We are preparing for a buy-side Quality of Earnings audit and have several large add-backs for one-time systems upgrades and legacy legal disputes. How do we document and defend these non-recurring expenses to ensure the auditor accepts them instead of slashing our adjusted EBITDA?

Question

Tyler Smith · Accepted Answer

Buy-side auditors are paid to find reasons to reduce your adjusted EBITDA, and they will target your non-recurring add-backs first. To defend these adjustments, you need an air-tight paper trail that proves these expenses are truly historical anomalies that will not recur under new ownership. Do not just hand over a spreadsheet of estimates. For one-time systems upgrades, such as implementing a new enterprise resource planning tool or rebuilding your technological infrastructure, provide the original vendor contracts, detailed statements of work, and proof of project completion. Clearly link these expenditures to specific, completed initiatives on your historical V/TO. For legal disputes or legacy compliance issues, show the settlement agreements and court filings to prove the matter is permanently resolved and will not require future cash outlays. If you transitioned your team structure or terminated underperforming employees, document the severance payments as separate, one-time expenses. The key is isolating these costs from your normal, ongoing operating expenses. If you cannot prove that the expense has a definitive start and end date, the auditor will classify it as an ongoing cost of doing business, which directly reduces your valuation multiple. Work with your leadership team to clean up these ledger items now so you can present a pristine, audited trail when the diligence process begins.