A financial review is performed to ensure no material changes are needed to bring a company’s financial statements into compliance within an applicable financial reporting framework such as GAAP. Accountants look at areas that commonly are misstated and a typical review may include:
- Conducting a ratio analysis with historical, forecasted, and industry results
- Investigating inconsistent findings
- Inquiring about a company’s accounting procedures
- Investigating significant transactions that occur near the end of the accounting period
- Reexamining significant journal entries
- Reviewing communications from regulatory agencies
They may also check to see if cash accounts are being reconciled, receivables are properly accounted for, if physical inventory counts have been performed, how gains and losses are recorded, if there are sufficient expense accruals, the state of long-term liabilities, and whether expenses and revenue are correctly reported.
Why are Financial reviews important?
It’s important to note that a financial review does not require assessing fraud risk or understanding internal audit procedures. In other words, a financial review does not provide the assurances that an audit does, but if a company’s lenders and/or creditors accept a financial review in place of an audit, it can save the company money.
A company’s management team takes responsibility for the preparation and presentation of its financial statements to the person conducting the review. If those statements contain misrepresentations, the reviewer must either disclose the issue in a report that accompanies the financial statements or withdraw from the review.