The most common concern I hear from prospects and clients is that they “don’t know what they don’t know” when it comes to their books. A third-party firm can help reduce this stress by performing a high-level assessment of your records and financial statements.
A high-level assessment focuses on financial statements from a 10,000-foot view. The purpose is to look for potential problematic areas that can easily be missed in day-to-day operations. The following procedures are typically performed in a high-level assessment:
Policies and Procedures:
In the initial phase of the assessment, an inquiry is done on the company’s policies and procedures in order to gain an understanding of the operations, accounting principles followed by the company, and thresholds set by management for prepaid expenses, fixed assets, and accrued liabilities.
Additional consulting services can be performed to analyze the company’s policies and procedures, and to recommend best practices.
The next step is to obtain supporting documentation for all the balance sheet accounts to ensure they are supported and reconciled.
Areas of concern include the following:
- Have all the payroll, payroll taxes, and liabilities been captured for the whole year?
- Are dividends/interests and realized/unrealized gains or losses properly reflected in the income statement?
The balance sheet and income statement accounts are reviewed for unusual balances. Some examples of unusual balances include:
- Do the accounts have their normal or expected debit or credit balances?
- Are there any outstanding balances that have been carried forward from the prior periods that should have been cleared?
- Are there any expenses that could potentially be understated or misclassified?
- Are there any adjusting journal entries that could have been missed at year-end?
Additional consulting services can include development of a close checklist and the creation of supporting schedules for the balance sheet accounts.
Companies may be subject to various federal, state, and local compliance filings including, but not limited to, 1099, unclaimed property, state and local business sales and use taxes, business personal property affidavit, etc. The question a third-party firm like Clark Nuber would ask is whether your company has met its filing requirements. Are the tax liabilities or expenses reflected in the books?
Additional consulting services that can be provided include a comprehensive assessment of revenue sources to determine filing requirements by our State and Local Tax team members, creation of calculation worksheets to assist with preparation of the compliance filings, as well as assisting with preparation and filing of any late or missing filings for prior periods.
If your books are maintained on accrual accounting basis, have you implemented or considered the impact of the following standards to your books?
- ASC 606: Revenue from Contracts with Customers
- ASC 340-40: Contracts with Customers
- Subtopic 958-605: Not-For-Profit Entities Revenue Recognition
- ASC 842: Lease Accounting
Additional services that can be provided include analysis of your books and contract agreements to assess how these standards may affect your company.
Clients come to us because they want their financial statements and their books to be in sound condition. Conducting a high-level assessment close periodically, or after a company undergoes major operational changes, can help meet this goal.
If you’d like to partner with Clark Nuber for a year-end close assessment, send us an email.
Grace Chu is a manager in Clark Nuber’s Accounting and Consulting Services team.
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