The buy-side Quality of Earnings firm is using a proof of cash reconciliation to challenge our historical revenue because our bank deposits do not match our accrual-based revenue timing. How do we defend our revenue recognition during this audit?

Question

Tyler Smith · Accepted Answer

A proof of cash is a standard tool used by buy-side forensic accountants to identify unrecorded revenue or phantom cash. They reconcile your bank statements directly to your general ledger. If you have timing differences between when you bill, when you collect, and when you recognize revenue under GAAP, they will claim your numbers are unreliable and try to discount your EBITDA.

To defend your revenue, you must provide a clean bridge that explains every single variance. This bridge must reconcile your bank deposits, accounts receivable aging, and deferred revenue balances on a monthly basis. Show them exactly how cash moves through your system.

If your business collects deposits upfront or uses milestone billing, demonstrate that your revenue recognition matches your delivery of services. Present your operational data directly from your workflow systems to prove that the work was completed in the period the revenue was recognized.

This is where having a clear Accountability Chart pays off. Your financial seat must own this process during due diligence. Do not let the buy-side auditors control the narrative. Prepare this reconciliation before they even start their fieldwork. By showing them a tight, double-entry reconciliation that accounts for every dollar of cash timing difference, you neutralize their argument and preserve your historical EBITDA.