Appendix A. Symptoms and Solutions

There are a relatively small number of symptoms that a controller will see in a company’s performance, each of which indicates the presence of a multitude of potential illnesses. In this appendix, we note the most common financial symptoms, and then describe the forms of financial analysis one should undertake in order to precisely determine the nature of the illness, followed by brief descriptions of possible solutions.

The symptoms are ones that a typical controller, armed with an adequate financial reporting system, can spot with a cursory review of the financial statements. However, each level of analysis recommended in this appendix requires much more time to complete, so one should expect the most thorough analysis to require days or weeks of effort. When it looks as though the analysis work will be substantial, a controller should always consider two options. One is to immediately stop further analysis work as soon as preliminary analysis results indicate that the underlying problem has probably been found, so that corrective action can be taken as soon as possible. After all, a highly detailed proof of the problem, accompanied by a tastefully packaged analysis and presentation, does not do much good if a terse e-mail summarizing preliminary results could have warned the management team a week sooner. The second option is to construct new financial reporting systems that quickly and accurately collect and summarize much of the financial analysis ...

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