These amounts can be agreed upon outside the accounting process. Once the parties agree on which accounting principles and financial statement elements will be included, the final step is to attempt to prevent unnecessary disputes over judgmental areas. Taxes and workers' compensation were discussed above. GAAP is reasonably clear about the requirements for each of the above areas. However, the calculations, can be highly judgmental.
Many companies use formulas to calculate receivable, inventory, and warranty reserves.
The buyer and seller may not agree on the appropriate formulas. Disputes can be minimized if the approach to be taken in judgmental areas is clearly set forth in the purchase and sale agreement after negotiation by the parties. Leaving judgmental areas to the post-closing dispute resolution process leads to disputes to resolve. The accountants who will have to negotiate any disputes after the fact must instead spend a small fraction of that time agreeing on the approach to judgmental areas before the purchase and sale agreement is finalized. That way, they can prevent many disputes.