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Working Papers - The Building Blocks Of Financial Statements

Sean Goss

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The organizations financial statements are the final report card after a certain period (mostly twelve months). Your bank or other third parties will evaluate this highly important document, to reach certain conclusions about your business.

Weak preparation and negligence can cost business substantial sums, if that loan is turned down. Consult expert accountants, when reports are required. Rather pay higher fees, than to settle for a cheap accountant. Cheap accountants, produce poor financial reports.

Clients should request an inspection of their working files, before taking delivery of their reports. The accountant remains the owner of the working file, but should share all his findings with his client. Do not enlist accountants who fail to back up their assignments with professionally prepared working documents. It is in your own best interest to verify this fact!

Please note that working files are not client admin/permanent files. The working file will contain the relevant information (working papers) used, to construct the financial statements. The working file connects all the voluminous data in the books of account with the final draft.

Any accountant worth his salt will follow these procedures below, to prepare working papers (building blocks):

  • Finalize all written up accounting information.

  • Verify the veracity of transactions, i. e. the books could reflect rent at $ 11 000, ($1000 per month) which means one months rent is not paid or reflected, the accountant will correct the information to agree with the true state of affairs.

  • Open an indexed working file.

  • Print a first trial balance, and general ledger.

  • The trial balance and ledger is examined and compared to important data and source documents.

  • At each level of the examination, notes are made about the information. Fixed assets will be compared to the fixed assets register; the cashbook is reconciled back to bank statements (if not done). Copies of original bank statements and asset invoices will be attached to the working papers.

  • Revenue and expense items are reviewed, and compared to sample source documents.

  • Adjustments are made to the first trial balance.

  • Lead schedules are prepared. Lead schedules are summaries of the assets and liabilities, and income and expense items.

  • From the lead schedules, a first draft is prepared.

  • Notes are made on accounting policies, GAAP and IFRS, and a final draft is prepared.

  • A final review is performed and the final draft is printed.

  • A copy is placed in the working file, and all other working papers are cross-referenced to the trial balance and ledgers.

  • The file is closed and archived. A properly prepared working file can go a long way in addressing concerns by owners of the business or IRS. It contains extremely valuable information.

    This is a very simplified guideline, and more extensive working papers could be prepared. Inaccurate reports can be disastrous. Business owners should equip themselves with a basic knowledge of financial statement preparation. If multinational corporations accountants could get away with fraudulent financial statements (until they were caught out), due to stockholder apathy, imagine how serious this situation could be for, small business owners.

    Accounting and finance related queries can be addressed, on our website. Feel free to visit our site by clicking on the url below.

    Sean Goss

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