A financial statement review is an analysis of a company’s financial statements, including the balance sheet, income statement, and cash flow statement, to assess its financial health and performance. Unlike an audit, which involves a detailed examination by external auditors, a review typically provides a more limited level of assurance, often conducted internally or by an accountant.
Companies conduct financial statement reviews to achieve specific goals, such as timely detection of discrepancies and errors, identifying areas for improvement, meeting financial stakeholder requirements (e.g., lenders, investors, or bonding companies), or for informed decision-making.
As we approach the final quarter of the year, September presents a unique opportunity for businesses to take stock of their financial health. Whether you’re preparing for tax season, assessing growth strategies, or simply aiming to fine-tune your operations, a thorough financial statement review can offer invaluable insights. This mid-year checkpoint allows you to evaluate performance against goals, identify potential issues before they escalate, and make adjustments that can lead to a stronger finish for the year. This is also an ideal time for companies to identify challenges and opportunities before the year-end rush and high seasonal demand.
In this blog, we’ll explore why September is the ideal time to dive deep into your financials and how doing so can set your business up for success in the coming months.
What Is a Full Financial Statement Review?
A full financial statement review is a specialized engagement conducted by an accountant, involving analysis, inquiries, review of accounting principles and practices, and a thorough review of financial statements.
Financial statement review is less complex and less intensive in scope than an audit, which offers the highest level of assurance about the accuracy and compliance of the financial statements – positive assurance.
Review offers limited assurance to informed readers that the reviewing CPA is not aware of any material modifications that should be made to the financial statements for them to be in conformity with the financial reporting framework. This is known as negative assurance.
The management is responsible for preparing and presenting the financial statements, and the CPA conducting the review should have a sufficient level of understanding of both the entity and its industry to review the same.
Key activities involved in a review:
- Inquiries – the management and others within the entity are questioned about the accounting practices and principles used by the business, and any significant or unusual transactions or events that potentially impact financial results
- Analytical procedures – analyse critical financial data for historical, forecasted, and industry results, identify anomalies or outliers, and investigate the findings
- Review of accounting principles and practices – assess appropriateness of applied accounting principles and reasonableness of the financial condition presented in the financial statements
- Review of financial statements– read the financial statements, review procedures taken for recording and accumulating financial information, check whether they conform to the applicable reporting framework, check for obvious errors
- Review of subsequent events – management responsibility for internal control, responsibility to detect and prevent fraud, knowledge of fraud, information related to any significant subsequent events
- Review of owner/directors meetings – review of minutes relevant to key financial information
- Review communication from regulatory bodies
- Review significant transactions towards the end or after the accounting period
- Review subsequent actions and responses to questions from previous reviews
- Review, analysis, and comparison of important recorded amounts in statements
Benefits of a Full Financial Statement Review in September
A financial statement review provides an independent examination of the financial records. It is simpler, cheaper, and less time-consuming than an audit, relying on analytical procedures and inquiries.
Conducting a comprehensive financial statement review in September, or before the holiday season—often the busiest and most lucrative period for industries such as retail and e-commerce—can bring significant advantages, setting the stage for a smoother and more profitable ‘golden quarter’.
And according to some experts, small businesses need to be holiday-ready not only from Black Friday to Christmas, but throughout the whole year.
Let us take a holistic look at the benefits of a timely review:
1. Improved financial visibility and decision making
A complete review offers a highly reliable view of the current financial health of your business – assets, liabilities, equity, revenue, and expenses.
This ensures optimized resource allocation, effective inventory management, operational efficiency, targeted marketing spend, informed hiring strategy, and other strategic investments.
Another very important benefit is that you get to analyze and identify significant trends in revenue, expenses, and profitability to plan for seasonal fluctuations in expenses and revenue.
This is crucial as it helps establish and plan business goals, and adjust budgets to accommodate marketing expenditures and expansion plans. A detailed September financial statement review will help businesses identify potential challenges and opportunities and streamline business activities during this very important quarter.
2. Streamlined cash flow management and liquidity
Optimizing cash flow during the final quarter is crucial for ensuring a smooth transition into the new fiscal year, capitalizing on opportunities, and ensuring financial stability.
When you conduct a September financial statement review, you can gain a deeper understanding of the state of accounts receivables and payables. Accelerating AR and optimizing AP will ensure that cash flow remains steady. Offer early payment discounts to customers, negotiate payments with vendors, and strategically time all payments to maximize the time cash remains in the business, without compromising creditor confidence or incurring late payment penalties.
A financial statement review before the holiday season allows businesses to proactively prepare for increased expenses, such as inventory procurement, staffing, marketing, and logistics. By analyzing past sales data and trends, businesses can optimize inventory levels, avoiding costly overstocking or stockouts that impact cash flow. This review also helps identify areas where costs can be cut without sacrificing customer satisfaction or operations, thereby freeing up cash for critical holiday spending.
Additionally, a comprehensive review ensures that businesses assess their funding needs for the upcoming busy season. By evaluating cash flow and potential shortfalls, companies can explore financing options, such as loans or lines of credit, to secure sufficient liquidity and avoid disruptions during peak demand. This forward-looking approach helps keep operations smooth and financially sound through the busiest time of the year.
3. Proactive risk identification and mitigation
Timely financial reviews help businesses identify potential issues, such as shrinking profit margins, rising debt, or slow receivables, before they escalate into more significant problems. This proactive approach lets businesses tackle risks head-on, ensuring they’re not blindsided by financial crises as the holiday season approaches.
With tax season approaching, a September review ensures compliance, minimizes the risk of penalties, and provides businesses with ample time to implement any necessary adjustments.
By identifying risks early and taking prompt action, businesses can safeguard their financial health and stay focused on growth, even during the busiest periods.
4. Fast-tracked growth and long-term planning
A September financial review helps businesses pinpoint growth opportunities—whether it’s expanding product lines, ramping up marketing efforts, or exploring new markets. By identifying these avenues early, companies can allocate resources effectively and position themselves for success in the upcoming holiday season and beyond.
Additionally, this review lays the groundwork for a solid growth roadmap. It gives businesses the insights needed to develop a strategic plan, optimize resources, and set clear goals for the future.
With historical data at hand, companies can create accurate forecasts, anticipate market shifts, and stay ahead of consumer trends, ensuring long-term success and resilience.
Importance of Financial Statement Checklist
Is your business getting ready for a mid-year financial statement review?
If yes, a checklist will provide a clear roadmap of what to examine, such as asset valuation, expense categorization, and cash flow integrity, ensuring nothing is missed.
It ensures a comprehensive and systematic evaluation of the company’s financial health. Without a checklist, important details could be overlooked, and potential issues might go undetected. A checklist serves as a structured guide to help businesses focus on key areas, such as the accuracy of financial data, compliance with accounting standards, and alignment with business goals.
Key Components of a Financial Statement Review Checklist:
1. Balance Sheet:
- Verify that assets, liabilities, and equity are correctly classified.
- Confirm proper valuation of assets (e.g., inventory, fixed assets).
- Check for accurate accruals and provisions.
- Ensure all liabilities are accounted for, including contingent liabilities.
2. Income Statement (Profit and Loss):
- Verify that revenue and expenses are correctly categorized and reported.
- Ensure consistency in revenue recognition policies.
- Review cost of goods sold (COGS) for accuracy.
- Validate profit margins and operating income calculations.
3. Cash Flow Statement:
- Confirm proper classification of operating, investing, and financing cash flows.
- Check for consistency between net income and operating cash flow.
- Ensure cash flow from investments and financing activities are accurate.
- Validate cash flow reconciliations with the balance sheet.
4. Notes to Financial Statements:
- Ensure that all significant accounting policies are disclosed.
- Verify disclosures related to contingent liabilities, leases, or litigation.
- Review any changes in accounting estimates or practices.
- Confirm related party transactions are disclosed.
5. Compliance with Accounting Standards:
- Verify adherence to relevant accounting standards (e.g., GAAP, IFRS).
- Ensure consistency in the application of accounting principles.
- Cross-check tax treatments and deferred tax liabilities/assets.
6. Comparative Analysis:
- Compare current financial statements with previous periods to spot trends or inconsistencies.
- Analyze variances between budgeted vs. actual figures.
- Review key financial ratios (e.g., liquidity, profitability, leverage ratios).
7. Internal Controls:
- Confirm that internal controls around financial reporting are effective.
- Assess whether adequate segregation of duties is in place.
- Check the reliability of financial data systems and software.
8. Audit Trail and Supporting Documentation:
- Ensure that all financial data is backed by appropriate documentation (invoices, contracts, etc.).
- Check for consistency in supporting schedules for key figures (e.g., fixed assets, accruals, inventory).
9. Management Representation:
- Verify that management has reviewed and approved the financial statements.
- Ensure management’s financial assumptions or estimates are reasonable.
10. Adjusting Entries:
- Verify that any necessary adjusting journal entries have been made.
- Review year-end adjustments for accuracy and completeness.
11. Ratios & Financial Performance Metrics:
- Calculate key financial ratios (e.g., current ratio, quick ratio, debt-to-equity).
- Identify any significant financial performance deviations.
How Outsourcing Helps
For small and medium businesses, outsourcing offers several tailored benefits when it comes to financial statement reviews and year-end preparation. SMEs often face resource constraints, and outsourcing can provide an affordable way to access the expertise and capacity needed for a thorough financial review without having to hire full-time staff.
Outsourced accounting firms bring specialized knowledge in financial reporting, compliance, and best practices. This expertise helps ensure the financial statement review is thorough and accurate, reducing the risk of errors and missed details.
Outsourcing providers can implement and manage efficient systems for financial reporting, tax filings, and compliance, ensuring that all documents are ready for review and compliant with regulations.
By integrating outsourcing into your year-end financial planning, you can ensure a smoother review process, optimize your resources, and approach the holiday season with confidence.
Conclusion
September offers the perfect opportunity for a comprehensive financial statement review, enabling businesses to assess their performance before the holiday rush. A financial statement review helps identify potential risks, optimize cash flow, and ensure compliance, giving you the clarity needed to finish the year strong.
By using a well-structured checklist, you ensure that all critical areas—such as assets, liabilities, and profitability—are thoroughly reviewed, minimizing surprises and setting your business up for success as you head into the festive season. Taking action now gives you peace of mind and a solid foundation for the months ahead.
