Financial Statement Review Case Study
From QuickBooks Reports to Lender-Ready Reviewed Financial Statements
Financial Statement Review
$4M
Approximate annual revenue of the group
Review
Assurance level the lender actually required
Multi-entity
30 to 45 days
Client and Engagement Context
The client was a healthcare services company operating from multiple locations in the United States, structured across more than one entity, with annual revenue of approximately $8 million. The business was growing and had applied to its bank for additional financing to fund an expansion.
The bank asked for financial statements. The client read that as a formatting exercise. Their accounting sat in QuickBooks, the reports could be exported on demand, and the assumption was that a CPA would tidy the presentation and sign something. On that understanding, they came to us asking for a compilation.
Two things turned out to be different.
First, the lender was not asking for a compilation. It wanted independently reviewed financial statements, which is a different engagement with a different scope and a different report. Second, and more consequential, the underlying records could not support a review in the state they were in.
“The client was not wrong about what they wanted. They were wrong about what the bank had asked for, and nobody had checked the difference before the deadline started running.”
Key Challenges
A review is not a re-bookkeeping exercise. It assumes records that reconcile and balances that can be explained. Before any review procedures could begin, the books had to reach that standard.
| Challenge Area | Description and Engagement Impact |
|---|---|
|
Wrong assurance level assumed (Scope) | The client had scoped and budgeted for a compilation. The lender required a review, which involves analytical procedures, inquiry, and a formal report providing limited assurance. Identifying this at the outset avoided delivering a report the bank would have rejected. |
|
Unreconciled bank and credit card accounts (Foundation) | Bank balances and credit card balances were not properly reconciled. Until every account tied to a statement, no balance on the face of the financials could be relied on, and no review procedure would have meant anything. |
|
Revenue recognition inconsistencies (Reporting Quality) | Revenue was not being recognised consistently across the group. For a healthcare services business, this is the line the lender reads first, and inconsistent treatment across periods distorts both the trend and the margin. |
|
Intercompany transactions not recorded (Multi-Entity) | Transactions between the related entities were not properly recorded, so intercompany balances did not agree. In a multi-entity group this affects both the individual entity records and anything presented on a combined basis. |
|
Personal and business expenses mixed (Classification) | Personal transactions were recorded alongside business expenses. Beyond the classification error, this affects reported profitability, which is precisely the figure a lender uses to size a facility. |
Our Approach
Phase A – Confirm What the Lender Actually Required
Before quoting, we established that the bank wanted reviewed financial statements rather than a compilation, and confirmed the reporting period and format expected. This single step changed the entire engagement scope and was completed before any work began on the books.
Phase B – Reconcile the Foundation
Every bank account and credit card account was reconciled to its statements. This is unglamorous work and it was the longest part of the engagement, but a review performed on unreconciled cash is not a review of anything.
Phase C – Fix Revenue and Intercompany
We reviewed how revenue was being recognised across the group and applied a consistent treatment. Intercompany transactions were identified and recorded so that balances between the entities agreed, which is what allows the group’s numbers to be presented coherently.
Phase D – Separate Personal from Business
Personal transactions recorded in the business accounts were identified and reclassified out of operating expenses, correcting reported profitability. Adjusting entries were passed for each correction, with support retained.
Phase E – Perform the Review and Prepare the Statements
With records that reconciled, we performed the review procedures and prepared the financial statements together with the disclosures required. The output was a complete package the client could send to the bank.
Results and Impact
- Reviewed financial statements delivered at the assurance level the lender actually required, rather than the compilation originally requested.
- All bank and credit card accounts reconciled, giving every balance on the financials a document behind it.
- Revenue recognised on a consistent basis across the group, so the trend the lender reads reflects the business rather than the bookkeeping.
- Intercompany transactions recorded and balances agreed across the related entities.
- Personal spend separated from business expenses, correcting reported profitability.
- Required disclosures prepared and delivered as part of the statement package.
Key Lessons
This engagement is a common shape. The specifics change, the pattern does not.
1. Confirm the assurance level with the requesting party before you engage anyone. The client here had scoped for a compilation because that was their assumption, not because the bank had said so. One email to the lender at the start defined the whole engagement. Getting this wrong in either direction costs money and weeks.
2. Reviews assume records that reconcile. A review is not a cheap route to clean books. It is a set of procedures performed on books that are already in order. Where they are not, the clean-up comes first, and on engagements like this one it is the longer half of the work.
3. Multi-entity groups fail at intercompany first. When a business runs through more than one entity, unrecorded intercompany transactions are the most common problem we see, and they cannot be fixed at the reporting stage. They have to be corrected in the records.
4. Mixed personal and business spend is a profitability problem, not just a tidiness problem. Lenders size facilities on reported profit. Personal expenses sitting inside operating costs understate that profit, which works directly against the client in a financing conversation.
5. Your timeline depends on your document turnaround. The 30 to 45 day range on this engagement was driven by how fast supporting documents arrived. Companies that assemble their records before the engagement starts finish at the fast end of that range.
Been Asked for Financial Statements by a Bank or Lender?
Countsure helps US companies work out what the requesting party actually requires, gets the books to a state where an assurance engagement can proceed, and delivers statements at the correct level. Visit our audit and assurance services to schedule a consultation.
Why Choose Countsure
- CPA-Led
- Financial Statement Review
- Multi-Entity Accounting
- Bookkeeping Clean-Up
- Lender Reporting
- US Compliance
Parth Shah, Managing Director
(CPA-US, FCA, RV-S&FA, DISA)
