Our company delivers long-term client engagements that span multiple quarters, but the buy-side Quality of Earnings team is challenging our percentage-of-completion revenue recognition method. How do we defend our accounting practices and protect our trailing twelve-month EBITDA?

Question

Tyler Smith · Accepted Answer

Percentage-of-completion accounting is a common target for buy-side Quality of Earnings auditors who want to shift revenue post-closing and reduce your historical EBITDA. To defend your numbers, you must show that your revenue recognition method is fully compliant with modern accounting standards like ASC 606 and is backed by disciplined operational data.

You cannot rely on loose estimates of project progress. You must show a clear, audit-ready connection between actual hours worked, project milestones achieved, and recognized revenue. This requires having a highly structured operational delivery system.

During the due diligence process, share your project management tracking sheets and your team's scorecard history. Prove that your project management leads have the GWC to accurately estimate project costs and completion timelines. When you can match your historical revenue recognition with precise, weekly operational metrics that have been consistently reviewed in your leadership meetings, the auditors will have no choice but to accept your calculations. Defending your revenue recognition protects your trailing twelve-month earnings from arbitrary adjustments, ensuring your valuation multiple is applied to a complete and accurate EBITDA base.