Answers / Financial Due Diligence
How would you handle a situation where management proposes a large add-back?
A core Financial Due Diligence interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
Request supporting evidence: invoices, contracts, board minutes. Verify the item is truly non-recurring – check if similar costs occurred in prior years. Assess materiality. Discuss with the team lead. If the add-back is partially valid, split it into 'agreed' and 'disputed.' Present both scenarios to the client. Never accept or reject without evidence.
WHAT INTERVIEWERS LISTEN FOR
- ✓Request supporting evidence
- ✓Verify non-recurring nature
- ✓Assess materiality
- ✓Split into agreed and disputed
- ✓Present both scenarios
COMMON MISTAKES
- ✗Accepting add-backs without evidence
- ✗Ignoring prior year patterns
- ✗Failing to discuss with team lead
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