Knowing what to do with the financial statements on a Day 2 case has always been a huge struggle for me, so I’m glad that Deloitte’s CFE Approach: Assurance webcast addressed this.
Some things to keep in mind, from an Assurance role perspective:
- Don’t spend too much time reading the FS (don’t make issues out of nothing); any financial reporting issues will be explicitly noted in the requirements section
- Look for risk areas (eg. significant year-over-year changes in fixed assets indicates large additions to PPE which is a risk)
- Check compliance with debt covenants
- Do a quick going concern assessment
- IS: profitability (is the company turning a profit?)
- IS: current ratio (do current liabilities exceed current assets?)
- If current ratio < 1 and company has sustained losses, going concern likely to be an issue worth discussing
- Abnormal income statement items that should be adjusted for materiality (since materiality is often based on normalized income)
- May need to refer back to some variable costs and margins on the income statement, if an MA AO requires these