The Community Banker - Winter 2017

The Comm unity Banker 18 B A N K B Y T E S Tips for Simplifying the Scope of Financial Statement Reviews By Alyssa Pugh, Conetrix T he thought of reviewing a financial statement can be scary. While financial statements have similar elements, they are far from standardized and can be complicated to understand. Here are six tips to help simplify the scope of financial statement reviews. Obtain Financial Statements The first and easiest step in conducting a success- ful financial statement review is obtaining the financial statements. Publicly Traded Companies are required to submit audited financial statements to the Securities and Ex- change Commission (SEC) at least annually. The largest and most complex companies submit even more fre- quently. Often, these financial statements are published online and can be found with a quick web search. I find that search- ing “[Company Name] Financial Statements” or “[Company Name] Form 10-K” frequently turns up what I need. Privately Held Companies are not required to publish fi- nancial statements. Due to the significant cost of having financial statements audited, small to mid-size companies may not even have audited financial statements. If the vendor in question is privately held and does not release financial statements, see if they can provide you with a declaration of financial stability. Believe it or not, this will provide the information you need. Have Appropriate Expectations You are not the vendor’s financial auditor. While it may be tempting to want to read and understand every part of a financial statement, this is not an appropriate expectation. The purpose of reviewing financial statements is simply to prove stability. If you are pursuing or continuing a relationship with a vendor, you need to know the company with which you are partnering is financially stable. Anything beyond that is busy-work. Find the Auditor’s Report Once your purpose is clear, you need to determine whether the statements are audited or not. If they are, this makes your job much easier. While financial statements can be complicated, the auditor’s report uses standardized wording. If you are hav- ing a difficult time locating the auditor’s report, try searching the document for some of these words:

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