The prime objective of balance sheet review is to ascertain the current financial position of the company. It is more useful to have incomplete but up-to-date balance sheet review than a complete set of financial statements several months out of date.
A detailed balance sheet review of your work on management and information previously provided should result in your concentrating on the risk areas in the financial statements. You are not conducting an audit, but you do aim to assess the current financial position on a conservative basis. The review should adopt the most prudent generally accepted accounting principles (GAAP) applicable.
Assess each balance sheet asset
Consider the current value to the business of assets that may not be reflected in the balance sheet or that are stated at out-of-date historical cost.
You should seek to review the balance sheet on the basis that the company is profitable and wishes to prepare prudent management accounts. Any practices designed to accelerate income or defer expenditure should be adjusted.
- Land and buildings
- Plant, equipment, fixtures and fittings, motor vehicles
- Inventory and work in progress
- Debtors and prepayments
- Other assets
Assess significant balance sheet liability accounts
- It is equally important to assess liabilities as it is to assess assets. It is vital that all unrecorded liabilities be identified and contingent liabilities be disclosed. This includes both:
- Trade creditors and accruals, and
- Other liabilities
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