how to read a financial statement

young black woman with magnifying glassfifty pages of notes? review them all.

by ed mendlowitz

publicly traded companies are required to issue audited financial statements annually. there are seven parts of the statements that are briefly described here in the usual order they are presented:

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1. report of independent registered public accounting firm. this provides their opinion that the financial statements were in conformity with u.s. generally accepted accounting principles (gaap); that the company maintained effective internal controls; that the audits were conducted in accordance with standards of the u.s. public company accounting oversight board (pcaob) and some other things and that their audits provided a reasonable basis for their opinion; and that the internal control may not prevent or detect fraud. this needs careful reading and understanding, as do all seven elements of the statement, but on some level, this type of report is the gold standard for public companies.