In modern Thai mergers and acquisitions, negotiating the headline purchase price is often only the beginning of the economic bargain. Most Share Purchase Agreements (SPAs) incorporate a Completion Accounts or Working Capital Adjustment mechanism that recalculates the final purchase price after closing. While these provisions are intended to protect both buyers and sellers, they frequently become the most contentious aspect of post-closing negotiations.
The root cause is rarely arithmetic. Instead, disputes typically arise because the SPA fails to specify which accounting principles govern the preparation of the closing accounts. In Thailand, where many privately owned businesses have historically adopted accounting policies influenced by tax efficiency rather than strict financial reporting compliance, the distinction between historical accounting practices and Thai Financial Reporting Standards (TFRS) can materially alter the transaction value.
A poorly drafted working capital adjustment clause may therefore expose both parties to significant financial risk long after the transaction has closed.
The Accounting Framework Problem: Historical Practices versus TFRS
The fundamental purpose of a working capital true-up is to ensure that the buyer receives the business with an agreed level of operational liquidity at closing. However, this objective becomes problematic when the parties have different assumptions regarding the accounting framework used to calculate working capital.
Many Thai family-owned businesses and SMEs have historically maintained accounting policies that prioritize tax management, cash flow considerations, or administrative simplicity. These policies may differ substantially from the requirements of modern TFRS.
Common examples include:
- Limited expected credit loss provisions on receivables despite the requirements of TFRS 9
- Inventory carried at historical cost without adequate net realizable value assessments under TAS 2
- Incomplete recognition of employee benefit obligations under TAS 19
- Delayed recognition of provisions and contingent liabilities under TAS 37
- Inconsistent revenue recognition methodologies compared with TFRS 15
These differences often remain hidden during ordinary operations. However, they become highly significant when closing accounts are prepared and the final purchase price is recalculated.
Consider a manufacturing company with THB 50 million of recorded inventory. During financial due diligence, the buyer identifies THB 8 million of obsolete stock that has remained recorded at cost for several years. Applying TAS 2 requires the inventory to be written down to its net realizable value. If the SPA requires closing accounts to comply with TFRS, the working capital adjustment may immediately reduce the purchase price by THB 8 million or more.
What appears to be a technical accounting issue is, in reality, a direct allocation of economic value between buyer and seller.
Why Financial Due Diligence Must Drive SPA Drafting
One of the most common mistakes in Thai M&A transactions is treating financial due diligence and SPA drafting as separate workstreams.
Sophisticated acquirers increasingly perform comprehensive Financial Due Diligence (FDD) and Quality of Earnings (QoE) reviews before signing. These reviews frequently identify accounting policies, balance sheet anomalies, and TFRS deviations that could materially impact closing accounts.
Unfortunately, many SPAs continue to define working capital using generic phrases such as "Thai GAAP," "generally accepted accounting principles," or "consistent accounting policies" without addressing the specific issues identified during diligence.
This approach effectively postpones the dispute until after closing.
Best practice in 2026 is for the SPA to incorporate an explicit accounting hierarchy. A typical hierarchy may provide that closing accounts shall be prepared:
First, in accordance with the accounting principles specifically set out in the SPA
Second, using the illustrative completion balance sheet attached as an annexure
Third, consistently with agreed historical accounting policies
Fourth, in accordance with applicable TFRS requirements.
This hierarchy significantly reduces ambiguity and ensures that critical diligence findings are converted into binding contractual provisions.
Particular attention should be given to inventory valuation, bad debt reserves, accrued expenses, employee benefit obligations, tax provisions, deferred revenue, related-party balances, and contingent liabilities. These accounts routinely generate the largest working capital disputes in Thai transactions.
The Rise of Completion Account Disputes and the Importance of Expert Determination
As transaction values increase and private equity participation expands across Southeast Asia, post-closing accounting disputes have become increasingly sophisticated.
The most contentious disagreements typically involve competing interpretations of accounting standards rather than disagreements regarding legal obligations. Consequently, conventional litigation is often an inefficient mechanism for resolving completion account disputes.
Leading M&A practitioners therefore distinguish between accounting disputes and legal disputes within the SPA.
Accounting disagreements should typically be referred to an independent accounting expert, often a Big Four accounting firm, acting as an expert rather than an arbitrator. The expert's mandate should be narrowly drafted to determine disputed accounting items and calculate the final purchase price adjustment.
Legal disputes involving warranties, indemnities, fraud allegations, or contractual breaches should remain subject to arbitration or court proceedings.
A robust SPA should clearly define:
- The preparation process for closing accounts
- Review and objection periods
- The scope of expert determination
- Standards of review
- Allocation of expert costs
- Final and binding determination procedures
Failure to establish these mechanisms frequently results in lengthy and expensive disputes that undermine transaction value.
Current Market Trends: Why Drafting Precision Matters More Than Ever
Although locked-box pricing mechanisms continue to gain popularity in certain Thai mid-market transactions, completion account structures remain the preferred approach where earnings volatility, seasonal inventory fluctuations, construction projects, manufacturing operations, or significant working capital swings exist.
In 2026, buyers are also operating under increased scrutiny from lenders, investment committees, and corporate governance frameworks. Financial institutions financing acquisitions increasingly require evidence that transaction pricing mechanisms are supported by rigorous due diligence and clearly defined accounting methodologies.
At the same time, Thailand's continuing alignment with International Financial Reporting Standards has increased focus on fair value measurements, expected credit loss assessments, impairment testing, and economic substance reporting. As a result, accounting positions that may have been historically tolerated in privately managed businesses are increasingly challenged during acquisition processes.
The consequence is clear: a generic working capital definition that may have been acceptable a decade ago is no longer sufficient for sophisticated transactions.
Governance Lessons for Boards, CFOs, and Legal Counsel
Working capital adjustments are often viewed as technical provisions delegated to lawyers and accountants. In reality, they are governance issues that directly affect shareholder value.
Boards approving acquisition transactions should understand that the final purchase price may differ materially from the headline consideration announced at signing. CFOs must ensure that accounting assumptions used in valuation models are fully aligned with the accounting methodology prescribed in the SPA. Legal counsel must translate financial due diligence findings into enforceable contractual language capable of surviving post-closing scrutiny.
The most successful transactions are not those that avoid accounting differences entirely, but those that identify, quantify, and allocate those differences before signing.
In Thai M&A transactions, the definition of working capital has become one of the most important determinants of transaction value. The difference between historical accounting practices and TFRS-compliant reporting can significantly alter closing accounts, shift economic risk between the parties, and generate post-closing disputes worth millions of Baht.
As financial reporting standards become more sophisticated and due diligence processes become increasingly rigorous, working capital adjustments can no longer be treated as boilerplate provisions. They must be carefully integrated with financial due diligence findings, supported by clear accounting hierarchies, and reinforced through effective dispute resolution mechanisms.
In 2026, successful SPA drafting is no longer simply a legal exercise. It is a multidisciplinary process requiring legal, accounting, tax, valuation, and governance expertise. Parties that invest in this alignment before closing will be far better positioned to preserve deal value and avoid costly post-closing disputes.
