Pub. 6 2017 Issue 4

19 w i n t e r | 2017 B A N K B Y T E S The financial statement notes provide additional information from the vendor to clarify and disclose information regarding company processes, accounting procedures, and potential anomalies in the financial statements. • In Any Audited Statement: The financial statements fairly present the financial position of the company. • Only In Form 10-K: The company maintained effec- tive internal control over financial reporting. The wording in these statements is standardized. If the auditor’s report states the financial statements do NOT fairly present the financial position or they did NOT maintain effec - tive internal controls, consider yourself warned. Review the Financial Statements There are three key financial statements to use when assess - ing a vendor’s stability. A change in numbers from the previ- ously reported year(s) to the current year could be a red flag. Here are the financial statements and numbers to look at in each statement. The story of the vendor’s stability is told when you compare certain numbers, such as looking at total liabili- ties and total equity - or - current assets and current liabilities to know whether a vendor can pay off their debts. The Balance Sheet shows what a vendor owns (assets), what the vendor owes others (liabilities), and investments in the vendor (equity). Important numbers to review include current assets, total assets, current liabilities, total liabilities, and total equity. An Income Statement shows how the vendor makes mon- ey (revenue) and how the vendor spends money (expenses). Important numbers to review include total revenue, interest expense, total expenses, and gross income. The Cash Flows Statement shows the changes in cash throughout the year. Important numbers to review include the balance at the beginning and end of the year. Review the Notes to Financial Statements The financial statement notes provide additional infor - mation from the vendor to clarify and disclose information regarding company processes, accounting procedures, and po- tential anomalies in the financial statements. Items you should look for include, but are not limited to, legal proceedings, new products or services, mergers and acquisitions, and changes in key positions (e.g., CEO, CFO, etc.). Summarize the Results Use the information you have learned from the review to make decisions. You can choose to proceed as normal, review- ing the vendor’s financial statements on an annual basis. How - ever, if the review drew attention to areas of concern, consider reviewing the vendor’s financial statements more frequently or, in extreme cases, consider discontinuing services. When reviewing financial statements, remember your goal is to determine the vendor’s stability. Leave the rest of the number crunching to the auditors. Alyssa Pugh is a Security+ certified tandem Support Specialist for CoNetrix. tandem is a security and compliance software suite designed to help financial institutions manage their vendors and develop their Information Security Programs. To learn about how CoNetrix can help you, visit our website at www.CoNetrix.com or email info@CoNetrix.com .