A quality of earnings report, or QoE, is an independent review commissioned during a sale or acquisition, and the CBV Institute describes it as a comprehensive analysis of the sustainability and reliability of a company's earnings and cash flow. Read closely, it also shows how the books are run: whether accruals are booked monthly, whether add-backs (expenses removed from earnings as one-time or owner-related) have support, and whether the bank accounts reconcile.
In one hypothetical deal, the QoE on a smaller target comes back with a stack of adjustments to EBITDA (earnings before interest, taxes, depreciation and amortization), and half of them are year-end catch-up entries that nobody on the finance team can explain. The price gets negotiated and the deal closes. The private equity firm's operating partner, who works with the company after the deal, now has a finance team that can't produce reliable monthly numbers, and the QoE had flagged those problems before closing.
Private equity sponsors and CEOs can use those same findings to decide which finance hire to make first.
What a Quality of Earnings Report Tests
A quality of earnings report runs three main tests on the numbers a deal is priced on:
- Normalization removes one-time, owner-specific or non-recurring items so EBITDA shows what the business earns in a normal year.
- Working capital trends track receivables, inventory and payables month by month to set the level a buyer should expect to inherit.
- Proof of cash ties reported revenue and expenses to the deposits and payments that went through the bank.
Most of this happens during data room due diligence, when the advisor asks for ledgers, reconciliations and support. A team that takes a week to produce one bank reconciliation is showing the same weakness the report will flag.
Five Finance-Team Signals Hidden in a QoE
The five signals are year-end catch-up entries, undocumented add-backs, shifting working capital definitions, bank reconciliations that don't tie and one person who holds all the knowledge.
- A year of catch-up entries booked in the final month. Private middle-market companies often record a full year of adjustments in the final fiscal month, which distorts EBITDA for the last 12 months. This usually means there's no monthly close, and the management numbers you see during the year can't be relied on. Ask: which accruals are booked monthly today, and who reviews them?
- Add-backs nobody can document. If the advisor accepted an add-back on management's word, the judgment behind it lives in someone's head instead of a file. Ask: can someone show me the support for the largest add-backs?
- Working capital definitions that shift. Inventory reserves, cut-offs (which month a sale or cost lands in) and accrual methods that change between periods usually mean nobody has written the policies down. Ask: is there a written policy for inventory reserves and accruals, and when did it last change?
- Bank reconciliations that don't tie. Proof of cash differences usually mean reconciliations are prepared late or never reviewed, or that old unreconciled items keep getting carried forward. Ask: when was each account last reconciled, and who signed off?
- One long-tenured person who holds all the knowledge. If every data room answer routes through one bookkeeper or office manager, you have key-person risk, and nobody is checking that person's work. Ask: if this person took a few weeks off during close, who would run it?
From Findings to a First-100-Days Hiring Plan
Match each finding to a capability gap, then decide whether to develop the person already in the seat, add someone, or make a change.
| QoE finding | Likely gap | Usual fix |
|---|---|---|
| Year-end catch-up entries | No monthly close discipline | Controller |
| Undocumented add-backs | Weak support and technical judgment | Controller |
| Shifting working capital definitions | No written accounting policies | Controller |
| Unreconciled bank accounts | Capacity or review gap | Senior accountant, with controller review |
| One person holds the knowledge | Key-person risk | Training and documentation, then a senior accountant |
| Forecast and lender model built outside finance | No strategic finance lead | CFO, when the plan calls for one |
The long-tenured person in row five is often the one you most need to keep, because they know where every number comes from. What usually works is documenting their knowledge and building a team around them. If you're weighing the two most common adds, our piece on choosing a controller or senior accountant covers the difference. For which seat to fill first after close, see our guide to hiring a portfolio company controller or CFO.
Why Most Canadian Deals Need a Controller, Not a CFO, to Fix This
Most Canadian private equity (PE) deals are small enough that one strong controller can resolve most QoE findings. In Q1 2026, the Canadian Venture Capital and Private Equity Association (CVCA) counted CAD 3.86B across 138 transactions, and 85% of the deals with a disclosed value were below CAD 25M.
At that size, the findings above are mostly close, reconciliation and documentation problems, and those are controller work. A CFO becomes the right hire when the plan includes refinancing, add-on acquisitions or exit preparation.
Lenders also set reporting deadlines. Terms vary, so check what your credit agreement asks for, but a company still catching up at year-end will struggle to deliver monthly or quarterly statements on time. If pay is part of the decision, our salary guide has current benchmarks for both seats.
Use the QoE as Your Interview Case Study
The QoE is the most realistic test you can give a finance candidate, because it describes your company's own problems. Once you're down to finalists, share a redacted section (check with your deal counsel first on what you can disclose) and ask the candidate to:
- explain three of the adjustments in plain language, as they'd present them to the board
- rebuild one monthly accrual that was booked as a year-end catch-up
- propose a close calendar that gets the company to a reliable monthly package
Strong candidates will ask about the ERP, who owns each reconciliation, and where the external CPA firm fits. Weak ones will talk in general terms about "process improvement." Jack Kalb, a Partner at Minted and a CA, CPA who started his career in audit at EY, leads our accounting and finance practice, which screens candidates technically before you meet them, using questions like those in our controller screening guide.
Start scoping the role before close, while the QoE is fresh, and launch the permanent search in the first week after close. Until the hire starts, the existing team keeps the close moving, with the external CPA firm on hand for year-end and technical questions. Our guide to running a senior finance search covers the decisions to settle before it starts.
FAQ
Who prepares a QoE in Canada?
Usually transaction advisory teams at accounting firms, staffed by CPAs, often working with Chartered Business Valuators (CBVs). A buyer typically commissions one, and many sellers commission their own before going to market. The company's own finance team supplies the data and answers the questions.
Can a QoE tell you whether the controller is strong enough?
Not directly, since it reviews the numbers and not the people. But the symptoms are hard to miss: catch-up entries, unsupported add-backs and unreconciled accounts all point to gaps in how finance is run.
Should a seller commission its own QoE?
Many do. A seller's own QoE, done as part of sell side due diligence, surfaces the same findings before a buyer does and gives you time to fix close and reconciliation problems before buyers price them in.
Minted Search Group: Your Ally From QoE to Hire
Minted Search Group helps sponsors and CEOs turn QoE findings into the right permanent finance hire.
Send us what the report flagged. We'll tell you whether it points to a controller, a senior accountant or a CFO, then test candidates on the close, reconciliation and documentation problems your QoE raised before you meet anyone. You'll see a curated shortlist, not a stack of resumes, drawn from people who often aren't on job boards, which matters when the incumbent is still in the seat. Every placement is permanent.
If you're working through a QoE now, we can start scoping the seat before the deal closes. Talk to Minted Search Group. No Pressure, Just Possibilities.
