A Financial Statement Review.

Reviewed financial statements can be required by regulation or because your bank asks for them. A financial statement review is a service under which the accountant obtains limited assurance that there are no material modifications that need to be made to the financial statements for them to be in conformity with the applicable accounting framework. Financial statements provide a snapshot of a company’s financial health at a particular point in time, giving insight into its performance, operations, cash flow, and overall conditions.

In addition, reviewing your financial statements each month can help you keep on top of the financial position of your company, accounts payable and accounts receivable. It is also an opportunity to develop a thorough understanding of a company and the industry in which it operates.

Why a Financial Statement Review May be Necessary?

A financial statement review is an important process for businesses, individuals, and organizations to assess the accuracy and reliability of their financial statements. Here are some of the key reasons why a financial statement review may be necessary:

Compliance: Companies may be required to have their financial statements reviewed by an independent auditor to comply with regulatory or legal requirements.

Internal Control: A financial statement review helps to identify weaknesses in internal controls and financial reporting processes, which can help prevent fraud and errors.

Decision Making: Investors, creditors, and other stakeholders rely on financial statements to make informed decisions. A review can provide assurance that the financial statements are reliable and accurate, which can help stakeholders make better decisions.

Verification: A review can help verify that the financial statements are in line with generally accepted accounting principles (GAAP) or other reporting framework.

Performance Analysis: A review can also provide insights into the financial health of a business or organization, including profitability, liquidity, and solvency. This information can be used to analyze performance and make strategic decisions.

Procedures Used in a Financial Statement Review

In a financial statement review, the accountant performs procedures necessary to provide a reasonable basis for obtaining limited assurance that no material changes are needed to bring the financial statements into compliance with the applicable financial reporting framework. These procedures are more heavily concentrated in areas where there are enhanced risks of misstatement. The types of procedures that would be reasonable to conduct for a review include:

• Conduct a ratio analysis with historical, forecasted, and industry results

• Inquire about the procedures and processes within company

• Investigate unusual or complex situations occurred throughout the period

• Follow up on questions that arose during previous reviews

• Inquire about material events that occurred after the date of the financial statements

• Investigate significant and unusual journal entries

• Review communications from regulatory agencies

• Inquiries company’s lawyers about any current litigations

• Read the financial statements and make sure they appear to conform with the applicable financial reporting framework

• Review the management reports of any accountants who reviewed or audited the entity's financial statements in prior periods

• Cash. Check the cash accounts reconciliation

• Receivables. Analyze the allowance for doubtful accounts, receivables pledged, discounted, or factored

• Inventory. Physical inventory counts affirmation, cost of inventory, valuation of inventory stock

• Fixed assets. Policies and criteria for capitalization, depreciation methods, and valuation.

• Intangible assets. Check recognition, amortization, impairment testing

• Long-term liabilities. Check the disclosure of the terms of debt agreements, compliance with any loan covenants, classification of loans as short-term or long-term.

• Contingencies and commitments. check presence of guarantees, material contractual obligations, liabilities for environmental remediation.

• Equity. Classes of stock have been authorized, par value of each class of stock, stock options been properly measured and disclosed in the financial statements.

• Revenue and expenses. Revenue recognition policy, recognition of the expenses in the correct reporting period, any discontinued operations check.

If the accountant believes that the financial statements are materially misstated, he should perform additional procedures to obtain a limited assurance that there is no need to make material modifications to the financial statements. If the statements are materially misstated, the accountant must choose between disclosing the issue in the report that accompanies the financial statements, or of withdrawing from the review.

In summary, financial statements are important because they provide information about the financial health of a company and help shareholders make informed decisions about their investments.

Overall, a financial statement review is a crucial process that provides assurance and helps to maintain the integrity and accuracy of financial reporting.

Who May Request the a Financial Statement Review?

Financial statement reviews can be beneficial for a wide range of individuals and organizations, including:

Small Business Owners: Small business owners may need a financial statement review to obtain financing or attract investors. A review can provide third-party assurance that the financial statements are reliable and accurate, which can help build trust with potential lenders or investors.

Investors: Investors may want a financial statement review to gain insights into the financial health of a company or organization before making investment decisions. A review can provide assurance that the financial statements are accurate and reliable, which can help investors make informed decisions.

Banks and Creditors: Banks and creditors may require a financial statement review as part of their lending process. This can help them assess the creditworthiness of a borrower and determine the risk of lending money.

Nonprofit Organizations: Nonprofit organizations may need a financial statement review to comply with regulatory or legal requirements, or to provide assurance to donors and stakeholders that their funds are being used appropriately.

Publicly Traded Companies: Publicly traded companies are required to have their financial statements reviewed by an independent auditor as part of their reporting obligations to shareholders and regulatory authorities.

Government Agencies: Government agencies may require a financial statement review to ensure that public funds are being used appropriately and to assess the financial health of organizations that receive government funding.

In summary, a financial statement review can be beneficial for any individual or organization that needs assurance about the accuracy and reliability of their financial statements or wants to make informed decisions based on financial information.

How Expensive is a Financial Statement Review?

The review is more expensive than a compilation and less expensive than an audit. The cost of a financial statement review generally ranges from $2,000 to $8,000 depending on the time needed to complete the engagement. Many CPAs will include the review at the time your taxes are prepared and roll the cost together. If you are in need of a financial statement review, contact us for a free quote.