EBITDA
Accuracy

​​The Problem

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EBITDA is a critical driver of company valuation, yet it is sometimes understated when costs that are capitalizable under GAAP are instead recorded in operating expenses. These costs are often appropriately capitalized by peer companies.

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These items typically fall well below standard Quality of Earnings and audit materiality thresholds and therefore are not identified through those reviews. In the aggregate, however, their impact—when applied to EBITDA valuation multiples—can translate into tens of millions of dollars of incremental enterprise and equity value.

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We help companies identify and implement the reclassification of these costs to CapEx in accordance with GAAP and the companies' respective minimum capitalization amount policy, with full documentation and auditor sign‑off. This work is designed to complement, not replace or contradict, the scope of Quality of Earnings reviews.

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The Solution: A Structured, Audit‑Defensible Approach

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​​​Our structured framework is designed to rapidly and efficiently surface GAAP‑compliant capitalization considerations within existing accounting processes, while minimizing disruption to the finance organization..

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• Step 1: Targeted Assessment - We apply a structured diagnostic to identify costs running through OpEx that may meet GAAP capitalization criteria and have the potential to impact EBITDA. 

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• Step 2: Audit- & QoE-Ready Documentation - We prepare comprehensive, auditor‑ready documentation for each identified reclassification, explicitly anchored to authoritative GAAP literature. Documentation includes the technical accounting analysis, factual support, and clear linkage between the company’s specific fact pattern and the applicable GAAP requirements, making it robustly supported for audit review as well as future Quality of Earnings and diligence procedures.

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• Step 3: Sustainable Implementation - We support the incorporation of the conclusions into existing accounting policies and reporting practices, as needed, to promote consistent application and sustainable reflection of the EBITDA impact in future periods.

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Case Study

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We worked with a PE‑backed services company that had recently completed transaction‑related due diligence at an equity value of approximately USD 250 million (enterprise value of USD 1.0 billion). Through a targeted review, we identified approximately USD 3.0 million of costs recorded in OpEx that qualified for capitalization under GAAP, resulting in a corresponding increase to adjusted EBITDA.

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The accounting treatment and supporting documentation were reviewed by the company’s independent auditor and confirmed to be GAAP‑compliant. While the impact was not material for audit purposes, it was meaningful from a valuation  perspective.

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​​A No-Risk, Success-Based Engagement

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​We stand behind our work with a success‑based fee structure: there is no cost unless we identify GAAP‑compliant, well‑supported capitalization items. Our approach is designed to complement existing audit and Quality of Earnings procedures by focusing on items that typically fall below their scope, not to replace or contradict them.

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Ready to ensure EBITDA is accurately and defensibly reported?

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Contact us today to schedule a consultation.