Review of Financial Statements

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A financial statement review includes inquiry and analytical procedures as applied to financial statements of private entities.

James Webb: How to Read a Financial Statement [Crowell School of Business]

A private entity engages an Accredited Business Accountant ABA to perform a review of its financial statements and issue a report that provides limited assurance that material changes to the financial statements are not necessary. With respect to reliability and assurance, a review falls between a compilation, which provides no assurance, and the more extensive assurance of an audit.

Audit vs Review vs Compilation

Before a financial statement review, the Accredited Business Accountant may have to prepare and compile the statements. Management must have a sufficient understanding of the financial statements to assume responsibility for them. Two other factors differentiate a financial statement review from a compilation — the Accredited Business Accountant must remain independent of the client during a review, and all appropriate notes must be included in the reviewed statements.

In a majority of the cases, financial statement compilation and review are performed at the same time.

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The Accredited Business Accountant makes inquiries concerning such financial statement-related matters as accounting principles and practices, bookkeeping practices, accounting policies, actions of the board of directors, and changes in business activities. Value the firm. While there are many valuation approaches, the most common is a type of discounted cash flow methodology. These cash flows could be in the form of projected dividends, or more detailed techniques such as free cash flows to either the equity holders or on enterprise basis.

Other approaches may include using relative valuation or accounting-based measures such as economic value added. The next steps Once the analysis of the firm and its financial statements are completed, there are further questions that must be answered. Whether it is called aggressive accounting, earnings management, or outright fraudulent financial reporting, it is important for the financial professional to understand how these types of manipulations are perpetrated and more importantly, how to detect them. Dubos J.

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Financial Statement Review

You may also be interested in:. Read This. You rely on these financial statements to know the condition, performance and ability to efficiently sustain past and future operations of a particular business.

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But how do you read the things?! To create this article, 13 people, some anonymous, worked to edit and improve it over time.

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Compilation vs. Review vs. Audit: The Fundamental Differences

Learn more Use the balance sheet to review the financial condition of a business, as of a given period, by looking at how it manages its Asset, Liabilities and Equity. You look at how well it manages its asset by checking the financial value allocated to cash, receivables, short-term and long-term investments, inventory, fixed assets, furniture and fixtures, land and building.

By doing so, you can determine if a business is able to sustain and grow operation or it will close down. Obtaining loans is one of the ways to generate capital to support a business operation.

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Liability account will enable you to look at the balances of the accounts payables, bills payables, notes payables and all other payables. Most often, depending on a given situation, when you see that a business have high amount of liability, it may be a sign of trouble and inability to sustain its operation. It is the major source of money to support and sustain a business operation. When you look at the equity account, check the number of stocks, common and preferred, that were issued. admin