6 Accurate Steps for Spreading Financial Statements
Spreading the financial statement is a common phenomenon among banks and individuals or cooperates through data exchange between borrower’s financial statement and the bank’s financial analysis programs. The most common financial information shared comprise but are not limited to the following:
- Net Worth
- Income statement
- Balance sheet
- Statement of Cash Flows
- Financial Ratios
Often, the spreading of the financial statements is done to determine the financial conditions of companies. Usually, these statements undergo auditing by the financial auditors, who then declare the companies’ financial statement.
Six stages are crucial during the spreading of the financial statement
1. Audit planning
The process of planning for auditing entails coming up with the following:
- Identification of audit team.
- Formulation of the audit process.
- Examination of the level of compliance with the interdependent parties.
There must be a multidimensional team of auditors for every given company. The team will apply company-specific procedures which may comply or not comply with the generally accepted accounting principles (GAAP) depending on the audit type. Then, the company’s compliance with the interdependences is affected by the general nature of business in a given organization.
2. Proper comprehension of internal controls
Every company creates specific operational guidelines and restrictions which would affect auditing, especially with data retrieval. There is a need for the auditing team to comply with the methods of operations, the guiding rules and principles of the company. Then it would be easier to overcome the challenges of fraud, and misreporting which can arise during the auditing process.
During the stage, the team gets familiarised with the restrictions to financial reporting, including the passwords restrictions and access by the individuals to key financial data. Such measures would be crucial when setting the financial standards for the nature of data to be gathered from a company.
3. Carry out an extensive risk assessment
Experience and the prevailing facts are crucial during the risk assessment stage. The team proceeds to lay out the complexity of the task involved for an extensive analysis. Form the laid down procedures; there is the identification of risks and the mitigations measures for the same, basing on previous encounters and changes in accounting standards for the auditing process.
During the risk assessment, the following questions are answered:
- What level of accuracy are the internal operations taking place?
- Do the company carry out continuous reviews of the internal operations?
- What is likely to go awkward during the process?
- If there exist loopholes in internal controls, what will happen in the auditing process?
Once the questions are answered, all the risks would have been identified. Then the team must develop some of the alternatives and measures that would be used in the place of risks occurring.
4. Cary out prior control test
Control testing means deep-diving into the aspects that would result in finical misstatements and extract them. That is necessary for accuracy in information reporting. Most likely, there may be limited or extensive financial leakage loopholes. Either way, evidence for the showcase is mandatory at this particular stage.
When the shortcomings in finical reporting are identified, and proper mitigation is created, variations of the procedural complexities, situations, and timing must be ascertained.
5. Evidence accumulation and processing
Another most crucial stage in Spreading financial statements is the evidence gathering procedure. This stage needs to give supporting documents about the certainty of the financial reports. The documents must be comprehensive to cover accuracy, occurrence, classification, cut-off, and completeness.
The financial documents given as a source of evidence concerning the above postulates are the same financial documents in introductory.
6. Closure of the auditing process
At this stage, the conclusion of the auditing process is made. A good ending entails an empirical summation of the five initial procedures. Then, the judgment of the auditing teams comes out more vividly to crown the process. It will be highlighting any inadequacies or the effectiveness of the procedures.
The conclusion is shared with the top officials in the organization to reach a consensus view. Through an opportunity to challenge the assertions, senior executives and accountants would shed more light on evidence for the financial report. That way, a more acceptable way forward can be designed for the organization due to the financial report.