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Steps to Analyze Financial Reporting Issues

Identify your Role

Identify your Role One of the first steps is to identify your role in the case. Are you an independent auditor? Part of a management team? An advisor? The role is important as it dictates various aspects of your analysis and response, including which user’s goals you try to accomplish and the tone/style of the report. Identify the Required Tasks Identify what exactly is being asked of you and be sure to address all of the required tasks! You may have to read the case carefully to find the “embedded Required”. Understand the Financial Reporting Landscape (User’s Needs Analysis) The user needs analysis is important as it guides your analysis and recommendations. As an employee, consultant, etc, you should try to meet the user’s needs (usually within the confines of GAAP). Identify the users of the financial statements / financial information Identify the user’s needs (be specific) Rank and prioritize the user’s needs
Addressing the Reporting Issue Once you understand your role and the financial reporting landscape, you can properly identify, analyze and make recommendations to the reporting issues. The following approach is suggested:
1. Issue: Identify the reporting issue and state why it is an issue.
2. Implication: Determine the implications of the issue. It is good to use both quantitative and qualitative analysis to fully understand the implication. Be specific, and make use of case facts!
3. Alternatives: Generate viable and reasonable alternatives that are within GAAP. It is usually not useful to generate alternatives outside of GAAP because they are not available options. The case facts will help you generate alternatives.
4. Recommendation: Based on the user needs, make a viable recommendation to the address the reporting issue. Be specific.
Your recommendation must flow logically from your analysis. Because the users’ needs form the major criteria to evaluate the alternatives, they also provide the support for your recommendation. Take a Step Back and Be Aware of any Big Picture Issues or Biases When analyzing the financial reporting issues, try to be alert for any big picture issues or reporting bias. For example, is there a going concern issue when combining all issues together? Is the controller or another manager trying to maximize net income to have a higher bonus, business value, etc?

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