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Consider stress testing to lower risks
The pandemic and the ensuing economic turmoil have put tremendous stress on businesses. Many companies that appeared healthy on the surface, on their financial statements, quickly realized that they weren’t prepared for the unexpected. A so-called “stress test” of your company’s financial position and its ability to withstand a crisis can help prevent this situation…
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Paying tribute to auditor independence
In the spirit of Independence Day, it’s a good time to review the rules for auditor independence. If you discover potential issues now, there’s still plenty of time to take corrective action before next year’s audit begins. Definition of independence Independence is one of the most important requirements for audit firms. It’s why investors and…
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Do you know the signs of financial distress in a business?
Financial statements tell only part of the story. Investors, lenders and other stakeholders who know how to identify red flags of impending problems can protect their own financial interests. Additional due diligence may be needed to uncover these issues. For instance, stakeholders might need to talk to management, visit the company’s website and compute financial…
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Management letters: Follow up on your auditor’s recommendations
Maintaining the status quo in today’s volatile marketplace can be risky. To succeed, businesses need to “level up” by being proactive and adaptable. But some managers may be unsure where to start or they’re simply out of new ideas. Fortunately, when audited financial statements are delivered, they’re accompanied by a management letter that suggests ways…
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Forecasts vs. projections: What’s the big difference?
Financial statements look at historical performance. But there are times when you want forward-looking reports to help your business make strategic investment decisions, evaluate the viability of a turnaround plan or apply for a loan. Your accountant can help ensure the assumptions underlying prospective financial statements make sense in today’s volatile marketplace. Key definitions When…
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How inflation could affect your financial statements
Business owners and investors are understandably concerned about skyrocketing inflation. Over the last year, consumer prices have increased 8.3%, according to the latest data from the U.S. Bureau of Labor Statistics. The Consumer Price Index (CPI) covers the prices of food, clothing, shelter, fuels, transportation, doctors’ and dentists’ services, drugs, and other goods and services…
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Timing counts: Reporting subsequent events
Major events or transactions — such as a natural disaster, a cyberattack, a regulatory change or the loss of a large business contract — may happen after the reporting period ends but before financial statements are finalized. The decision of whether to report these so-called “subsequent events” is one of the gray areas in financial…
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Deciding between cash and accrual accounting methods
Small businesses may start off using the cash-basis method of accounting. But many eventually convert to accrual-basis reporting to conform with U.S. Generally Accepted Accounting Principles (GAAP). Which method is right for you? Cash method Under the cash method, companies recognize revenue as customers pay invoices and expenses when they pay bills. As a result,…
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FAQs about fair value in accounting
In recent years, accounting rule makers have issued guidance that requires certain items on the balance sheet to be reported at “fair value.” Here are some answers to frequently asked questions about this standard of value and how it’s measured. What is fair value? Under U.S. Generally Accepted Accounting Principles (GAAP), fair value is “the…
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Goodwill in a bad economy
In today’s volatile economy, many businesses and nonprofits have been required to write down the value of acquired goodwill on their balance sheets. Others are expected to follow suit — or report additional write-offs — in 2022. To the extent that goodwill is written off, it can’t be recovered in the future, even if the…
