Answers / Financial Due Diligence
How do you assess the quality of a company's financial reporting?
An advanced Financial Due Diligence question — expect it in final rounds and case-heavy interviews (IB, PE, Big-4 Transaction Services).
THE SHORT ANSWER
Check: (1) Are monthly management accounts produced timely? (2) Do they reconcile to the annual audited statements? (3) Is there a proper chart of accounts? (4) Are intercompany transactions clearly documented? (5) Is revenue recognition consistent? (6) Are provisions adequately calculated? (7) Does the CFO/FD have professional qualifications? Poor financial reporting is a red flag – if the data is unreliable, the whole FDD is compromised.
WHAT INTERVIEWERS LISTEN FOR
- ✓Timely management accounts
- ✓Reconciliation to audited statements
- ✓Consistent revenue recognition
- ✓Adequate provisions calculation
- ✓CFO professional qualifications
COMMON MISTAKES
- ✗Ignoring intercompany documentation
- ✗Overlooking chart of accounts
- ✗Assuming data reliability without verification
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