Although footnote disclosures appear at the end of reviewed or audited financial statements, they’re far more than a regulatory formality. They provide critical insight into a company’s accounting policies, unusual transactions, contingent liabilities and post-reporting events. The Financial Accounting Standards Board’s conceptual framework says footnotes “are intended to amplify or explain items presented in the main body of the statements.”

Here are answers to some questions that business owners and managers may have about complying with the disclosure requirements under U.S. Generally Accepted Accounting Principles (GAAP).

What are footnote disclosures?

Footnote disclosures are explanatory notes that accompany financial statements. They offer readers the clarity needed to assess risks and financial viability. The level of disclosure varies depending on the level of assurance provided.

Footnotes aren’t exclusive to audited financial statements. Under the American Institute of Certified Public Accountants’ Statements on Standards for Accounting and Review Services, full footnote disclosures are also required for reviewed financial statements under GAAP.

Footnotes aren’t required for compiled financial statements unless management requests them. If full disclosure is requested, the CPA assists in drafting them based on management’s representations. If footnotes are omitted, compiled financial statements must clearly communicate that management accepts responsibility for the omission.

Who’s responsible for the disclosures?

Management provides the underlying financial information for disclosures and is ultimately responsible for the content of footnotes. However, the CPA who prepares a company’s financial statements plays a critical role in drafting and reviewing them and ensuring they comply with applicable accounting frameworks.

For audited and reviewed statements, the CPA helps translate management’s data into clear, accurate disclosures that comply with GAAP or other applicable standards. When preparing compiled financials, the CPA drafts them only when they’re requested and approved by management.

Why do footnotes matter? 

Footnote disclosures help readers “read between the lines.” They offer crucial information not readily apparent in the core financial statements and can alert users to hidden risks. Consider the following examples:

Going-concern issues. Financial statements are prepared under the general assumption that the business is a viable going-concern entity. Disclosures are required if management or the CPA believes the company may not survive the next 12 months. For example, a footnote might say, “Management has evaluated the company’s ability to continue as a going concern and determined that recurring operating losses and negative cash flows raise substantial doubt about its ability to continue operations beyond December 31, 2025. Management plans to secure additional funding to address this risk.”

Related-party transactions. Companies may give preferential treatment to, or receive it from, individuals or entities with close ties to the company’s management. Footnotes must disclose such related-party transactions to ensure users are aware of any favorable or non-arm’s-length arrangements. If these disclosures are omitted, the financial results may be misleading, especially if such arrangements are temporary or subject to change. For example, if a company rents property from the owner’s relatives at a below-market rate and fails to disclose this, it could appear more profitable than it truly is.

Accounting changes. Any switch in accounting methods must be disclosed, including the rationale and financial impact. While such changes may be required due to regulatory shifts, they can also be used to manipulate results. Transparent footnotes ensure stakeholders can discern whether changes are justified or opportunistic.

Contingent and unreported liabilities. Not all obligations show up on the balance sheet. Footnotes should disclose contingent liabilities, such as pending lawsuits, IRS inquiries and warranty obligations. Auditors often confirm contingent liabilities by reviewing legal correspondence and contracts, and proper disclosure helps prevent surprises that could derail financial performance.

Subsequent events. Significant events occurring after the balance sheet date but before financial statement issuance — such as a major customer loss or regulatory enforcement action — must be disclosed if they could materially affect the business. For instance, a company’s 2024 financial statement footnotes might say, “On February 20, 2025, the company’s largest customer filed for bankruptcy. The outstanding accounts receivable balance of $180,000 has been written off as uncollectible.” Such disclosures help users assess the company’s performance and avoid being blindsided by sudden downturns.

Transparency equals trust

Clear, tailored footnotes — free from boilerplate language — demonstrate that a business isn’t hiding anything. This fosters trust and credibility with external stakeholders, such as investors, lenders, and regulators, while equipping management with vital context to make strategic decisions.

In today’s high-risk marketplace, transparency isn’t just good practice; it can provide a competitive advantage. Contact us to learn more. We can help refine your company’s footnote disclosures and evaluate those of potential partners or competitors.

Turnover in finance and accounting (F&A) leadership is on the rise. In 2024, CFO turnover among Standard & Poor’s 500 companies hit 17.8%, tying a record high in 2021, according to the Russell Reynolds Global CFO Turnover Index. This trend isn’t limited to large corporations. Closely held businesses are also feeling the pinch, as competition for experienced finance professionals intensifies and the accounting profession faces a well-documented talent shortage.

The departure of a CFO, controller or senior accountant can disrupt daily business operations. It often leaves the remaining staff stretched thin, creates gaps in institutional knowledge, and increases the risk of errors or compliance lapses, especially during time-sensitive reporting cycles.

However, if handled wisely, this disruption can also be a turning point. It gives business owners and managers time to re-evaluate the department, modernize processes and make strategic upgrades. Here are four critical steps to consider after a leadership change in your F&A department.

Redefine the F&A team role

Your business has likely evolved since the previous F&A team leader was hired. Perhaps you’ve taken on debt, expanded into new markets, or needed to meet investor or regulatory reporting requirements. Now’s the time to ask: Does our original job description reflect the company’s current financial reporting needs?

You might need to replace a former bookkeeper-turned-controller with a CPA who has experience managing teams, scaling finance systems and working with external stakeholders. A fresh job description that aligns with your current and future goals helps ensure you hire (or outsource to) someone with the appropriate talent level.

Evaluate past performance

Leadership transitions are a natural opportunity to assess whether your accounting reports are timely, accurate and relevant. Your reports should provide insights to help you feel confident during tax season and when speaking with lenders.

If not, now is the time to improve internal processes, provide additional training for your remaining staff, and explore outsourced accounting and CFO services. An external partner can bring consistency, technical expertise and forward-looking insights, often at a lower cost than a full-time hire.

Assess technology

Outdated or underutilized accounting software can leave your business overly dependent on one person to “make it work.” Modern solutions can automate account reconciliations, track real-time performance metrics and reduce manual entry. Cost-effective upgrades can reduce errors, lower fraud risks and free your F&A staff for higher-value work.

Take stock of your systems. Are you using them effectively? Is it time for an upgrade or additional training on your existing software? If you’re unsure, we can assess your tech stack and help you make the most of your current platform or recommend more suitable options.

Look to the future

As your business grows and evolves, your F&A department needs to keep pace. For instance, if you’re planning a merger, seeking capital or expanding geographically, your F&A team must be equipped to support these moves.

In-house teams often lack the time or capacity to prepare for growth — and they might have outdated or biased ways of approaching change that could benefit from fresh insights. Outsourced CFOs can help by providing strategic support and financial clarity without the cost of a full-time executive. Likewise, streamlining the department’s policies and procedures can help improve performance and position it for the future.

For more information

Losing an F&A team leader is never convenient, but it doesn’t have to be chaotic. Contact us today to keep your finances on track — no matter who’s in charge. We can help you find an F&A professional with the right skills to help your business emerge from the leadership transition stronger, more agile and better prepared for what’s next.

Designing Your Life After Business – Free Download

For many entrepreneurs, building a successful business is a lifelong pursuit—one that defines their identity, purpose, and daily rhythm. But what happens when it’s time to step away? The transition out of business ownership can be jarring if not approached with intention. That’s where the concept of life after business becomes essential.

In Designing Your Life After Business, we highlight a key insight: while financial planning is crucial, personal planning is what gives your post-exit life meaning. Research shows that 75% of business owners regret selling their businesses within the first year—not because they lack financial security, but because they haven’t clearly defined what comes next.

To navigate this transition successfully, the guide presents a “Three-Legged Stool” approach:

1. Personal Plan – Clarify passions, purpose, and what your ideal day looks like after exiting.

2. Financial Plan – Align resources to fund your envisioned lifestyle.

3. Business Plan – Maximize your company’s value before the transition.

The guide includes practical worksheets to help business owners explore their passions, social connections, health and wellness, continued learning, and ways to give back. Whether it’s through travel, mentoring, volunteering, or rediscovering hobbies, life after business is an opportunity to intentionally craft a joyful and meaningful future.

Ultimately, your exit isn’t an end—it’s a pivot point. With thoughtful planning, you can shift from making a living to truly making a life.

In today’s volatile economic climate, organizations face mounting pressures that can increase the risk of fraudulent activities. Auditors play a pivotal role in identifying and mitigating these risks through comprehensive fraud risk assessments and tailored audit procedures.

Fraud triangle

Three elements are generally required for fraud to happen. First, perpetrators must experience some type of pressure that motivates fraud. Motives may be personal or come from within the organization. Second, perpetrators must mentally justify (or rationalize) fraudulent conduct. Third, perpetrators must perceive and exploit opportunities that they believe will allow them to go undetected.

The presence of these three elements doesn’t prove that fraud has been committed — or that an individual will commit fraud. Rather, the so-called “fraud triangle” is designed to help organizations identify risks and understand the importance of eliminating the perceived opportunity to commit fraud.

Economic uncertainty can alter workers’ motivations, opportunities and abilities to rationalize fraudulent behavior. For example, an unethical manager might conceal a company’s deteriorating performance with creative journal entries to avoid loan defaults, maximize a year-end bonus or stay employed.

Fraud vs. errors

Auditing standards require auditors to plan and conduct audits that provide reasonable assurance that the financial statements are free from material misstatement. There are two reasons an organization misstates financial results:

1. Fraud, and
2. Error.

The difference between the two is a matter of intent. The Association of Certified Fraud Examiners (ACFE) defines financial statement fraud as “a scheme in which an employee intentionally causes a misstatement or omission of material information in the organization’s financial reports.” By contrast, human errors are unintentional.

External audits: An effective antifraud control

While auditing standards require auditors to provide reasonable assurance against material misstatement, they don’t act as fraud investigators. An audit’s scope is limited due to sampling techniques, reliance on management-provided information and documentation, and concealed frauds, especially those involving collusion. However, auditors are still responsible for responding appropriately to fraud suspicions and designing audit procedures for fraud risks.

Professional skepticism is applied by auditors who serve as independent watchdogs, assessing whether financial reporting is transparent and compliant with accounting standards. Their oversight may deter management from engaging in fraudulent behavior and help promote a culture of accountability and transparency.

Auditors also perform a fraud risk assessment, which includes management interviews, analytical procedures and brainstorming sessions to identify fraud scenarios. Then, they tailor audit procedures to focus on high-risk areas, such as revenue recognition and accounting estimates, to help uncover inconsistencies and anomalies. Fraud risk assessments can affect the nature, timing and scope of audit procedures during fieldwork. Auditors must communicate identified fraud risks and any instances of fraud to those charged with governance, such as management and the audit committee.

Additionally, auditors examine and test internal controls over financial reporting. Weak controls are documented and reported, enabling management to strengthen defenses against fraud.

To catch a thief

External auditors serve as a critical line of defense against corporate fraud. If you suspect employee theft or financial misstatement, contact us to assess your company’s risk profile and determine whether fraud losses have been incurred. We can also help you implement strong controls to prevent fraud from happening in the future and minimize potential fraud losses.

The month-end close is a pain point for many small to midsize businesses. While internal accounting teams often aim to wrap up the close within three days, a recent survey found that half the respondents actually take six days or longer to close the books. What can your organization do to help streamline this process? Leveraging cloud-based technology tools like QuickBooks® can be a game changer.

Why closing the books matters

Closing the books — the process of finalizing all accounting records for a specific period — is more than a compliance chore. It provides insight into a company’s financial health by ensuring assets and liabilities are accurately posted, revenue and expenses are matched in the right periods, and any errors are quickly caught and corrected. A consistent, timely closing process can provide reliable data for:

• Tracking profitability by product or department,
• Maintaining cash flow visibility,
• Budgeting and strategic planning,
• Preparing tax returns and financial statements, and
• Strengthening internal controls and preventing fraud.

Conversely, delays in closing the books can result in operational inefficiencies, misinformed business decisions, and overlooked growth opportunities.

Best practices for QuickBooks users

Using QuickBooks’ features, you can speed up the closing process without compromising financial reporting quality. Establishing a structured, repeatable workflow is key. Rather than improvising each month, create a standardized closing checklist that includes these nine steps:

1. Reconcile bank and credit card accounts. Every reliable close begins with accurate account reconciliations to help prevent duplicate, missing and fraudulent transactions. However, this step can be time consuming and frustrating, especially for businesses with significant transaction volume. QuickBooks can streamline reconciliation by importing and categorizing transactions automatically through its bank feed feature. Configuring bank rules further reduces manual coding and improves consistency.
2. Review open receivables and payables. Unpaid invoices and overdue bills distort cash flows, profitability, and amounts reported on your balance sheet. QuickBooks can generate aging summaries for accounts receivable and accounts payable. Review the receivables summary for overdue invoices, then follow up with customers and determine whether any accounts are uncollectible. Similarly, scrutinize the payables summary to verify all bills have been received and posted, and check for duplicate entries. Understanding what you owe and when helps maintain strong supplier relationships and avoids surprises in future periods.
3. Conduct physical inventory counts. For businesses with inventory, errors in stock levels can lead to misstatements in the cost of goods sold and gross profits. Performing a physical inventory count at month end — and reconciling it to QuickBooks data — is a best practice that ensures inventory valuation remains accurate. QuickBooks’ built-in inventory tools or integrations with third-party platforms can provide real-time visibility into stock levels and streamline this process.
4. Record fixed assets and depreciation. Any major purchases made during the month that qualify as fixed assets — such as equipment, furniture, vehicles, and leasehold improvements — must be capitalized on the balance sheet, not immediately expensed on the income statement. Set up depreciation schedules based on the acquired assets’ useful lives. Also, remove any sold or retired assets from the books. While QuickBooks doesn’t automate depreciation, you can track depreciation schedules in spreadsheets or integrate third-party tools.
5. Post prepaid expenses and accruals. Accrual accounting requires that revenue and expenses be recorded when earned or incurred, not when cash changes hands. This requires journal entries for prepaid assets and accrued expenses. QuickBooks allows you to create custom journal entries and automate recurring items to reduce manual effort. Recording these entries monthly helps produce a more accurate, complete picture of the business’s interim financial performance.
6. Verify payroll and benefits. Even when using a third-party payroll provider, it’s essential to reconcile payroll-related entries each month. This includes verifying gross wages, employer-paid taxes and benefit contributions. QuickBooks Payroll can automate much of this process, but comparing payroll reports to general ledger entries is prudent to confirm accuracy and catch any inconsistencies early.
7. Analyze preliminary financial reports. With QuickBooks, you can quickly run a preliminary profit and loss statement, balance sheet, and statement of cash flows. Compare these reports to prior periods, internal budgets or forecasts, and/or industry benchmarks to identify anomalies. Investigate unusual fluctuations for coding errors, missing transactions, or unexpected balances, then make any necessary corrections. Keeping up with adjusting entries every month facilitates year-end financial reporting and tax preparation.
8. Lock the books. Once you’ve made all necessary adjustments and entries, QuickBooks allows you to “close the books” with a password to prevent changes after the period ends. This functionality, accessed through the settings menu, prevents backdating or editing past transactions, thereby maintaining the integrity of finalized records.
9. Document the closing process. The final element of a well-run close is documentation. Save the month-end checklist, supporting reconciliations, journal entries and exception notes in a shared folder or attach them directly to QuickBooks transactions. This adds transparency and ensures continuity if there’s turnover in your accounting department.

Crossing the finish line with confidence

The month-end close doesn’t have to be a source of stress. By leveraging QuickBooks’ functionality and implementing a structured closing process, your business can significantly reduce the time and effort required to close the books while improving accuracy and insight. Contact us to help set up efficient, reliable closing procedures for your business.