7 Steps to Effectively Review Financial Statements

H ave you ever looked at a set of financial statements you issued a year ago and immediately realized you made a mistake? You muttered, “ho...

Have you ever looked at a set of financial statements you issued a year ago and immediately realized you made a mistake? You muttered, “how did I miss that?” or maybe certain words that we won’t print? (It’s happened to me.)

In my 30 years of creating and reviewing financial statements, I have never seen an article about how to review financial statements. So here are seven suggestions that I hope you find helpful. (I normally review financials using the computer rather than paper copies.)

Partner/Manager Reviewer Procedures

1. As you start, scan the entire financial statement (spend two to three seconds per page) just to get a feel for the whole product. How do the parts fit together?
2. Use at least one large computer screen (22 inches or more) for your review; then reduce the financial statement size (hold the control key down and scroll with your mouse) – now you can see multiple statements on one screen, for instance: balance sheet, income statement and cash flow statement. Tick and tie your financial statement numbers. I use this initial one-screen method to tick and tie financial statement numbers, then I follow the next suggestion to agree the financial statements to the notes and the supplemental information.
3. Use two to three computer screens with the same financial statement open on each screen – for instance, the balance sheet on screen 1, the notes on screen 2, and the supplementary information on screen 3. (In Word, click View, New Window and another instance of the document will open.)
4. After completing your review of the notes, return to and take a second look at the balance sheet to see if the disclosures are complete. (The disclosures are fresh in your mind; now you are comparing the notes back to the balance sheet for completeness.)
5. Use the search feature (in Word, click the Home tab, click Find, then key in the number – or word – you are looking for) to locate words or numbers. If you want to agree the long term debt number (that you see in the balance sheet) to the notes and to supplemental information; key that number into your search dialog box and you’re immediately taken to the same number in the notes. Click next and you are taken to the same number in the supplemental information – all in seconds. You can do the same with words.
6. Take breaks. Never spend more than 1.5 hours reviewing statements without taking a short break (otherwise you will find yourself reading several pages and not remembering that you did so). You get more done by relaxing periodically.
7. If your financial statements are in Word, consider turning on Track Changesand key in suggested changes. Word reflects your changes in a distinct color–therefore, others can see the difference; they can also see who made the suggested corrections. The suggested changes can be accepted or rejected within Word.

Those are my ideas. What about yours?

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