Questions To Ask About The Statement Of Financial Position – FAQ | IFRS

Questions to Ask about the Statement of Financial Position

Directors or supervisory (non-executive) directors have to ask questions to the preparers of the financial statements to go prepared into the general meeting of shareholders. The question may be along these lines:

  • What are the components of cash and cash equivalents? Are any of these at risk of losing value? Questions to Ask about the Statement of Financial Position
  • Who owes us the accounts receivable? What is the age profile of these accounts? Is there likely to be a problem in collecting these amounts? Has any provision been taken for uncollectible amounts?
  • What are the components of prepaid expenses? (These often arise from amounts paid for services before they are rendered, like insurance or rent.) Do we have any choice about paying in advance?
  • What are the major types of invested assets (investments) we hold? Do we have an investment policy? Are the investments in accordance with that policy? What are the prospects for future changes in value and income from these investments? What are the risks associated with these types of investments? Are the risks appropriate for our organization at this time? What happens to these assets if we wind down the organization?
  • What are the non-current assets we own? Where in the organization are they used? How are these assets depreciated or amortized? That is, how do we record the “consumption” or use of these assets over time to reflect their declining useful life and utility to the organization? Does this charge reflect reality? Do we have plans to replace these assets as needed? Are we providing for a replacement fund (liquidity) to pay for replacements? Do we have appropriate insurance on these assets in case they are damaged or lost? Questions to Ask about the Statement of Financial Position
  • To whom do we owe accounts payable? Do we pay these amounts on a timely basis, and specifically, in accordance with the payment terms that suppliers or others have specified in order to avoid further costs?
  • What is the renewal date for the mortgages or loans outstanding? What new interest rates can be anticipated and how do they compare to the rates we are currently paying? We have a large cash balance — what are the penalties, if any, involved in paying down the mortgage? Should we consider doing so, or do we have plans for the use of the cash balance in the future?
  • What is included in other liabilities? To whom are these owed and why? When will these amounts come due, and will we have the cash resources to pay them?

Directors will want to have a keen eye for comparing the figures for the current year compared to the previous year. Significant changes over time (both increases and decreases) may well spark questioning. Directors can themselves undertake simple calculations for items not shown directly on the Statement such as the working capital ratio, the percentage change in the value of invested assets, or the percentage change in capital assets.

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