Tag Archives: Financial Statements

Financial statements tell your business’s story, inside and out

Ask many entrepreneurs and small business owners to show you their financial statements and they’ll likely open a laptop and show you their bookkeeping software. Although tracking financial transactions is critical, spreadsheets aren’t financial statements.

In short, financial statements are detailed and carefully organized reports about the financial activities and overall position of a business. As any company evolves, it will likely encounter an increasing need to properly generate these reports to build credibility with outside parties, such as investors and lenders, and to make well-informed strategic decisions.

These are the typical components of financial statements:

Income statement. Also known as a profit and loss statement, the income statement shows revenues and expenses for a specified period. To help show which parts of the business are profitable (or not), it should carefully match revenues and expenses.

Balance sheet. This provides a snapshot of a company’s assets and liabilities. Assets are items of value, such as cash, accounts receivable, equipment and intellectual property. Liabilities are debts, such as accounts payable, payroll and lines of credit. The balance sheet also states the company’s net worth, which is calculated by subtracting total liabilities from total assets.

Cash flow statement. This shows how much cash a company generates for a particular period, which is a good indicator of how easily it can pay its bills. The statement details the net increase or decrease in cash as a result of operations, investment activities (such as property or equipment sales or purchases) and financing activities (such as taking out or repaying a loan).

Retained earnings/equity statement. Not always included, this statement shows how much a company’s net worth grew during a specified period. If the business is a corporation, the statement details what percentage of profits for that period the company distributed as dividends to its shareholders and what percentage it retained internally.

Notes to financial statements. Many if not most financial statements contain a supplementary report to provide additional details about the other sections. Some of these notes may take the form of disclosures that are required under Generally Accepted Accounting Principles — the most widely used set of accounting rules and standards. Others might include supporting calculations or written clarifications.

Financial statements tell the ongoing narrative of your company’s finances and profitability. Without them, you really can’t tell anyone — including yourself — precisely how well you’re doing. We can help you generate these reports to the highest standards and then use them to your best advantage.

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SSARS 21: Statement on Standards for Accounting and Review Services: Clarification and Recodification

by Lee Byrd

Representing the most significant changes to the compilation and review literature in decades, the AICPA Accounting and Review Services Committee recently issued Statement on Standards for Accounting and Review Services (SSARS) No. 21. The guidance aids in drawing a definitive line between preparation and reporting services and is composed of four sections as follows:

  • Section 60 – General Principles for Engagements Performed in Accordance With Statements on Standards for Accounting and Review Services, provides a foundation for the other three sections and guides professionals on their responsibilities related to engagements performed in accordance with SSARS.
  • Section 70 – Preparation of Financial Statements, applies when an accountant is engaged to prepare financial statements but is not engaged to perform an audit, review or a compliation on those financial statements. Professional judgment should be used in determining the type of engagement requested by the client (i.e. whether the CPA is engaged to prepare financial statements or simply assist in their preparation). A report is not required for a preparation engagement but the CPA should include a legend on each page of the financial statements stating, “no assurance is provided.”
  • Section 80 – Compilation Engagements, applies when an accountant is engaged to perform a compilation engagement. The guidance provides new compilation report language, distinguishing this report from an assurance engagement report for audit or review services. CPAs may add additional paragraphs for explanatory purposes.
  • Section 90 – Review of Financial Statements, applies when an accountant is engaged to perform a review of financial statements. The accountants’ review report has been updated to require the use of headings in the report and the name of the city and state of the CPA’s issuing office.

Successful business group.CPAs are required to begin using SSARS 21 for financial statements with periods ending December 15, 2015 and thereafter; however, the standard allows for early implementation. The standard also requires a signed engagement letter for all SSARSs engagements, signed by both the CPA and management or those charged with governance. Additionally, while audit, review and compilation engagements require participation in a peer review program, preparation services do not fall within any of the aforementioned categories and therefore, are not subject to peer review.

Langdon & Company LLP‘s accountants are very familiar with this new standard and would be happy to answer any questions you may have.  Please contact our office for additional information.

Lee Byrd (lbyrd@langdoncpa.com) is an Audit Manager at our Firm and has over 7 years of experience with a variety of clients.