Q: I have come across several CPA-prepared statements where a comment was included that basically said, "we have not included some financial information because it might change your mind about the company." I would take that as a huge red flag. Is that common practice?
A: This is not a common practice but one that is very welcome and reflects highly on the CPA. Such a comment is indeed a red flag and needs to be thoroughly pursued by the lender or potential lender.
On occasion such a comment may be no more serious than a contested issue about classifying accounts that would impact a ratio calculation. But in other instances, such a comment might point to contested issues between the borrower and the accountant that raise questions about the viability of the business itself.
Course overview: Non-Financial Red Flags and Performance Implications