Midyear checkups on financial reporting is an essential aspect to maintaining organizational success. When reviewing midyear financial reports, however, you should recognize their limitations. Without CPA preparation or agree-upon procedures on designated accounts, these reports might not be as reliable as year-end financials.

Realize The Diagnostic Benefits of a Midyear Checkup

Monthly, quarterly, and midyear financial reports can provide insight into trends and possible weaknesses. Reviewing interim results is particularly important if your business fell short of its financial objectives in 2023.

For example, you might compare year-to-date revenue for 2024 against 1) the same time period for 2023, or 2) your annual budget for 2024. If your organization isn’t growing or achieving its goals, find out why. Perhaps you need to provide additional sales incentives, implement a new marketing campaign, or adjust your pricing.

You can also review your gross margin [(revenue – cost of goods sold) ÷ revenue]. If your margin is slipping compared to 2023 or industry benchmarks, find out what’s going wrong and take corrective actions.

Don’t forget the balance sheet. Reviewing major categories of assets and liabilities can help detect working capital problems before they spiral out of control. For instance, a buildup of accounts receivable may signal collection problems. Or, if your organization is drawing heavily on its line of credit, operations might not be generating sufficient cash flow.

Proceed With Caution 

If your organization’s interim financials seem out of whack, don’t panic. Some anomalies may not necessarily be related to problems in your daily operations. Instead, they might be caused by informal accounting practices that are common midyear (but are corrected by your CPA at year end). Remember that unlike year-end reports, interim reports for private companies are seldom subject to external audit or rigorous internal accounting scrutiny.

For example, some controllers might loosely interpret period “cutoffs” or use subjective estimates for certain account balances and expenses. In addition, interim financial statements typically exclude major year-end expenses, such as profit sharing and shareholder bonuses. As a result, interim financial statements tend to paint a rosier picture of an organization’s performance than its year-end report may.

Furthermore, many organizations perform time-consuming physical inventory counts exclusively at year end. Therefore, the inventory amount shown on the interim balance sheet might be based solely on computer inventory schedules or, in some instances, the controller’s estimate using historic gross margins. Similarly, accounts receivable may be overstated, because overworked controllers may lack time or personnel to adequately evaluate whether the interim balance contains any bad debts.

Finish The Year Strong

It’s hard to believe that 2024 is almost half over! Once your staff generates your organization’s midyear financial reports, contact us for help interpreting them. We can help you detect and correct potential problems. We also can help remedy any shortcomings by performing additional testing procedures on your interim financials — or preparing audited or reviewed midyear statements that conform to U.S. Generally Accepted Accounting Principles.