The buy-side Quality of Earnings team is challenging our normalized EBITDA by trying to capitalize our ongoing AI training and prompt engineering costs. How do we defend our operational adjustments?

Question

Tyler Smith · Accepted Answer

The buy-side Quality of Earnings auditor wants to lower your normalized EBITDA by reclassifying items. If they push to capitalize your ongoing AI training, prompt engineering, or workflow automation costs, they are trying to prove your current operating expenses are artificially low and that your margins are unsustainable. You must defend your accounting with cold, hard operational data.

Use your EOS Accountability Chart and project-tracking software to show exactly who is doing the work and what they are producing. If your internal team spent time on one-off, non-recurring system builds, those are legitimate capital expenditures or one-time add-backs. If they are doing daily maintenance, those are operating costs.

Provide the auditor with clear documentation of your weekly Scorecard metrics and Rock history. Prove that the initial AI deployment was a distinct, finite project with a clear end date. Show that your ongoing operational costs are fully baked into your run-rate expenses. By matching your financial ledger to actual operational milestones tracked in your Level 10 Meetings, you take away the auditor ability to make arbitrary adjustments and preserve your valuation.