A client-prepared financial statements review starts with what the client used to build them: the general ledger, trial balance and support for key balances. Tie every statement line to the ledger, test the balances where errors cluster, look for what is missing, and document what you relied on before using the statements for anything else.
What should come with client-prepared financial statements?
Client-prepared financial statements should arrive with the general ledger and trial balance they were built from, for the same period end, plus support for the balances that matter most: bank statements and reconciliations, a receivables aging, an inventory count, a payables aging, loan statements and a list of owner transactions. Without the ledger, the statements cannot be traced to anything.
Ask for the trial balance as of the statement date, not as of the day it was exported. Many accounting systems let a user run a trial balance for any date. A trial balance printed in March for a December statement may include entries posted after the statements were finalized, so ask for one dated the period end and note when it was run.
Ask for the general ledger detail for the full period. The trial balance shows ending balances. The ledger shows the transactions that produced them, which is where miscategorized payments and duplicate entries turn up. The post on how to read a general ledger covers the columns and what each one tells you.
Ask for prior-year statements too, whether prepared by the client or by another firm. They give opening balances to tie to and a baseline for comparison.
Request the support list in one message, by account. "December bank statement and reconciliation for the operating account ending XXXX-4821" gets a faster answer than "please send support". Schema CPA can take the bank statements, ledgers and trial balances in through one upload link and sort them by type and period, which shows quickly what is still missing; the client tracker demo shows how that list looks.
Tying client-prepared financial statements to the ledger
Tying client-prepared financial statements to the ledger means confirming that every line on the balance sheet and income statement equals the sum of specific trial balance accounts, and that the trial balance agrees with the general ledger. When every line ties, the statements reflect the books. Whether the books are right is the next question.
Build a tie-out sheet with three columns: the statement line, the trial balance accounts that roll into it, and the difference. A line called "Cash" might be the sum of an operating account, a savings account and petty cash. Each difference should be zero. Anything else is either a mapping error or a manual change someone made to the statements after exporting them.
Start with the totals. The balance sheet should balance, and total assets on the statements should equal the sum of asset accounts on the trial balance. Then work down to each line.
Check that net income on the income statement equals the net of revenue and expense accounts on the trial balance. Then check that the change in retained earnings equals net income less distributions, unless the client can explain another entry.
Manual overrides are a common reason a line does not tie. A client who types a figure directly into a statement template, instead of letting it pull from the ledger, breaks the link between books and statements. When statements and trial balance disagree, the post on checking a balance sheet against the trial balance in order walks through finding the difference.
Which balances on client-prepared statements need testing first?
The balances on client-prepared statements that need testing first are cash, receivables, inventory, payables and equity. Cash can be agreed to an outside document. Receivables, inventory and payables depend on period-end cutoff and counts. Equity collects every error that was never found, because unexplained differences often end up there.
Cash comes first because it is the easiest to prove. Agree each bank account's ledger balance to the bank reconciliation, and the reconciliation's bank balance to the bank statement. Reconciling items older than a month or two deserve a question.
Receivables come next. Agree the ledger balance to the aging report's total, then look at old balances. A customer balance that has not moved in a year may no longer be collectible.
Inventory depends on a count. Ask how and when it was counted and agree the ledger to the count summary. A balance that has not changed in several periods may not have been counted at all.
Payables mirror receivables. Agree the ledger to the aging, then look at payments made just after period end. A large payment in early January for December work suggests a liability that should be on the December balance sheet.
Equity is the last check. Agree opening equity to the prior year's closing figure, then explain every movement: net income, distributions, contributions. An unexplained entry to equity often hides a correction someone did not want on the income statement.
Example review checklist
This checklist is for a fictional client, Pinecrest Dental PLLC, with statements as of December 31, 2026. All amounts and findings are examples.
| Area | Check | Supporting document | Found |
|---|---|---|---|
| Whole set | Balance sheet balances | Balance sheet | Total assets 412,000 equals liabilities 236,000 plus equity 176,000 |
| Whole set | Each line ties to trial balance accounts | Trial balance dated 12/31/2026 | All lines tie; no manual overrides |
| Cash | Ledger balance agrees to reconciliation and bank statement | December statement, account XXXX-4821, and reconciliation | 64,250 in all three |
| Receivables | Ledger agrees to aging total; old items reviewed | Patient receivables aging | 38,400 in both; 2,100 older than 180 days |
| Inventory | Ledger agrees to count | Supply count sheet dated 12/31/2026 | 11,600 in both |
| Payables | Ledger agrees to aging; January payments reviewed | Vendor aging; January bank statement | January 9 payment of 4,800 for December lab work not accrued |
| Debt | Ledger agrees to lender statement | Equipment loan statement for December | 142,300 in both |
| Equity | Opening equity agrees to prior year; movements explained | Prior-year balance sheet; distribution records | Opening 158,000 plus net income 84,000 less distributions 66,000 equals 176,000 |
| Income statement | Net income agrees to trial balance | Trial balance | 84,000 in both |
The payables finding is the one that matters here. The 4,800 lab bill belongs in December, so liabilities are understated and net income overstated by that amount, before any other adjustment.
Omissions to look for in client-prepared financial statements
Omissions in client-prepared financial statements are transactions the books never recorded, so tying to the ledger cannot find them. The usual ones are period-end accruals, loans and their interest, owner transactions run through personal or business accounts, and assets bought or sold during the year. Look for them by reading outside documents against the ledger.
Accruals are a frequent gap. Client books often run on a cash basis during the year, with expenses recorded when paid. Payroll earned in the last days of the year, utilities for December billed in January, and interest owed but not yet paid all belong to the period and often are missing. Reading January's bank statement for December-related payments finds most of them.
Loans go missing in two ways. A new loan may be recorded as income because the deposit landed in the operating account. An existing loan may have its payments booked entirely to expense, so the balance never drops. Agree every loan to the lender's statement and split payments into principal and interest.
Owner transactions are the third. Personal expenses paid from the business account, business expenses paid from a personal card, and money moved between the owner and the company all need to be recorded somewhere. Ask the owner directly, because the books will not tell you.
Asset changes are the fourth. A vehicle bought on credit, equipment traded in, or a fixed asset sold for cash may never reach the fixed asset accounts. Compare the depreciation schedule with the ledger and ask about any large purchases.
For a quick scan of what changed between years, the swings that deserve a question are covered in which multi-year swings deserve a question to the client. A line that did not move when the business clearly changed is often an omission.
Compilation engagement documents to keep on file
Compilation engagement documents are the records a firm keeps to show what it was engaged to do, what it received from the client and what it did with it. A typical file includes the engagement letter, the final statements and report, the trial balance and ledger relied on, the support reviewed, and notes on questions asked and answers given.
Compilation engagements fall under the AICPA's standards for accounting and review services. The AICPA's page on SSARS No. 25 lists AR-C section 80 as Compilation Engagements, alongside AR-C section 70 for preparation of financial statements and AR-C section 90 for reviews. What a compilation file must contain is set by AR-C section 80, as amended; read the section itself for the requirements, not a summary. The checks in this post are a working review of the client's statements, not a review engagement under AR-C section 90.
A well-organized file often holds:
- The engagement letter, signed, stating the service and the period.
- The final statements and accountant's report, as issued.
- The trial balance and general ledger the statements were built from, dated.
- The tie-out sheet showing each line traced to accounts.
- Support reviewed, such as bank statements, agings and loan statements, with the checklist above.
- Adjustments proposed and accepted, with the client's approval.
- Questions and answers, recorded with dates and who answered.
Keep the file in the order a reviewer would read it. The same idea applies to tax files; the post on a tax return review checklist covers how a reviewer works through a return file.
When client-prepared financial statements cannot be relied on
Client-prepared financial statements cannot be relied on when they do not tie to the ledger and the client cannot explain why, when key balances fail outside evidence by material amounts, or when the ledger itself is incomplete. At that point, correcting the statements line by line takes longer than rebuilding them from the books.
Some findings point to a fix. A single missing accrual, like the 4,800 lab bill in the example, is an adjustment. The statements need one entry, and the review continues.
Other findings point to a restart. Bank accounts that have not been reconciled for months, a ledger missing whole months of transactions, or an equity balance that cannot be rolled forward from the prior year all mean the books underneath are unreliable. Statements built on unreliable books inherit every problem.
Patterns matter more than any single item. Three unrelated errors in the first five checks suggest more errors in the checks not yet run. When that happens, stop testing and talk to the client about rebuilding from source documents.
A rebuild starts with the source records, not the statements: bank statements, card statements and the general ledger export. The post on getting a general ledger into Excel covers the first step. Collecting those records is where Schema CPA fits, since it reads bank statements, general ledgers and trial balances and exports them to Excel or CSV; to try it on one client, get started.