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Financial Statement Checks

Read reported figures in context: periods, cash flows, working capital and accounting notes.

86 guides

• Acquisition goodwill: connect purchase price to later evidence

  Connect goodwill to a simplified purchase-price allocation, track promised acquisition benefits, and distinguish impairment-unit evidence from deal success.

• Biological assets: bridge growth, prices and harvest transfers

  Reconcile biological assets through physical growth, net unit values and harvest transfers without treating every gain as customer sales.

• Asset exchanges: test substance before booking gains

  Test commercial substance and fair-value evidence before recognizing gains on asset exchanges, then reconcile acquired cost, cash paid and future depreciation.

• Bill-and-hold sales: verify control and custody separately

  Verify customer control over goods held by the seller and separately measure any remaining custody service with a lot-level worksheet.

• Capitalized interest: track construction pauses and completion

  Capitalized borrowing costs move part of current financing cost into an asset's carrying amount.

• Business or asset acquisition: test processes before goodwill

  Test an acquired set before calculating goodwill, using the optional concentration screen, substantive processes, and a fully reconciled asset-acquisition case.

• Capital expenditure versus depreciation: avoid a shortcut

  Use an asset roll-forward to compare capex and depreciation, identify construction timing, and estimate maintenance investment as an evidence-based range.

• Cash flow hedges: trace OCI into inventory and earnings

  A cash flow hedge reserve can affect later inventory costs and profit without a current-period cash receipt matching the movement.

• Cloud setup costs: identify the asset a customer controls

  Separate customer-controlled code, supplier configuration services and third-party implementation costs in a SaaS contract, then reconcile prepayments and expense timing.

• Compound convertibles: split initial liability and equity

  Build an initial liability and equity split for a qualifying convertible, then reconcile effective interest, cash coupons, and the maturity balance.

• Earn-outs: separate acquisition cost from later remeasurement

  Reconcile acquisition earn-outs from initial consideration through later remeasurement and settlement, keeping goodwill and cash separate.

• Component replacements: remove the asset that was replaced

  Reconcile new component costs with the old component's derecognition, then connect the replacement to future depreciation.

• Consignment stock: reconcile custody, control and sell-through

  Reconcile consignment quantities across dealer custody, customer sales and returns, while separating physical location from control and revenue recognition.

• Contract costs: test commissions before deferring expense

  Rebuild contract-cost assets through incremental commissions, service periods and recoverability, then separate deferred expense from current cash spending.

• Contract modifications: test prospective versus catch-up effects

  Test whether a contract change affects future delivery or cumulative revenue, using a project example with a negative catch-up adjustment.

• Consolidation without a majority: test the control rights

  A company can control an investee without owning more than half its shares, and a large shareholding does not settle every control question.

• Reported versus constant currency growth: check the bridge

  Reproduce reported and constant-currency revenue growth under an explicit rate convention, separating translation from acquisitions, costs and hedging exposure.

• Debt covenants: rebuild headroom using contract definitions

  Debt covenant headroom must be calculated using the agreement's definitions, not a financial-data provider's EBITDA and net debt.

• Debt modifications: test extinguishment before booking a gain

  Test debt-modification cash flows and fees at the original effective rate before selecting the derecognition and measurement path.

• Debt maturity analysis: build a funding schedule

  Match debt maturities with unrestricted cash and drawable facilities by date, separating forecast operating cash from committed funding and covenant conditions.

• Deferred tax losses: test whether profits can use the asset

  A deferred tax asset from losses is usable only if the right taxable profits arise in the right place and within the applicable rules.

• Customer options: measure the deferred material right

  Estimate a customer option's incremental benefit and allocate consideration between current goods and a deferred material right.

• Customer payments: separate purchased services from rebates

  Separate payments for distinct customer services from reductions of sales revenue, then test fair-value support, timing and the cash-to-profit bridge.

• Pension deficits: separate accounting from funding demands

  A pension deficit describes an accounting position, while a funding agreement describes cash obligations.

• Capitalized development: follow projects into amortization

  Capitalized development can improve current earnings while creating future amortization or impairment risk.

• EPS and share count: separate profit growth from dilution

  Separate earnings growth from weighted-average share changes, reproduce an EPS dilution bridge, and distinguish period calculations from future share potential.

• Equity method income: reconcile earnings to dividends

  An investor can recognize equity-method profit while receiving little cash from the investee.

• Foreign operations: reconcile the translation reserve

  Reconcile foreign-operation net assets, profit and distributions to the translation reserve using consistent exchange-rate quotations.

• Estimate, policy or error: choose the right comparison series

  A change in useful life, a new accounting policy and the correction of an old error do not produce the same comparison series.

• Debt roll-forwards: separate funding from noncash changes

  Reconcile financing liabilities through cash borrowing, repayment, acquisitions, leases and currency, then distinguish debt growth from actual funding cash.

• Free cash flow definitions: reconcile before comparing

  Reconcile several free cash flow formulas to operating cash, including software, lease principal and acquisitions, without double counting required cash uses.

• Financial footnotes checklist: resolve a headline contradiction

  Resolve a profit-versus-cash contradiction through targeted footnotes, cross-references and balance movements, keeping residuals and restated comparatives visible.

• FVOCI equities: track disposal gains within equity

  Trace an elected FVOCI equity investment through dividends, disposal cash and transfers within equity without inventing profit recycling.

• Government grants: connect profit recognition to conditions

  A government grant can be received in cash before it enters profit, or recognized in profit before all conditions are finally resolved.

• Gross margin analysis: separate price, mix and cost

  Reconcile gross margin through product mix, prices, cost and write-downs, using a consistent denominator and a separate check of gross profit dollars.

• IFRS 17 CSM: trace new business, release and assumptions

  Contractual service margin growth is not equivalent to premium growth or cash profit.

• Financial guarantees: compare loss and unearned premium

  Reconcile a financial guarantee's liability using expected credit loss and the remaining initial amount, while keeping premium cash and nominal exposure separate.

• Held for sale: test the disposal group and continuing earnings

  Held-for-sale classification, disposal measurement and discontinued-operation presentation are separate judgments.

• Hyperinflation: restate purchasing power before translation

  Separate purchasing-power restatement from currency translation, using asset acquisition layers and a net monetary-position example.

• IFRS 9 ECL: separate stage migration from model changes

  An IFRS 9 allowance increase can come from weaker borrowers, a different economic outlook, a larger loan book, or a changed model.

• Impairment reversals: calculate the depreciated-cost ceiling

  Calculate a non-goodwill impairment reversal's depreciated-cost ceiling and check the resulting change in future depreciation.

• Indefinite-life intangibles: test the amortization clock

  Test an intangible asset's indefinite-life evidence, distinguish annual impairment from life reassessment, and rebuild expense when a finite amortization period begins.

• Inventory analysis: distinguish stock building from demand

  Compare inventory composition, days and later sell-through, while separating planned stock building, write-downs, acquisition effects and seasonal averages.

• Investment deferred tax: test reversal control and timing

  Rebuild investment outside-basis tax differences through distribution plans, reversal control and reporting scope, separating unrecognized tax from exemption.

• Lease downsizing: separate termination from remeasurement

  Rebuild a lease downsizing in two stages: derecognize terminated use and debt, then remeasure the remaining payments without calling noncash gains repayments.

• Investment property: separate rental cash from valuation gains

  Investment-property profit can combine rent earned from tenants with changes in appraised asset values.

• Lease obligations: read beyond the rent expense

  Reconcile lease liabilities, right-of-use assets and cash payments, then compare payment timing, non-cash additions and consistent occupancy economics.

• IP licences: distinguish access from a right to use

  Distinguish an IP licence's access and use rights, then compare recognition timing for fixed fees under explicit contract assumptions.

• Level 3 valuations: test the inputs behind unrealized gains

  An unrealized gain on an illiquid investment is only as interpretable as its valuation method and significant inputs.

• Joint arrangements: test asset rights versus net-asset rights

  Distinguish joint-operation asset rights from joint-venture net-asset rights and map each conclusion to the affected statement lines.

• LIFO reserves: rebuild inventory cost comparability

  Read LIFO reserve definitions, rebuild a conditional inventory-and-cost bridge, and test liquidation effects without calling replacement cost verified FIFO.

• Loan loss coverage: reconcile NPLs, allowances and write-offs

  Reconcile nonperforming loans and loss allowances separately, then inspect write-offs and recoveries before interpreting an improving coverage ratio.

• NCI transactions: reconcile equity when control remains

  Rebuild parent equity, NCI, and financing cash flows when ownership changes without losing control, using carrying amounts rather than a new purchase allocation.

• One-time items: test whether an expense really disappears

  Examine restructuring across several years, follow the liability and cash tail, and compare promised gross savings with actual net recurring benefits.

• Non-GAAP reconciliation: audit the adjustment list

  Rebuild a non-GAAP profit bridge, evaluate recurring and non-cash costs, and test gain-loss symmetry, taxes and cross-period consistency.

• Financial offsetting: test the right and settlement intention

  Test enforceable set-off rights and settlement intention, then reconcile gross presentation with a separately labeled net-exposure view.

• Onerous contracts: compare fulfilment and exit costs

  Compare the remaining net costs of fulfilling or exiting a contract, including directly related costs and a separate asset-impairment check.

• Own-credit gains: trace profit and OCI on liabilities

  Separate own-credit OCI from other fair-value movements on designated liabilities, and test classification, attribution, mismatch exceptions, and cash effects.

• Bank overdrafts: test the cash-equivalent boundary

  Reconcile cash-flow cash with balance-sheet cash and overdrafts, testing demand repayment and cash-management facts without assuming accounting set-off.

• Payables and supplier finance: check the cash flow boost

  Explain a payable-funded cash boost using purchases, settlement terms and supplier-finance balances, then check provider dependence and future payment timing.

• Operating leverage: test whether revenue growth scales profit

  Test operating leverage within spare capacity and after an added shift, then check downside break-even volume and the limits of fixed-cost assumptions.

• PPE revaluations: reconcile OCI and reserve transfers

  Track owner-used asset revaluation through OCI, depreciation and direct reserve transfers, then allocate a later decline using the actual remaining surplus.

• Provision recoveries: separate liability and reimbursement

  Separate gross provisions, capped reimbursement assets and settlement cash, distinguishing a temporary collection gap from a final recovery shortfall.

• Receivable transfers: test recourse before removing the asset

  Compare receivable sales with secured financing by tracing cash, recourse, retained risks and the reported asset-and-liability effects.

• Accounts receivable aging: test collection quality

  Read receivable aging alongside payment terms, allowances and subsequent receipts, distinguishing actual collection from new overdue balances and write-offs.

• Gross or net revenue: test control before the margin

  To compare a platform with a reseller, determine whether it controls the specified good or service before transfer to the customer.

• Related party exposure: map balances beyond reported sales

  Related-party sales are only one part of related-party exposure. A company can have modest related-party revenue but substantial loans, guarantees, deposits or unsettled.

• Repurchase clauses: test whether a sale is financing

  Trace repurchase rights, exercise incentives and prices before treating customer cash as sales, with a financing ledger and contrasting put-option cases.

• Restricted cash: test which entity can actually spend it

  The cash balance on a consolidated statement is not automatically available to pay the parent's next bond maturity.

• Restoration provisions: separate unwinding from new costs

  A restoration provision can rise even when no new site is opened. Separate discount unwinding, changes in cost estimates, changes in timing and actual rehabilitation.

• Sales returns: reconcile refund liabilities and recovery assets

  Reconcile return estimates through revenue, refund liabilities and recovery assets, with separate checks for costs and cohort maturity.

• Revenue versus cash flow: build a collection bridge

  Build a revenue-to-collection bridge with receivables and customer advances, then check acquisitions, allowances and why receipts differ from operating cash.

• Sale and leaseback: calculate the transferred-right gain

  Rebuild sale-and-leaseback cash, retained use and recognized gain, then test off-market financing and a transfer that does not qualify as a sale.

• Revenue recognition: trace sales to the performance obligation

  Trace equipment and maintenance revenue through performance obligations, allocation, delivery and prepayment, then independently check the remaining service amount.

• Segment reporting: reconcile business units to the group

  Reconcile segment revenue and profit to group totals, remove internal sales, and assess central costs, reorganizations and missing segment investment data.

• Share payments: connect expense to vesting and settlement

  Share-based payment expense depends on the award's terms and service period, not simply the number of shares issued during the year.

• Debt investments: test cash-flow terms and business model

  Classify debt investments using separate cash-flow and business-model tests, then distinguish the effects on profit, OCI and carrying value.

• Customer financing: separate sales from financing income

  Separate a deferred-payment sale from financing income using present value, an interest schedule and a check of the contract's purpose.

• Step acquisitions: separate remeasurement from deal value

  Reconcile a step acquisition using the old stake's carrying amount and fair value, the new cash payment, and identifiable net assets without double counting.

• Subsequent events: test what existed at the reporting date

  An event after year-end can provide evidence about a condition already present at year-end, or reveal a genuinely new condition.

• Effective tax rate versus cash taxes: reconcile the gap

  Bridge effective tax rate to current expense, deferred amounts, payables and cash paid, checking scope changes and one-off benefits before extrapolating.

• Supplier rebates: allocate credits to inventory and sales cost

  Allocate an earned supplier rebate between sold goods and remaining inventory, while checking thresholds and the credit's actual purpose.

• Treasury reissues: reconcile equity without invented profit

  Reconcile treasury shares reissued above or below their assigned cost, keeping equity movements separate from profit and employee compensation accounting.

• Working capital analysis: explain cash tied up in operations

  Calculate the cash effects of receivables, inventory and payables, separate non-cash changes, and test whether a working-capital release is operationally viable.

• Warranties: separate repair provisions from service revenue

  Distinguish assurance warranties from additional services, then reconcile repair provisions, deferred revenue and remaining coverage.

• Variable consideration: test the revenue reversal constraint

  Separate estimated bonuses from amounts included in revenue, then test reversal risk with a reproducible variable-consideration worksheet.