Re: Correct me if I'm wrong but when you *buy* a company
You get to dig deep into the other firms accounts.
Most certainly someone does, whether it is the acquirer directly, or an accounting firm hired to perform the diligence, you do get to dive deep into the books. A truly competent purchaser wants to know exactly WHAT they are buying.
My employer bought up a family owned company a few years ago, and since the children of the owners had authority to act on behalf of the underlying corporation; we looked hard at any and all contracts that they may have signed.
Once we had an understanding on a purchase, we required, as a matter of the purchase, to have ALL EMPLOYEES disclose any and all employment contracts that they had with the company. This included the children of the owners. Since they were not aware of the pending sale, they indicated in their disclosures that no such contracts existed. The other aspect of the understanding was that the sellers were to revoke the authority of the children to sign any employment related contracts during the diligence period. They were not told why.
Sale closes, and we decide that it would be a Good Thing(tm) to put into place our own management, so we dismissed them. Cue the lawsuits for "contractually agreed upon severance benefits" when they pulled these 'severance agreements' out of their asses. "See you in court." was our reply.
First one of the kiddies on the stand, made an attempt to persuade the judge that he should get severance benefits; was completely blown out of the water when the disclosure document was put in front of him (apparently he forgot about it). His lawyer tried to get the judge to rule that he had the authority to sign such a contract, but that was also blown out of the water when the stockholder resolution revoking the authority was introduced as evidence. Wisely, the children dropped all efforts to recover their 'severance pay'.
Meanwhile, our auditors were reviewing all expenses of the company to determine if any company funds were not misused, and one could make the case that payment of household utility bills out of company funds (and booking them as usual and customary business expenses) was misuse. After re-filing the tax returns showing all of those funds as 'executive benefits' (subject tp being reported on a 1099 form) instead occupancy expenses; they became serial tax evaders. Cue the letters from the IRS.
Payback is a bitch, isn't it?