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The AMA Handbook of Due Diligence by Andrew J. Sherman, William M. Crilly

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Financial Budgeting And Planning - Form 16-08 (Continued)
Financial Repor
ting - Form 16-09
The extent of financial reporting varies widely. It can vary from inadequate “back-of-the-envelope” reporting
to “paralysis-by-analysis” at the other extreme. Striking a happy medium is not easy.
Form 16-09 provides for listing the financial reports that are routinely prepared. Form 16-09 provides for list-
ing special, or nonroutine, reports that have been issued in recent years.
Financing
Activities - Form 16-10
Form 16-10 requests summary information on both equity and debt financing activities. Detailed information
on equity issues is requested in Section 5.
Form 16-10 provides space for tabulating the key features of the entity’s recent debt, sale and lease-back and
capital lease transactions.
Total debt-equity ratios and other debt related measures are discussed in Sections 22 and 29.
Debt service payments are called for in Section 28.
WHAT TO LOOK FOR
Does it appear that the financial reporting is adequate considering the size and complexity of
the entity’s business?
If not, what areas are deficient?
Are the internal reports circulated to the appropriate staff personnel?
Is the ongoing usefulness of routine reports subject to periodic review?
Do some of the operating units prepare reports that are frequently at variance with the
corporate reports?
WHAT TO LOOK FOR
Do the entity’s managers take the financial budgeting and planning activities seriously, or do
they consider them a needless exercise?
Are the financial portions of the budgets and longer range plans based on a “bottom-up” or a
“top-down” approach?
Are the managers incentive compensation programs related to the entity’s performance with
respect to the budget and/or financial plan?
How many weeks prior to the new fiscal year is the budget targeted for completion?
How many months are included in the detailed budget?
How many years are included in the financial plan?
DUE DILIGENCE HANDBOOK 16-03
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