The importance of internal controls in mergers and acquisitions

Talking points

• Given the importance of mergers and acquisitions (M&A) to business growth, M&A transactions can attract a great deal of attention from shareholders, management, and external auditors.  
• Not surprisingly, many companies tend to devote a great deal of thought and effort to the financial side of the deal but may not be as focused on required internal controls during the M&A life cycle.
• It’s important, however to consider internal controls early and throughout the M&A life cycle to help reduce surprises and support long-term synergies.

Good news: Following a dramatic increase in announced M&A transactions in the third quarter of 2025, there is continued optimism for an active M&A market in 2026. In Deloitte’s most recent M&A Trends Survey, more than 80% of private equity and corporate dealmakers expressed optimism that their organizations would transact a greater volume of deals, with greater aggregate deal value, over the next 12 months than in 2025.

If your company is considering growing your businesses through an M&A deal, now may be the time to revisit your internal controls and processes to understand what is in place to assess, record, and integrate an acquired company into your overall financial structure.

Ready to take the first step? Here’s some information to help you get started.

Common M&A challenges

Merging two companies could bring a host of due diligence, governance, and financial reporting challenges. You will likely face increased expectations of management’s risk assessment and control documentation, new reporting requirements resulting from acquired entity operations, and business goals that should dovetail with financial reporting objectives.

Addressing these challenges can be complicated. For starters, many companies have limited in-house technical accounting experience. They can also face challenges integrating complex legacy and acquired company systems, an inadequate governance structure to manage the merged organization, and unfamiliarity with the acquired company’s internal control and accounting frameworks.

How internal controls can help avoid M&A pitfalls

Internal controls can be pivotal to overcoming these challenges. Let’s look at the stages of the M&A life cycle and how internal controls can help you reduce surprises and support long-term synergies.

Pre-acquisition due diligence

An important yet sometimes overlooked component of any M&A transaction is assessing the target’s system of internal control, including security and compliance of AI-driven systems. Understanding how a company is run and how the financial data flows into key reports can help determine how reliable the financial data is and substantiates other information uncovered in the pre-deal diligence.

Without considering internal controls in the diligence process, there may be unforeseen challenges and costs. Incorrect financial data could result in restatements, internal control deficiencies and related errors, or increased costs due to the transaction. Early identification of AI-related risks and opportunities can help organizations avoid unexpected costs and compliance challenges down the road.

Flipping the lens to the acquiring company’s internal control structure, it’s important the acquirer have internal controls in place to properly account for the transaction once it has happened. Not having the necessary controls can lead to errors in purchase price allocation of the opening balance sheet.

Purchase price allocation and acquisition accounting

For many companies, M&A transactions are few and far between. That means they may not have documented controls to address risks related to a significant transaction. The scope of required controls may also vary from transaction to transaction. Internal auditors can advise management on risks associated with the transaction, including the extent of the necessary work to be performed to ensure the amounts recorded in purchase accounting are complete and accurate, as well as evaluating any third parties supporting the transaction and the diligence completed around them.

Post-acquisition

Once the acquisition has closed, companies have an opportunity to take a fresh look at their system of internal control. For example, misaligning on potential synergies could increase cost to comply long term and be a missed opportunity for long-term efficiencies. These types of transactions are opportunities to refresh and rethink your system of internal control. Building out an integration roadmap that emphasizes efficiency, technology, and automation opportunities can potentially promote growth and collaboration for the combined organization.

Technology is a fundamental building block for effective internal control over financial reporting (ICFR). When assessing risk and considering internal controls, including Sarbanes-Oxley (SOX) requirements, it’s important to factor in the technologies currently in place at each entity, along with anticipated changes to these systems. As organizations increasingly adopt AI and automation technologies, they should evaluate how these tools may affect risk and the internal control environment required to mitigate them.

What role can Deloitte play?

Deloitte can advise you as you navigate internal control considerations throughout the M&A process. Our experienced M&A professionals can bring practical insight to the various phases of the M&A life cycle—from diligence and integration planning to post-close execution. To learn more, read our recent perspective or visit our services page. And please reach out to us with any questions; we’re happy to connect.

Endnotes

1 Deloitte, Regional webcast series titled Internal controls for M&A transactions, October 2023. Combined, more than 1,360 C-suite executives and senior leaders were polled online during the East, Central, and West region webcasts.

2 Joshua Fineman, “UBS sees pickup in mergers and acquisitions next year,” Seeking Alpha, November 12, 2023.

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