Deep Dive Cleanup Process
● Follow these steps to get your client to the “starting line”
● Get paid extra for ALL this work!
Assertion Definitions
● Accuracy. All of the information contained within the financial statements has been accurately
recorded.
● Completeness. All of the information that should be disclosed has been included within the financial
statements and accompanying footnotes, so that readers have a complete picture of the results and
financial position of the entity.
● Cut-off. Transactions have been compiled into the correct reporting period.
● Existence. The information recorded in the financial statements actually occurred during the year;
fraudulent transactions are most likely to violate this assertion.
● Rights and obligations. The entity is entitled to the assets it is reporting, and is reporting all of its
obligations as liabilities.
● Presentation and Disclosure. The information contained within the financial statements has been
clearly presented, with no intent to obfuscate the results or financial position of the entity.
● Valuation. The transactions that are summarized in the financial statements were properly valued
Key Account Risks and Assertions
At date of go live, you want very strong support for all balance sheet accounts, and major P&L accounts.
Below list the account, the key assertion (what you want to make sure occurs) and key support
Key Account Risks and Assertions,
Continued
Key Account Risks and Assertions,
Continued
Process Summary
This is how we do cleanup and things to remember at the outset:
● Accounting always follows legal documents (and the substance of the actual transaction or
event) so make sure to get all legal documents in your PBCs before starting such as signed
corporate docs, stock option plans, leases, notes and debts, and other contracts first!
● If Cleanup Starts at Inception of Company (for example Aug 1, 2014), you want all prior years tax
returns and always start off with entry #1 at date of inception which will be the capital
contribution on formation of company (amounts found in legal documents)
● Opening Entry is often something like this: Cash $150, Common Stock ($100), APIC ($50)
● If books are a mess, we often will download transactions into excel and start with our COA (not
clients) at day 1/inception and then journal entry in the income and expenses into our COA, by
year, based on that excel file (and we will make sure to get supporting documents for each
material transaction).
Excel Example of Transaction
Support
Steps
This is a simplified version of how we do cleanup and we know you may have your own methods. If you
are doing this on your own and have not done before, you might want to partner with someome that has
this skill set.
● First get engagement letter signed and retainer collected. Bill at high hour
rate as you don't know how long it will take (I suggest $100 or more)
● Create Action Plan with Client including what Client is expected to deliver
and when, and “penalty” if not met
● Deliver PBC list (“Prepared by Client”) including due dates for each item
● All this is found in our Onboarding Folder
The number 1 issue accountants have in Cleanup is NOT getting
access or delivery of Client supporting documents!
Steps, continued
● Collect PBCs & get access to Accounting file, either cloud based or cloud
hosted. Note: Client owns accounting software. You just access it.
● Also, tie out prior year numbers in the trial balance to Schedule L on the
Prior Year tax return (assuming you are starting in current year)
● Make sure the bank account is reconciled to the prior end of year and
inventory counted at end of prior year if they want to book any ending
inventory
● We also like to make sure any sizable Balance Sheet accounts as of Jan 1
have supporting documents in the files (Fixed Assets, Cash, Liabilities,
Equity)
Steps, continued
● If we’re doing an entire year for cleanup, or multiple years, for example
2017 or 2017 to present, we would use just 1 Month End Close Tie Out File
and export the entire Trial Balance for each year (for example 1/1/17 to
12/31/17).
● This is found in our Month End Folder
● Then we would tie out every single balance sheet account to supporting
tabs and those tabs to support documents, as well as big P&L accounts
(sales, payroll, etc.)
Steps, continued
● One big goal is to have the balance sheet nailed down at the open of the
current year ( for example 1/1/19) AND also whatever your "Cleanup Date"
is going to be (for example September 30, 2019)
● These are the dates you will AJE in the "cleaned" Trial Balance into your
new Chart of Accounts (“COA”). So if you engage the client 7/1/19, the
Cleanup date might be 9/30/19 or later, depending on how ready the client
is at the start
● So basically you have 90 days under this scenario to do cleanup to 9/30
and then you would AJE the 9/30/19 balances into the new COA and start
“live” in new general ledger on 10/1. You would use 1 Month End file for
12/31/18 and 1 File for 9/30/19 for tie out of opening balances
Key Things to Remember
● For liabilities, make sure all notes/liabilities are accounted for and accrued
interest, and any other debts. Have Client Confirm in writing that no other
loans or debts exist at cleanup date. Super Important!
● Make sure AP is accrued as well as other accrued liabilities like accrued
payroll or taxes
● Make sure equity ties out to a rollforward by year and Legal documents
● Once Cleaned Trial Balance is imported: all new accounting transactions
will be entered in that file going forward
