Mid-Year Check Up

When summer arrives most of us are thinking about vacations, barbeques and beaches not accounting or financial reporting. However if your business is a calendar year end, June 30 marks the half-way point of the fiscal year and a perfect time to think about a review of you company financial reporting. Similar to a physical check up with your doctor, a fiscal checkup with your CPA can detect problems early, keep your business on the path to fiscal health and avoid future surprises. Unless they come with gift wrapping, bankers, investors and executive management generally do not like surprises. A mid- year check-up can provide an opportunity to report timely on any financial information, good or bad, before it is revealed in an annual audit or review.

Here are some ideas to consider:

Cash, Review bank statements for any reconciling items that have been un-resolved, investigate as necessary and post any adjusting entries. Analyze outstanding check lists for any old checks that have not cleared and consider the causes and disposition. Be sure that the reconciliations agree with the appropriate bank balances and reconcile to the balance on the general ledger. This is also a good time to determine if cash flow will be sufficient to sustain operations and determine if there is a need for additional financing or investing excess cash.

Accounts Receivable, Prepare an accounts receivable detail listing and be sure it is reconciled to the general ledger. Perform a critical review of the detail looking specifically for deterioration of aging, past due accounts to be written off, unapplied debit or credit memos that should be cleared off and any unusual entries or accounts. If there are an abnormal amount of delinquent accounts, review policies for extending customer credit and modify if necessary. Calculate the number of day sales in receivables and compare to historic benchmarks to determine collection and cash flow efficiencies.

Inventories, Does your organization have significant inventory and have cycle counts been performed during the year? If not this is a good time to consider performing a 100% physical observation and count of your inventory. During the count, the inventory should be reviewed for any old or slow moving items to be disposed of or sold at discount. The calculation for any obsolete inventory allowance should be adjusted based on the results. Review the inventory turnover calculations and compare to historical metrics to determine if an appropriate level of inventory is being maintained. Review your inventory costing method and consider comparing a sample of inventory item cost to recent purchase activity for verification of accurate value.

Property and Equipment, Update depreciation records with purchased assets and determine that depreciation expense and accumulated accounts have been updated. Review asset additions details for any items that should be expensed. Roll forward beginning of year asset cost and accumulated depreciation accounts reconciling asset additions, depreciation expense, asset disposals and ending balances to the general ledger. Perform a critical review of the asset detail records to determine if there any fully depreciated, obsolete or impaired assets that should be written off or down in value.

Other Assets, If your company has other assets on the balance sheet, review the valuation of those assets and be certain they are recorded at the appropriate value. Update any amortization necessary and review prepaid and related accounts for appropriate adjustments to expense.

Accounts Payable and Accruals, Prepare a listing of accounts payable, reconcile to the general ledger, review the list for past due accounts and investigate unusual amounts. Review the listing for unapplied payments and clean up the detail to reflect accurate supplier statements. Consider performing a cut off test by taking a sample of cash disbursements in early July, review supporting invoices and determine if they are appropriately recorded in the proper period. This is a good time to review all accrued liabilities and recalculate accrual amounts for payroll, compensated absences, employee benefits, sales and payroll taxes etc. Consider overall purchase and expense projections and activity to determine if there are other amounts that should be accrued.

Debt, Prepare a schedule to roll forward your beginning debt balances considering new debt advances and payments and reconcile ending balances to your general ledger. Reconcile ending balances of your debt accounts to bank statements and amortization schedules if applicable. Review accounts for compliance with any debt covenants. Review any new lease agreements for appropriate accounting as capital or operating leases.

Equity, Roll forward retained earnings accounts, reconcile to the general ledger and investigate any entries made to retained earnings. Review payments made to or on behalf of owners to determine if there should be distributions recorded. If there have been any stock based compensation agreements entered into during the year, be sure appropriate entries have been made to equity and compensation expense.

While the items above are tasks designed to scrub your financial reporting accounts and keep your fiscal house in order, the middle of the year is also a good time to perform some strategic financial tasks. Performing a sales and expense sensitivity analysis to determine the impact of a loss of revenue or supplier price increase can help expose vulnerable areas and comparing key financial statement ratios to industry benchmarks to measure your performance against your competitors are a couple of examples of many things that can be done.

When you feel healthy, checkups are often overlooked but remain an important part of preventative maintenance for your financial reporting. We know how demanding it can be to run a business and are here to help. Please call us to discuss the specifics of your organization and how we can help keep your company fiscally healthy.

By: Andrew Ruffner