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Intro to Restating and Adjusting the
Financial StatementsContent Author: Louise August, CPA, PhD. |
Financial statement analysis is based on comparability - not just year-to-year, but between firms as well. So we want to do everything we can to make those comparisons as easy and as meaningful as possible. Once you have your firm's financial statements re-created in Excel, you need to make a copy and use that to make any needed restatements. Why make a copy? Because… * Providing the “as published” financials is a requirement of the project. * You’ll need to refer back to the original to make sure that key check figures match - such as net income, total assets, total liabilities, etc. * In case you have a disaster while restating, you'll have the original to go back to (always a sound practice) We're going to use the fictional Big Beverage Company (BB). Their financials are based on an actual company but they’re altered a bit to make them better examples for these lecture segments. | |
There are three types of changes to consider:
Reformatting: these just tinker with the format – things like inserting additional subtotals, expanding or collapsing groups of accounts, etc. – the bottom line (total assets or net income, for example) will not change.
GAAP-related Adjustments: Certain accounting treatments, while allowed by GAPP and therefore “perfectly legal” tend to create major distortions in the reported results. These types of changes actually do change the bottom line numbers 1. The LIFO valuation method for inventory 2. Lease arrangements that qualify as operating leases
Leading arrangements are generally classified as either operating leases or capital leases. Because of the accounting treatments allowed by GAAP, operating leases are often referred to as "off balance sheet financing." | This is why: If the details of the agreement qualify

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