Audit and Assurance

Reviews: Vetting financial statements against frameworks

Frameworks are essential to financial reporting because they ensure quality and consistency for all businesses regardless of size or industry. They also minimize the chances of misinterpreting anything included in a financial statement. Without frameworks, financial statements and other such documents would be prepared in a disorderly manner, and be open to any interpretation according to the intent or the bias of those who prepared them. 

Compliance with an acceptable financial reporting framework, such as the IFRS, is what auditors look for during Reviews of financial statements. They keep an eye out for anything that might suggest that the statement was prepared in a manner that was not following the specified framework, by following procedures which do not provide information normally required during an audit. That said, reviews cost much less than an audit, but cost more than a simple compilation of financial statements.

In reviewing a financial statement, our audit team considers several criteria, including:

The industry of the business
The value of the business
The profitability and risk of the business
How the business differentiates itself from competitors
The structure and quality of the financial statement
Financial statement forecasts

Getting ready for a review.

IFRS are used in 166 countries worldwide, including the Philippines as well as all Financial statement reviews generally go hand in hand with audit season which, in the Philippines, is usually in April—although, for certain types of businesses, the season varies according to the end of their financial year. 

Reviews help to make sure that the financial statements submitted by a business during this time to the BIR or the SEC are properly prepared, and it helps to be prepared for the review and the audit season, as a whole. Preparation involves keeping all books, records, and other financial documents to ensure a smooth review. 

On top of the financial statements themselves, the auditor will be asking the business for supporting documents such as historical financial information to facilitate the review. Note that collecting these documents is one of the most time-consuming review-related tasks, so it helps to start having them on hand as early as possible. Having upper management review the statements before passing them to the auditor may also help to streamline the review process.

Conducting the review.

Auditors use a checklist to make sure that no major changes will have to be made so that the financial statement complies with the required framework.

They make sure disclosures made on the statement were clear and consistent and check whether there were any words or phrases that aren’t normally used in financial statements, especially where opinions are expressed. These words or phrases will have to be cross-referenced with supporting documents along with any additional reports attached to the statement.

Auditors then make sure all the numbers, such as assets, equity, and liabilities, add up, and that they all agree on each of the documents, e.g. whether the balance sheet agrees with the cash flow statement. They also enquire after the accounting processes used in recording transactions, as well as significant events toward the end of, or after the accounting period that may have affected the reports.