorneys and resentment by the accountants.  Even when the culture is strong and the tone is healthy, each group may miss technical nuances in the other’s terminology, which can lead to a suboptimal result. 

For this reason, large organizations are wise to appoint an Accounting-Legal Liaison to facilitate communications between the two functions and guard against misunderstanding at all stages of a deal.  The ideal Accounting-Legal Liaison is a leader with both accounting and legal experience and enough stature in the organization to compel the Accounting and Legal Departments to work together.

The Liaison should facilitate multiple meetings between the Legal team and the Accounting team throughout the negotiations, especially at the outset.  The accountants will eventually have to account for whatever the deal turns out to be, but the opportunity for the deal team to benefit from the accountants’ insights and suggestions is primarily at the outset of the negotiations.  No negotiator likes going back to the other side deep in the negotiation and asking for a new term to help optimize the accounting – those late-stage requests usually cost you something, even if they are neutral for the other party.  The best practice is for the deal team (often the attorneys) to explain the nature of the proposed transaction to the Accounting team before the negotiations begin in earnest, allow for robust Q&A, and then give the accountants some period of time to come back with additional questions and, ultimately, their recommendation for how to structure the deal for GAAP and tax purposes.  Multiple meetings are usually necessary because the accounting team needs time to consider the nature of the transaction, mock-up the journal entries, identify risks to avoid and opportunities to pursue, and, most importantly, identify parts of the deal that the accountants do not fully understand.  The second Liaison meeting is often where the most value is unlocked because the accountants are able to come back and ask better questions.  In companies with the right culture, the attorneys understand the benefit of the follow-up meeting(s) and welcome the more informed discourse in hopes of revealing all the relevant issues.

Finally, once the transaction documents have been signed, the Liaison should produce a “Deal Companion Memo” that translates and simplifies the myriad deal documents into a single document the accountants can reasonably be expected to digest and follow.  For example, if the company issues secured bonds, the terms of the debt can be spread out over a Loan Agreement, Trust Indenture, Continuing Disclosure Agreement, Deposit Account Control Agreement, Deeds of Trust, and/or other documents.  The Liaison can add great value by distilling the deal documents into a single guide, so the accounting team is not forced to navigate the full suite of deal documents each time a question arises.  

The Deal Companion Memo may be 10-15% of the size of the deal documents but can be organized in a way where the most important (or highest risk) subject matter is covered up front rather than necessarily follow the order of the underlying deal documents.  A “Term Sheet” style summary of the key deal points at the very beginning of the Deal Companion Memo can give the Memo even more utility.

The Liaison should work through the deal documents with the Legal Department and, ideally, have the Legal Department review the Deal Companion Memo to ensure that it comes to the right conclusions and covers the salient points before it goes to the accounting team.  Under all circumstances, the Deal Companion Memo should be produced as quickly as possible, while the details of the deal are fresh and so the accounting team can work in the right direction from the start.

An Accounting-Legal Liaison may seem like a luxury, but failure to consider this role may lead to deals with subpar GAAP and tax outcomes and/or frustration and wasted effort in the accounting function.


Company Culture


Company culture is one of the main reasons people give for leaving a job.  It is rare for an entire company’s culture to be good or bad, instead there are different cultures in different departments, but if enough of those departments have bad cultures, the entire company gets painted with that brush.

What are some signs of a bad culture?

  • Fear and Dishonesty – If you are afraid to tell your team leader the truth about the budget for the construction project, the outcome of the data analysis, the revenue trend on the new product line, etc., then the leader will not get all the information necessary to make the best decisions and the company will suffer. If your team leader only wants to hear good news and punishes you for telling the truth, then you are stuck in a bad culture.  I have seen project teams “value engineer” what was supposed to be a premium product into an average one because they did not want to go back and ask for more money or time than was originally budgeted.  If the project team was not afraid to go back and explain why the project was running overbudget, the company could have had the premium product for just a bit more money, but instead ended up paying full price for mediocrity.
  • Festering – If someone on the team is not performing up to expectations but the boss does not deal with them timely (by coaching them to perform better or moving them off the team), resentment will build with the team members who are doing their jobs. The resentment builds up and causes the good team members to disengage and underperform or leave outright – either way the company to suffer.
  • Exclusion – If only the same few people are invited to every key meeting; chances are the company is not getting all the right stakeholders involved or surfacing the all best ideas. It stinks when someone who was not involved walks into a project at the end and asks simple questions that would have unlocked a better result if they had come up at the beginning.
  • Narcissism – If the team leader takes all the credit for success, the team members will become disengaged and/or leave the team and that is not good for the company.

Bad culture is corrosive.  It causes even good team members to take their eyes off the work and become distracted by other matters.  The worst case for the company is when a bad culture causes all the good team members to leave and only the bad ones remain – that is a disaster.  Do you know how many excellent hires it takes to dilute and eventually reverse a bad culture?  All the while, the company is performing suboptimally.

If you want to drive a good culture at your company, strive to establish the opposite of the bad features listed above:

  • Honesty – “It is what it is” can be a helpful mantra to encourage team members to get problems onto the table. After all, how can I help you overcome your obstacles if I do not know what they are?  Emphasize that it is in the best interests of the company for everyone to get the issues they see out in the open.  If a project looks like it will run overbudget, have an honest discussion about it as soon as possible.  Of course, someone is going to ask why, but if the problems were no one’s fault (e.g. asbestos behind the walls, permitting delays, bad weather, supply chain disruptions), then there should not be anything to fear.  Be honest about all the facts and let the leaders decide whether to increase the budget, “value engineer” the scope or quality, extend the timetable, scrap the project, etc.
  • Confidence and Collaboration – Establishing a pattern of honest communication, one in which team members are not punished for things that are not their fault, is critical and will often unlock more collaboration on the team. If you have the right people on the team, they will naturally want to help each other out and sometimes there is a simple solution in one team member’s head that will save another team member hour of work if the right conversation can happen.
  • Accountability – Underperformance cannot go unaddressed. If there is a failure and it is no one’s fault, do not go searching for a scapegoat.  However, if a team member drops the ball on something that should have gone right due to incompetence, laziness, a toxic personality, or general disengagement, then you either have to coach that person to perform properly or get rid of them.  The good team members will thank you for it and they will become disaffected and leave if you do not hold underperformers accountable.
  • Inclusion – You do not need to invite every employee at the company to every meeting but bringing a few new faces to key meetings may unlock a novel solution that the “regular team” may not have thought of. Even if the new attendees at the meeting do not provide a solution, the inclusion often inspires feelings of confidence and empowerment and can lead those team members to be more engaged in their jobs.
  • Share the Credit – If you are doing a great job as the team leader, you need to have confidence that your boss sees it and is giving you credit. This will allow you to share the credit for your team’s successes.  The best way is with specific, individual recognition of team members.  An event where you say, “thank you” and recognize the entire group is nice, but specifically recognizing the contributions of each team member goes even further – it shows that you were paying attention and that you value each team member’s effort.  This will do wonders, especially for team members that have the “boring” jobs that rarely get recognition.

The ultimate measure of company culture is whether everyone is always prioritizing the company’s best interests.  If team members are worried about how a project will make them look, whether their boss will be mad if they raise a concern, whether they will get all the credit they deserve, why another team member is allowed not to pull their weight, or anything other than the project, then the project will suffer and the company will suffer.