Comment on the quality of reporting and reporting systems
Examine key financial controls in place over sales, cash collection, purchases and payroll and comment on any weaknesses noted
Examine the procedures for month-end sales and purchases cut-off
Consider the consistency and appropriateness of accounting policies (particularly revenue recognition policies) used during the period, comment on any inconsistencies identified or significant departures from Australian Accounting Standards.
Examine monthly management accounts for three years and YTD for significant fluctuations in sales, purchases and operating expenses, and obtain explanations for movements
Examine monthly management accounts for three years and YTD for significant abnormal items and related party transactions, and comment on the EBIT effect of any items found
Compare actual to budgeted results for the period and obtain explanations for any significant variances noted
Review major expense items, comment on recurring v non-recurring, trends (include comment on any forex risks and procedures, if applicable)
Details of historic margins by business line/segment, including comments on any large movements
Reconcile EBITDA to cashflow for three years and YTD
Analyse historic capex spend for three years and YTD, including split of maintenance capex and growth capex
Analyse future expected maintainable earnings (comment on any normalisation adjustments, eg, non-recurring items, integration costs, synergies, appropriate management remuneration)
Review monthly working capital for three years and YTD and comment on any seasonal impacts on working capital requirements (including peak requirements)
Provide overview of company’s operating cycle, including any manufacturing cycle and billings (deposits, down payments, installments, billing period)
Review the company’s Business Plan, if any (make the plan available to financiers) and comment on reasonableness of any projections - in particular revenue growth, margin percentages, working capital movements, and capex (maintenance and growth)
Comment on any acquisition synergies projected (top-line growth or savings).
Obtain a list of the 10 largest customers for the last three years. What percentage of sales do they represent?
Obtain a list of the 10 largest suppliers for the last three years. What percentage of supplier expenses do they represent?
Examine bank reconciliation at YTD (how often are reconciliations done?)
Examine trade creditors’ balance at YTD. Comment on reconciliation, aging, standard terms of trade
Examine trade debtors balance at YTD. Comment on reconciliation, aging/write-off history, expected recoveries, standard terms of trade
Examine inventory balance at YTD. Comment on reconciliation, aging (obsolescence), true value against reported value, standard terms of trade
Examine stock provisioning and write-off policies
Examine the provision of employee entitlements at YTD
Examine the carrying value of fixed assets at YTD and depreciation policies
How do carrying values compare with market value? Is depreciation policy consistent with asset life?
Examine any loans or financing balances (name of lender, type of facility, facility size, drawn amount, security)
Comment on any contingent liabilities
Provide details of current equity ownership of the business (names, ownership percentages) and examine and reconcile movements in equity in the last three years and YTD. Provide details of any subsidiaries, including percentage ownership.
Review income tax returns for three years and YTD, including reviewing supporting schedules and financial statements
Review the current year franking account
Review payments for any related transactions
Review FBT returns for three years and YTD, including supporting schedules, reconciliations and financial statements, and PAYG obligations
Review Business Activity Statements for the last 12 months for GST declared.