The Statement
The Statement

Common financial statement deficiencies noted on peer reviews

As firms go through the peer review process, we note continual improvement in compliance with professional standards for financial statement presentation. However, some deficiencies do occur.

The following list is not all-inclusive but contains the common financial statement deficiencies noted on peer reviews.

Assets

  • Improper classification between current and long-term assets.
  • Investment in majority owned or controlled subsidiary not consolidated.
  • Cash overdrafts shown as a negative balance.
  • Accounts receivable shown on cash basis financial statements.
  • Investments in debt and equity securities not classified or measured correctly.

Liabilities

  • Improper classifications between current and long-term debt.
  • Demand liabilities classified as long-term.
  • Non-recognition of liability for compensated absences.
  • Non-recognition of capital leases.
  • Improper recognition of deferred revenue.
  • Improper classification of deferred income taxes.

Statement of income

  • Income tax provision, where applicable, not recorded on interim financial statements.
  • Reporting period not clearly identified.
  • Significant components of income tax expense not disclosed.

Statement of cash flows

  • Cash flow statement not categorized by operating, investing and financing activities.
  • Misclassification of activities, especially between investing and financing activities.
  • No disclosure of non-cash investing and financing activities.
  • No disclosure of interest and taxes paid for indirect method (may be in the footnotes).
  • Statement not presented for each period that statement of income is presented.

Incomplete or missing disclosures

  • Significant accounting policies.
  • Basis of accounting other than GAAP.
  • Concentrations of credit risk.
  • Disclosures about fair value of financial instruments.
  • Disclosures about risks and uncertainties.
  • Disclosure of five-year debt maturities.
  • Related party transactions.
  • Leases.
  • Inadequate employee benefit plan disclosures.
  • Inadequate disclosure about deferred taxes.
  • Missing caption, "Selected Information-Substantially All Disclosures Omitted," where applicable.
  • Modifications to cash basis of accounting.
  • Use of estimates.
  • Information about concentrations (of products, services, customers, suppliers).
  • Inadequate subsequent event disclosure of significant unrealized stock market losses.
  • Interest expense.
  • Rent expense.
  • Investments.
  • Details relating to long-term debt.
  • Preferred stock redemption requirements.
  • Details relating to the components of capital stock.
  • Restricted loan covenants.
  • Depreciation and amortization.
  • Cash equivalents.
  • Accrued compensation expense.
  • Advertising expense.
  • Income tax expense.
  • Terms and conditions of a commitment.
  • Details relating to pension plans.
  • Accounting policy on bad debts.