Chapter 17: Financial Statements for a Lender

Accounting Analytics: An Integrated Approach

In this chapter

Part V of V: Capstone Cases

Chapter 1 of 3 in this Part

• 17.1 The Situation
• 17.2 The Data You Will Use
• 17.3 Getting Started
• 17.4.1 Phase 1: The Ledger as It Stands

• 17.4.2 Phase 2: The Adjustments
• 17.4.3 Phase 3: The Statements and Notes
• 17.4.4 Phase 4: What the Data Cannot Settle
• 17.5 Deliverables and Checklist
• 17.7 Looking Ahead

This is a case, not a chapter of tutorials. The deck opens with a kickoff (the situation, what you hand in, how it is judged, the data and the setup) and then follows the four phases of the requirements, each ending with a milestone check-in. Present the kickoff first, and each phase when its milestone begins.

Learning objectives

1. Prepare comparative financial statements, including the statements of changes in equity and of cash flows, from trial balances taken at successive year-ends, treating closing entries, opening balances, and postings after the year-end correctly.
2. Rebuild a liability from the documents behind it, and use subledger evidence to find the year-end adjustments for accruals, cutoff, and interest.
3. Assign each adjustment to the period it belongs to by distinguishing errors from changes in estimate, and judge materiality individually and in aggregate to decide what to record, what to pass, and how to present the prior year.

The first three objectives cover the statements from successive trial balances, rebuilding a liability from its documents, and judging the adjustments.

Learning objectives (continued)

4. Build note disclosures from the database, for revenue, inventories, property and equipment, debt, accrued liabilities, and subsequent events, and reconcile each to the statements.
5. Separate what the records can settle from what needs evidence outside the database, such as the company’s tax status and its leases, and assess liquidity and going-concern conditions as a lender would.
6. Choose Excel, SQL, or Power BI for each part of a reporting task, and document the work so that a reviewer can rerun and trace every number.

The last three cover the notes, what the records cannot settle, and choosing and documenting the tools.

A lender needs statements it can rely on

• The CFO has asked the bank for a line of credit for working capital
• The bank’s credit committee wants full GAAP statements, with comparatives
• The company has never given statements to a lender
• You, the staff accountant, prepare the package and a memo to the CFO

Earlier, the controller showed the audit committee where the year’s cash had gone: into inventories, with growing payables and sales tax with no recorded remittance holding the balance up. The shareholders received statements prepared straight from the ledger, and no adjustment has been recorded since. The case has no tutorials: each requirement says what the controller needs and which chapters it draws on, and you decide how to produce it.

What you will hand in

1. LenderPackage.sql, with its header complete and two comment lines above every query.
2. Charles River Lender Package.xlsx, with the Documentation worksheet and the date through which the data run; the three trial balances; the schedule of adjustments with its evidence; the adjusted trial balances; the statements; and the required notes.
3. The draft package for the bank: a PDF of the statements and the required notes, produced from the workbook.
4. Charles River Lender Review.pbix, with its Questions table and its Tests tab.
5. The memorandum to the CFO, of no more than two pages, with an appendix of exhibits of no more than three pages.

These are the five deliverables, as the chapter’s checklist lists them. The workbook is the center of the package; the script feeds it, the Review file tests it, and the memo explains what the package required and what remains open.

How your work will be judged

• Trial balances that anyone can rerun from one query and that agree with control totals already trusted.
• Every adjustment numbered, supported by a query or a document, assigned to a period, and classified, with the line between an error and an estimate drawn and explained, and the assumption stated wherever the records cannot prove it.
• Materiality judged in aggregate and on qualitative grounds as well as by size, with the passed items listed for approval.

A strong submission is one a reviewer can rerun and trace. Read these criteria now and again before each milestone.

How your work will be judged (continued)

• Statements that agree with one another, with cash unchanged by adjustments that move no cash, and the totals of each cash-flow activity unchanged as long as no adjustment changes how a cash flow is classified.
• Notes reconciled to the statements, each built from records that a reviewer can trace.
• A memo that measures only what the ledger supports, describes rather than accuses, and ends with a recommendation the CFO can act on.

The memo is judged as much on its tone as on its numbers: it measures only what the ledger supports, describes rather than accuses, and ends with a recommendation the CFO can act on.

17.1 The Situation

What the bank asks for

• Balance sheets, income, changes in equity and cash flows, for two years
• Full notes, under U.S. generally accepted accounting principles
• Management’s own statements, but the bank may ask for a review or audit
• So every number must trace to the records that support it

The controller wants to know what the ledger says as it stands and what it takes to turn it into GAAP statements, which adjustments the records support and whether they matter, what the notes must say, and what the data cannot settle. What you prepare is a draft for the CFO’s review, released to the bank only once the open matters are settled.

The controller’s four conditions

• Nothing is posted: each adjustment is a numbered entry with its evidence
• Materiality starts from a share of income before income taxes
• Findings are worded as what the records show, not what anyone did
• The package states the date through which its data run

The adjustments live in the workbook, with the query and the document numbers behind each, so that the CFO can approve them before anyone posts them. Every adjustment is listed, however small. The chapter states the rate as a starting benchmark, which qualitative and aggregate judgment then completes.

The package: four statements and the policies

Table 17.1 · The controller’s outline of the package

Component	What it shows	Guidance	Requirements
Balance sheets	Financial position at both year-ends, current items apart	Topic 210	1, 5, 6
Statements of income	Revenue, costs, and income for both years	Topic 225	1, 5, 6
Changes in equity	Stock and retained earnings, with corrections	Topic 505	5, 6
Cash flows	Operating, investing, and financing activities	Topic 230	6
Policies and corrections	Accounting policies; correction of prior-year amounts	Topics 235, 250	5, 7

The outline gives the topic of the Accounting Standards Codification that governs each component. Its last row holds matters the ledger does not record and the package must still address; part of Requirement 2 is to find what else the ledger leaves out.

The notes that support the statements

Table 17.1 · The controller’s outline of the package

Component	What it shows	Guidance	Requirements
Revenue	Revenue disaggregated; contract balances	Topic 606	4, 7
Inventories	Components and basis	Topic 330	7
Property and equipment	Cost, depreciation, additions, disposals	Topic 360	7
Notes payable	Terms, maturities, current portion	Topic 470	4, 5, 7
Accrued liabilities	Components	—	3, 4, 7
Later events and risks	Subsequent events, contingencies, going concern	Topics 855, 450, 205-40	8, 9
Matters the ledger does not record	Income taxes, leases, credit losses	Topics 740, 842, 326	5, 9

The last column says which requirements produce each component. Lenders use statements to monitor borrowers as well as to decide whether to lend: Minnis and Sutherland found banks requesting statements to monitor about half of small commercial loans, and in Minnis’s large sample of private firms, those with audited statements paid less for their debt.

17.2 The Data You Will Use

What carries over from the chapters

• Chapter 6’s mapping from accounts to statement lines
• Exercise 11.1’s statements in SQL, and Chapter 12’s Audit.sql
• Tutorial 14.3’s ledger model, and Chapter 15’s drill-through
• The Part III and Part IV case files, if you have them, as a head start

Few of the case’s techniques are new. The case does not require the earlier case files: they help with the payroll accrual and a ledger model, but every method the case needs is stated in its requirements.

Tables you have not used yet: profile them first

• Notes payable: DebtAgreement and DebtScheduleLine
• Property and equipment: FixedAsset and FixedAssetEvent
• Accruals: the references of PurchaseInvoiceLine and JournalEntry
• Services, returns and credits: their engagement, return and credit tables

The accrual references are AccrualJournalEntryID on PurchaseInvoiceLine and ReversesJournalEntryID on JournalEntry. The services tables are ServiceEngagement, ServiceTimeEntry and ServiceBillingLine; the returns tables are SalesReturn, SalesReturnLine, CreditMemo and CustomerRefund. Profile each before relying on it, as Chapter 10 profiled WorkOrder.

Three files, three tools

Table 17.2 · Tools and files

Tool	File	Holds	Hand-off
SQL	LenderPackage.sql, run on CharlesRiver_Capstone.sqlite	Trial balances, open accruals, cutoff populations, note schedules	Copy with Headers or Export to CSV
Excel	Charles River Lender Package.xlsx	Documentation, trial balances, adjustments, statements, notes	A Table of adjustment lines
Power BI	Charles River Lender Review.pbix, a ledger model of your own	Review of balances and changes, drill-through, tests of the package	Reads CharlesRiver.xlsx and the package workbook

Each tool hands its results to the next in the ways the book has taught: Copy with Headers or Export to CSV from DB Browser, and Power Query in both Excel and Power BI.

Watch out: every balance is as of a date

• A trial balance leaves out only the closes dated on its own as-of date
• The opening entry belongs to the first fiscal year
• Postings after the last year-end are supplier payments only
• Revenue belongs to the year of delivery; invoices post when received

The closes of earlier years have already moved their income into retained earnings, so they stay in. A balance taken at the ledger’s last date is not a year-end balance. Supplier invoices post on the day they were received and approved, not on their invoice date.

Watch out: the ledger and its documents differ

• An invoice clears an accrual only up to the amount accrued
• So measure what cleared each accrual from the ledger’s postings
• Several of the new tables fan out when joined to their headers
• An opening balance is a question about the opening entry, not this year

Any excess of an invoice over its accrual goes to expense, and a residual can be cleared later by a separate entry. Chapter 10 warned about fan-out. Do not net an opening balance against a new estimate: a balance that has sat unchanged since the opening entry belongs in the memo.

17.3 Getting Started

Set up before you begin

• Work in a capstone copy of the database; the download never changes
• Head LenderPackage.sql, and put two comment lines above every query
• Give the workbook a Documentation sheet, with the data-through date
• Create the Review file in Power BI Desktop, which needs Windows

The working copy is CharlesRiver_Capstone.sqlite, so that the Part III working copy keeps its views. The script’s header states its purpose, the database file, the preparer and the date, and its checks; the two comment lines say what a query tests and its population and expected result. On a Mac, plan a Windows computer for Requirements 2 and 6.

Four milestones, one for each phase

1. The ledger as it stands (Requirements 1 and 2): the three trial balances, the recorded statements, and the Questions table.
2. The adjustments (Requirements 3 to 5): the rebuilt accrued expenses, the cutoff measurements, and the schedule of adjustments with its evidence and its materiality judgment.
3. The statements and notes (Requirements 6 and 7): the adjusted statements, the required notes, and the tests in the Review file.
4. What the data cannot settle (Requirements 8 and 9): the review of later events and the memo to the CFO.

Work through the phases in order, because each uses what the one before found. Your instructor may ask you to hand in each milestone and may then release checkpoint values, so that an early error does not carry through the rest of the case.

Choose the tool for each step

• A query extracts exactly the rows, and reruns with a new date
• A workbook shows every formula, and holds the adjustments
• A report moves from a line to its entries, and tests the package
• Where the choice is not clear, choose, and document why

Each requirement’s opening paragraph says why a tool fits where the choice is clear. Part of the task is to explain the choices that are not.

Check your understanding

Which tool fits each step?

1. Three trial balances that differ only in their date
2. Prorating a pay period across a year-end
3. Moving from a statement line to the postings behind it
4. Rebuilding a debt schedule from its documents

Ask students to justify each choice, as the case’s documentation must.

Each step has its tool

1. One SQL query, its date in a Params CTE, rerun three times
2. A workbook formula, which a reviewer can see
3. A Power BI ledger model with drill-through
4. SQL, with the schedule formatted in the workbook

These are the reasons the requirements themselves give. A query repeats exactly, a workbook shows its reasoning, and a report lets a reader explore.

17.4.1 Phase 1: The Ledger as It Stands

Phase 1 at a glance

• Requirement 1: Build the trial balances and the recorded statements (Chapters 6, 10, and 11)
• Requirement 2: Review the recorded statements before adjusting them (Chapters 14 and 15)

Milestone 1: The ledger as it stands (Requirements 1 and 2): the three trial balances, the recorded statements, and the Questions table.

Phase 1 establishes what the ledger says before anything is adjusted, and raises the questions the later phases answer.

One query, three trial balances

Requirement 1 · Build the trial balances and the recorded statements (Chapters 6, 10, and 11)

• Produce: three trial balances, the recorded statements, unused accounts
• Tool: one query with its date in a Params CTE; mapping in the workbook
• Revisit: Chapter 6’s mapping, Chapter 11’s CTEs, Chapter 10’s anti-join
• Check: the latest year ties to Chapter 6’s trial balance and net income

Leave out only the closing entries dated on the as-of date. Map the accounts to statement lines by AccountSubType and account number. With the anti-join, list the accounts never posted, and ask what a company like this one must report that no account could record.

Review the statements before adjusting them

Requirement 2 · Review the recorded statements before adjusting them (Chapters 14 and 15)

• Produce: a Review file of balances and changes, and a Questions table
• Tool: Power BI: a ledger model with drill-through reaches entries fastest
• Revisit: Tutorial 14.3, Chapter 15’s drill-through, Exercise 15.4
• Check: each question names the requirement that will answer it

The Balance measure adds debits less credits up to a date and leaves out only the closing entries dated on it. A what-if parameter sets the threshold for flagging changes at the controller’s materiality. Look for balances that rest on journal entries alone, and for those that have not moved since the opening entry. Keep the questions in an Enter data table, as Chapter 16 kept its dispositions.

Milestone 1: before you hand it in

• One query produces all three trial balances, and each balances
• The recorded statements agree with control totals you already trust
• The accounts never posted are listed, with any the chart lacks
• The Questions table links each question to a later requirement

These are self-checks, not answers. If your trial balance does not agree with Chapter 6’s, look first at which closing entries the query leaves out.

17.4.2 Phase 2: The Adjustments

Phase 2 at a glance

• Requirement 3: Rebuild Accrued Expenses at each year-end (Chapters 3, 10, and 12)
• Requirement 4: Test cutoff at each year-end (Chapters 6 and 12)
• Requirement 5: Classify, measure, and judge the adjustments (Chapters 4, 6, and 8)

Milestone 2: The adjustments (Requirements 3 to 5): the rebuilt accrued expenses, the cutoff measurements, and the schedule of adjustments with its evidence and its materiality judgment.

Phase 2 is the heart of the case: it finds what the ledger left out at each year-end, measures it, and decides what to record. Expect it to take the longest.

Rebuild accrued expenses from their documents

Requirement 3 · Rebuild Accrued Expenses at each year-end (Chapters 3, 10, and 12)

• Produce: the balance split into its parts at three year-ends
• Tool: SQL: four tables joined under conditions on dates
• Revisit: Chapter 3’s trace, Chapter 10’s joins, Chapter 12’s tests
• Check: the parts add up to the ledger’s balance at every year-end

Split the balance into the opening line, the freight accrued and not yet settled, and the service accruals not yet cleared. For each accrual, subtract what had cleared it by each date: the invoice postings that refer to it and the adjustment entries that reverse it. Measure how long invoices took to clear accruals, age the open ones against the longest wait, and decide which you treat as still owed and which you would reverse, and when. Age shows that an accrual has gone unbilled, not that nothing is owed. The longest wait selects the items to investigate, and the period of any reversal depends on what the facts were at each year-end and when they became known. So state the assumption and the evidence that would confirm it, such as the suppliers’ statements.

Five kinds of posting reach accrued expenses

Figure 17.1 · How an accrued expense is recorded and cleared (detail)

Accrual entries credit the account for services received and not yet billed; a supplier invoice debits it up to the amount accrued, and an adjustment entry clears all or part of what remains. Shipments credit it for freight, and a monthly settlement pays the carriers. The opening line, apart from these five, has no document behind it.

Each accrual is cleared through its references

Figure 17.1 · How an accrued expense is recorded and cleared (detail)

An invoice line refers to the accrual it clears through AccrualJournalEntryID, and an adjustment entry refers to the accrual it reverses through ReversesJournalEntryID. An accrual is cleared by at most one invoice line. Every one of these documents posts to the ledger through the source-document trace of Chapter 3.

Test cutoff at every year-end, by one method

Requirement 4 · Test cutoff at each year-end (Chapters 6 and 12)

• Produce: revenue, payroll and interest cutoff entries, each year-end
• Tool: queries find the populations; prorating goes in the workbook
• Revisit: Chapter 12’s cutoff tests in Audit.sql, and Exercise 12.1
• Check: an error at one year-end reverses in the next, and you show both

Measure each year-end the statements present, and the one before, because an error at the earlier year-end reverses in the next year. Recognize revenue in the year of delivery, when the case assumes control passes, and value unbilled shipments at their order price less discount. Use one working-day method for payroll, split manufacturing from the other cost centers, and say where each part ends up. For interest, state your day-count convention.

Classify, measure and judge each adjustment

Requirement 5 · Classify, measure, and judge the adjustments (Chapters 4, 6, and 8)

• Produce: a numbered schedule, adjusted trial balances and decisions
• Tool: the workbook: a working trial balance keeps the evidence in view
• Revisit: Chapter 4’s documentation, Chapter 6, Exercise 8.1’s aging
• Check: every adjusted trial balance balances; no adjustment moves cash

Write each adjustment’s entries for both year-ends, with its accounts and evidence, and keep the entry lines in an Excel Table so the Review file can load them. Classify each, assign it to a period, and decide what to record and what to pass, individually and in aggregate. Consider also an allowance for credit losses, the returns expected after the year-end, and the condition of returned goods put back into stock.

The schedule of adjustments, column by column

Table 17.3 · Layout of the schedule of adjustments

Column	What it holds
No.	A number for each recorded adjustment, reclassification, or passed item
Adjustment	What the entry corrects or estimates, in a few words
Accounts	The accounts debited and credited
Evidence	The query in LenderPackage.sql and the document or entry numbers
Retained earnings, January 1, 2025	The effect on opening equity
Income 2025 and 2026	The effect on each year’s income before income taxes
Balance 2025 and 2026	The effect on the balance sheet at each year-end
Type	Error, change in estimate, or reclassification
Decision	Recorded, passed, or held for evidence, and why

The schedule shows each adjustment’s effect on opening equity, on each year’s income before income taxes, and on each year-end balance sheet, with its type and the decision to record or pass it.

Cutoff items recorded next year reverse in that year

Figure 17.2 · How a year-end cutoff adjustment moves across the periods presented (detail)

A cutoff item missed at the end of one year, and recorded in the next, enters that year’s income and balance sheet and reverses in the next year’s income. A balance that persists, such as one with no document behind it, does not reverse and needs an analysis of its own. An item missed before the comparative year enters opening retained earnings. An error that recurs every year can leave income nearly right while the balance sheet stays wrong.

Error or estimate decides the period

Figure 17.2 · How a year-end cutoff adjustment moves across the periods presented (detail)

A correction of an error goes to the period in which the facts existed and, when the error is material, the prior year is restated. A change in estimate goes to the period in which it becomes known, and nothing is restated. The guidance on accounting changes and error corrections, ASC Topic 250, governs both.

Watch out: a wrong estimate is not an error

• If the facts supported the estimate, it is a change in estimate
• If the facts were there and were missed, it is an error
• Materiality is not only a number: qualitative factors count too
• No adjustment in this case moves cash or the cash flow totals

Acito and colleagues found that companies correcting the same lease error decided how on qualitative grounds and on what other companies had done, as well as on size; what others did describes practice, not authority. Choudhary and colleagues found that errors judged immaterial were followed by more errors and weaker controls. An error that recurs every year deserves attention even when each year’s effect is small.

Check your understanding

Error, change in estimate, or reclassification?

1. An estimate that proved too low, on facts unknown at the year-end
2. Wages earned in December, recorded only when paid in January
3. The part of a note due next year, shown as long-term
4. Revenue recorded in the year after the goods were delivered

Ask students what period each correction belongs to, and whether the prior year would be restated.

Each item has its type

1. A change in estimate: the period in which it becomes known
2. An error: the year in which the work was done
3. A reclassification: no effect on income
4. An error: the year of delivery

The test is what the facts were at the year-end. Classifying each of the case’s own adjustments, with the evidence, is the work of Requirement 5.

Milestone 2: before you hand it in

• The parts of accrued expenses reconcile to the ledger at every year-end
• Each cutoff measure uses one method at every year-end presented
• Every adjustment is numbered, evidenced, classified and dated
• Materiality is judged for each year, alone and in aggregate

These are self-checks, not answers. A reviewer should be able to start from any line of the schedule and reach the query or document behind it.

17.4.3 Phase 3: The Statements and Notes

Phase 3 at a glance

• Requirement 6: Prepare the statements (Chapter 6)
• Requirement 7: Build the note schedules from the records (Chapters 6, 10, 11, and 14)

Milestone 3: The statements and notes (Requirements 6 and 7): the adjusted statements, the required notes, and the tests in the Review file.

Phase 3 turns the adjusted trial balances into the statements and builds the notes that support them, each tested against the ledger.

Prepare the four statements

Requirement 6 · Prepare the statements (Chapter 6)

• Produce: classified balance sheets and the three other statements
• Tool: the workbook builds them; the Review file tests them
• Revisit: Chapter 6’s statements, Tutorial 14.3’s ledger model
• Check: these adjustments change reconciliation lines, not totals

The statements of income go by function, with a line for income before income taxes. The statement of changes in equity starts from the opening of the comparative year and shows the correction of the opening balance, with the earlier columns labeled as restated. The Review file’s Tests tab checks that each entry balances, that no entry touches cash, and that adjusted net income and recorded total assets agree.

Cash flows by the indirect method

• Start from net income, and add back depreciation and disposal losses
• Adjust for the change in each working-capital balance
• Classify the rest as investing or financing
• Disclose entries that moved no cash rather than report them

Equipment financed by a note and a disposal with no proceeds moved no cash, so they are disclosed, not reported as cash flows. Add the supplemental information: interest paid, income taxes paid, and noncash investing and financing activities.

Build each note from the records

Requirement 7 · Build the note schedules from the records (Chapters 6, 10, 11, and 14)

• Produce: notes on assets, debt, revenue, accruals and inventories
• Tool: SQL rebuilds the schedules; the workbook formats them
• Revisit: Chapters 10 and 11’s queries, Chapter 14’s sales model
• Check: each note’s schedule agrees with the statements

Roll property and equipment forward by class and reconcile it to the ledger; give each note payable’s terms, maturities and current portion; disaggregate revenue on the adjusted basis and show the contract balances; and test whether any recorded service work was not billed at a year-end. For the timing, the case assumes that the design work creates no asset with an alternative use to Charles River and that the contracts give an enforceable right to payment for the work completed to date, so the revenue is recognized over time. If you use the sales model for revenue, it must still be reconciled to the ledger and the cutoff adjustment, so choose, and say why. The notes on accounting policies and on the CFO’s matters, such as income taxes and leases, complete the package before it goes to the bank.

Milestone 3: before you hand it in

• The statements agree with one another and with the adjusted balances
• Cash and each activity’s total are unchanged by these adjustments
• Each required note is built from records and tied to the statements
• The Review file’s tests pass

These are self-checks, not answers. A note that cannot be traced to its records, or that does not agree with its statement line, is not finished. An adjustment that moved cash, or moved an amount from one activity to another, would change the activity totals.

17.4.4 Phase 4: What the Data Cannot Settle

Phase 4 at a glance

• Requirement 8: Look past the balance-sheet date and at the year ahead (Chapters 8 and 12)
• Requirement 9: Assemble the package and write the memo to the CFO (Chapter 8)

Milestone 4: What the data cannot settle (Requirements 8 and 9): the review of later events and the memo to the CFO.

Phase 4 separates what the records can settle from what needs evidence from outside the database, and puts the open matters before the CFO.

Look past the year-end, and at the year ahead

Requirement 8 · Look past the balance-sheet date and at the year ahead (Chapters 8 and 12)

• Produce: a profile of later records, and a search for missed liabilities
• Tool: SQL profiles and searches; the evaluations need more than data
• Revisit: Chapter 12’s unrecorded liabilities, and Chapter 8
• Check: you say what the later records contain, and what they cannot

Compare the records after the year-end with the same weeks of the year before. Search the later payments for goods or services received before the year-end and not recorded as payables. List the events the CFO must evaluate up to the date the statements are available to be issued, and measure the going-concern conditions and mitigating factors from the adjusted statements.

Assemble the package, and write the memo

Requirement 9 · Assemble the package and write the memo to the CFO (Chapter 8)

• For each open matter: what the records show, and the evidence needed
• Its possible effect where the ledger measures it, and the treatment
• Cover tax status, leases, sales tax payable and unsupported balances
• End with the passed items, close changes, and a recommendation

The package is a PDF produced from the workbook. The memo is at most two pages, with an appendix of exhibits of at most three. It may raise other matters the records point to, such as whether standard costs unchanged for years still measure the finished goods at cost, and it ends with your recommendation on whether the package should go to the bank as it stands. Until the CFO releases it, the package is a draft.

Check your understanding

Can the records settle it?

1. Whether the company owes income tax
2. Payments after the year-end for goods received before it
3. Whether the company leases the space it occupies
4. The date through which the data run

Ask students what evidence would settle each one the records cannot.

Each matter has its evidence

1. No: its tax status needs evidence outside the database
2. In part: a search of the later payments the extract holds
3. No: the lease terms are not in the records
4. Yes: the last date of each population

The search covers only the supplier payments in the extract, so it can find none there without showing that none exist. For each matter the records cannot settle, the memo states what the records do show, the evidence that would settle it, and its possible effect where the ledger allows a measure.

Milestone 4: before you hand it in

• The later-events review says what the records can and cannot show
• Each open matter has its evidence, possible effect and treatment
• The memo keeps to its page limits and ends with a recommendation
• The passed adjustments are listed for the CFO’s approval

These are self-checks, not answers. The memo describes rather than accuses: it says what the records show, not what anyone did.

17.5 Deliverables and Checklist

Before you submit

• Every query runs top to bottom, under its two comment lines
• The Documentation sheet states the date through which the data run
• Every number in the package traces to a query, document or entry
• Each file opens and refreshes on another computer

Few of the case’s techniques were new. What was new was deciding which tool each step needed and keeping the evidence of every step where the next reader could find it: the trial balance and mapping of Chapter 6, the anti-join of Chapter 10, the Params CTE of Chapter 11, the cutoff tests of Chapter 12, and the ledger model and drill-through of Chapters 14 and 15.

17.7 Looking Ahead

What the case practiced

• Descriptive: the statements and notes describe the company
• Diagnostic: the accruals, cutoff and opening balances show gaps
• Predictive: the estimates of payroll owed, accruals and returns
• Prescriptive: what to record, what to pass, and what to settle

These are the four types of analytics of Chapter 1. The estimates were small predictive models; the recommendations to the CFO are prescriptive.

After the package leaves

• A lender reads the statements and the notes, and asks questions
• It returns as the loan agreement requires, to test its terms
• An outside accountant would start from the same balances and entries
• Your reconciliations and documentation make those conversations short

The matters you raised for the CFO are the ones that will decide whether the package can be relied on.

About these slides

These slides accompany Accounting Analytics: An Integrated Approach, licensed under CC BY-SA 4.0. Every figure and table comes from the chapter:

https://aa.accountinganalyticshub.com/chapters/17-statements-for-a-lender/chapter.html

Students can find the full case, with every requirement and its tasks, in the online chapter.