CPA-Prepared Financial Statements in Commercial Lending

01

Read the lender requirement before engaging the CPA

Locate every financial-reporting condition in the application, proposal, commitment, loan agreement, guaranty, government-program checklist, covenant schedule, and closing checklist. Record the required entity or consolidated group, reporting period, accounting basis, comparative periods, service level, notes, schedules, delivery deadline, acceptable CPA qualifications, and whether interim statements are also required. Terms such as audited, reviewed, compiled, CPA-prepared, accountant-issued, and borrower-prepared should not be treated as interchangeable. Ask the lender to clarify ambiguous wording in writing, then give the CPA the current requirement and transaction timeline.

02

Distinguish an audit, review, compilation, and preparation engagement

An audit is designed to obtain reasonable assurance and support an opinion on whether financial statements are presented in accordance with the identified reporting framework. A review generally provides limited assurance through inquiries and analytical procedures. A compilation assists management in presenting financial information without providing assurance, and a preparation engagement can help prepare statements without issuing a report. These descriptions are simplified; the applicable standards, engagement letter, reporting framework, independence, and facts control. A higher service level can require more evidence, time, cost, and management participation, and it does not guarantee credit approval.

• Requested amount and use of proceeds
• Historical and current financial statements
• Complete debt and ownership schedules
• Collateral and transaction documentation

03

Confirm the accounting basis and presentation

Identify whether the statements use U.S. GAAP, tax basis, cash basis, modified cash basis, or another special-purpose framework. Note how revenue, receivables, inventory, depreciation, leases, owner distributions, related-party transactions, contingent obligations, and one-time items are recognized. A lender may adjust reported results to its own underwriting definitions even when the statements comply with the selected basis. Explain any transition between bases or change in accounting policy, and preserve a bridge showing how management reports, tax returns, and lender calculations relate.

04

Define the entities and consolidation perimeter

List the borrower, operating companies, property-owning entities, holding companies, subsidiaries, affiliates, joint ventures, guarantors, and related parties. Confirm which entities are consolidated, combined, separately presented, or excluded, and how intercompany revenue, expenses, receivables, payables, loans, guarantees, and distributions are treated. Reconcile the reporting perimeter to the organizational chart, ownership records, tax returns, debt schedule, bank accounts, and proposed loan parties. An omitted affiliate or double-counted intercompany amount can distort cash flow, leverage, and global repayment analysis.

05

Prepare complete notes and supporting schedules

The face statements rarely answer every underwriting question. Maintain receivables and payables aging, inventory detail, fixed-asset and depreciation schedules, debt and lease schedules, related-party balances, customer and supplier concentration, commitments and contingencies, owner compensation and distributions, backlog or contract support, and explanations of unusual events. Notes and schedules should use the same date, entity scope, units, and definitions as the financial statements. Mark estimates clearly and identify who prepared and approved each schedule.

06

Reconcile financial statements to source records

Tie beginning equity to the prior year, current activity to the general ledger, cash to bank reconciliations, debt to lender statements, revenue to billing and deposits, payroll to reports, and tax balances to filed returns or tax records. Explain differences between book income, taxable income, and cash flow rather than forcing the numbers to match. Document late entries, owner transactions, noncash items, discontinued operations, acquisitions, asset sales, disaster effects, litigation, and other material changes. A concise reconciliation package can reduce repeated questions while allowing the lender and CPA to perform their own work.

07

Plan around year-end, interim, and stale-date requirements

A year-end engagement can take longer when records are incomplete, counts or confirmations were not planned, ownership changed, or an acquisition occurred. Build a calendar backward from the financing decision or closing date and reserve time for requested records, fieldwork or procedures, management questions, proposed adjustments, draft review, final issuance, lender review, and corrections. Confirm how recently issued statements must be dated and what interim period will bridge the gap. Do not assume that a draft, prior-year report, or internally prepared quarter satisfies the lender's current requirement.

08

Understand independence, scope limitations, and report language

Certain services and relationships can affect whether an accountant is independent for a particular engagement. Management remains responsible for the financial statements, records, controls, estimates, representations, and approval even when a CPA assists. Missing evidence, restricted access, unresolved departures, going-concern matters, subsequent events, or other conditions can affect the work or report. Borrowers should discuss these matters promptly and factually with qualified accounting and legal professionals; they should never ask an accountant to omit, backdate, or soften required disclosure for financing purposes.

09

Coordinate secure delivery and lender follow-up

Agree on who may release drafts and final reports, how electronic signatures and portals will be handled, and whether the lender may contact the CPA. Send only the approved final package through a verified channel and label drafts, management-only schedules, and projections accurately. Maintain a response log for lender questions, identify which answers come from management versus the CPA, and route accounting conclusions to the appropriate professional. If a number changes, replace the affected schedule consistently rather than sending an isolated correction that leaves conflicting versions in circulation.

010

Build the reporting requirement into ongoing loan administration

After closing, translate annual and interim financial-reporting covenants into a calendar with responsible owners, CPA engagement dates, internal close deadlines, covenant calculations, certification requirements, and lender delivery dates. Monitor acquisitions, entity changes, accounting-policy changes, and covenant definitions that may affect future reporting. Budget the recurring cost and preserve source records throughout the year. PFCS can help organize the financing package and coordinate information with prospective capital sources, while lenders and qualified CPAs, legal, tax, audit, attestation, regulatory, and other professionals determine reporting scope, assurance, compliance, approval, and final terms.