Q: How much do you get into things like the prepaid and depreciation issues if statements are CPA reviewed / audited rather than compiled?
A: As an analyst or lender, completing a high-level review of the financial statements for quality and content needs to be a part of every analysis to understand what is driving any material changes and trends year over year. In this process, issues like the non-recognition of prepaid expenses or miscalculation of depreciation can be revealed. Although it is less common to encounter these types of issues on CPA audited or reviewed financial statements, even CPA reviewed and audited financial statements are subject to errors and omissions.
We briefly address these issues in this course as they relate to the compiled statements in our case study, but we also cover them in some detail in our single topic webinar on Minimum Financial Data for Assessing Borrower Risk. In addition, in our self-paced Credit Curriculum Course on Financial Statement Quality, we address the issue of likely difficulties in computing proper performance ratios and cash flow statements based on company-prepared and compiled financial statements.
Course overview: Analytical Decision Tree and the Credit Write-Up