Quality of Earnings (QofE)

Definition

QofE differs from an audit on one critical point: an audit checks whether the numbers are booked per the rules; a QofE checks whether the numbers carry economic meaning for a buyer. A QofE team: typically Big 4 or a specialised M&A-DD shop: spends 3-6 weeks through the accounts identifying one-off items, owner-comp normalisations, intercompany flows, capex fluctuations, and accounting choices that lift or depress reported EBITDA.

The final report delivers a "normalised EBITDA" plus a detailed bridge documenting each adjustment. Buyers use this figure as their bid basis; sellers use a pre-emptive QofE (part of vendor due diligence) to defend the price and shorten DD time. For Benelux deals above €5m EV a QofE report is near-standard.

When it matters

For sellers: in vendor due diligence above €5m EV, to anticipate buyer-side DD findings and pre-argue the price. For buyers: post-LOI, to validate the price before SPA signing. Below €2m EV often overkill: cost (€20-60k) exceeds return.

Frequently asked

How much does a QofE report cost?

€20-60k for a Benelux SME with €5-25m revenue, depending on scope (financial-only vs full-scope including tax, IT) and complexity. Big 4 at the top end; specialist M&A-DD boutiques at the bottom.

Difference between QofE and audit?

Audit checks compliance with accounting rules. QofE checks economic meaning for a buyer. A business can have a clean audit and still see €40k of EBITDA corrections in QofE: both players are right within their lens.

How much DD time does a vendor QofE save?

Typically 30-50% reduction. A 10-week buy-side DD becomes 5-7 weeks; in multi-bidder auctions it saves 4-8 weeks total. For sellers that's time in market versus time in the DD room.