Do you ever have to fix historical financials?

Welcome to the wonderful world of LMM. With that said, that sounds like an extremely bad client, and your MDs are bad for engaging a client like this, without demanding they also hire TAS accountants to do a sell-side QoE. If you as an investment banker have to be anywhere near the GL / TB at these points, that's a huge red flag IMO.

With that said, I have situations where the GP / Sales by customer by year types of reports don't tie to the financials, usually due to the fact that the former are recorded on some CRM and the latter on Quickbooks or similar. You just clarify with what the reasons for the discrepancy are, and footnote it in the CIM. These days, you will go through a buyside QoE, and those discrepancies will be ironed down to a minimum. It is the MD/Director's job to make sure that the acquirer accepts these blemishes pre-LOI, and not try to leverage these issues into a re-trade in diligence.

I think other teams at my firm have had that happen a time or two and our response is for them to engage an accounting firm to get their books in order as part of pre-diligence because we are not their accountants. It might be cumbersome up front and cost them money but it will save a lot of time and issues later when the buyer does a QoE.

At my MM I’ve never had a client not do a QoE, our bank basically forces them to or we won’t work the deal. Seems insane to be that in the weeds as a banker…

I worked on the carve out from one of the biggest telco companies globally and their financials didn’t tie, literally the numbers from the P&L and the numbers from adding up segment figures didn’t tie up... This was really a pain... your seniors gain some respect for you though if you can flag mistakes 

I'm not in IB but I'm in credit risk and deal with smaller private companies all the time. I've learned to not trust any of them until their financials have been audited. It's not our responsibility to educate them on GAAP accounting and we just punish them if their financial statement quality is poor. The problem is that once you start asking questions they get offended because they think you're telling them how they should be running their business (sometimes they get offended by us even asking for their latest financials). They'll even call me and try to bully me into giving them a higher line or unlock them from their line of credit that they breached.

I've seen companies try to manually schedule their PP&E depreciation and amortization to however it suits them the best. Some have gone on huge acquisitions sprees and have goodwill so high that it drives their tangible net worth down into the negative mm. In this case, we would have a call with their management and ask them how and when they're going to de-leverage their balance sheet and what their growth strategy is moving forward. The transparent and well run companies will have no problem explaining this to us. Other companies will just be combative and say "well our other creditors don't ask for our financials like this and they give us more, you're being unreasonable". Other times some of them have sent a full audited three statement report but this year they only sent the balance and income sheet. I shouldn't have to fucking pry the answers from your hands. You can just tell how well a company is run by how proactive their management is. 

I guess it just comes down to whether or not your firm thinks the relationship or deal is worth it. Personally, I'd rather not deal with clients where I have to constantly hold their hand and guide them through basic accounting and credit management but sometimes it's too profitable to ignore. 

LMM AN1 here, not to the extent of going through ledgers but I've seen inconsistent financials and it's made me want to bash my head through my desk. It made me much better at accounting though.

Boutique banker here, we build all models bottoms up from TBs. Definitely had my fair share of correcting historicals, and feel confident I could do 75%+ of a QoE at this point. I'm on weekly calls with QoE vendors leading discussions for what can be justified as addbacks, and on several occasions have had to correct the vendor's workbooks.

Clients of our firm often us quickbooks for TB outputs, so I often find myself correcting things such as account mappings, expensed v. Capitalized items, SG&A v. COGS categorizations, retained earnings discrepancies, and my least favorite: amortization issues.

At this point, I'm not really sure how banking would be without a deep dive of the accounting, financials, and revenue/expense builds from a bottoms up approach. The process is tedious and while much isn't needed, getting that deep into the model makes framing the story in the CIP quite easy, and questions that flow in during bidding essentially become softballs without any need for a scramble. Buyers also love our operating models, and tend to take them at face value after realizing how granular and defensible the model is.