In addition to the financial ratios discussed above, the new guidance points out that certain financial statistics of the contractor can provide additional insight into negative financial trends and distress. Common conditions may include recurring operating losses, working capital deficiencies and negative cash flow from operations. To identify indicators of financial problems auditors are told to obtain financial statements for at least five of the preceding years as well as the current and forecasted fiscal years. The financial data from these statements should be analyzed and trend data compiled in the following areas: profit/loss, net income/loss from operations, cash flow from operations, cash flow from investing activities, cash flow from financing activities, sales, working capital (current assets minus current liabilities), noncurrent liabilities and total assets.
The guidance states auditors are to be alert to any lack of operating success evidenced in overall losses or net losses from operations. When these losses exist particular emphasis should be placed on reviewing cash flow in the ordinary course of business. Also, significant deterioration in sales or increases in liabilities should be monitored since these affect the contractor's ability to meet ongoing operations costs. If these statistics demonstrate the contractor is or will be in financial distress, DCAA should consider conducting a financial capability audit.
{TAG_FORM_TITLE}
To discuss your needs, contact Bill Lennett, Principal, at 1-925-362-0712 or email him at
This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
.
