The Value of Explaining Financial Statements

CPAs who are fluent in the language of financial statements have an edge in client loyalty and career advancement.

True fluency is more than a number-crunching ability. It is the ability to translate financial statements on the fly, explain in simple terms what the numbers mean for the client’s business, and make recommendations.

Financial-statement fluency is a continuum, says Linda Keith, CPA, CSP, independent consultant and a new instructor for CPE Link.

“There are clients who don’t know the language at all. For them, a financial statement is like a foreign newspaper; they recognize it as a newspaper, but they can’t get anything out of it. There are CPAs who can study the statements and get some useful information for decision-making, but it takes time and focus. There are other CPAs who can look at a set of financials and draw conclusions almost instantly. And finally, there are some who can translate what they see so obviously in the financial statements into language that the client understands.”

These adept CPAs are a select few, says Keith. “Any assumption that, because we have an accounting degree or have attained a CPA license, we are as far along that continuum as our clients or our employers would like us to be is not accurate.” says Keith.

As a public accountant, Keith’s favorite part of the job wasn’t creating the financial statements; it was explaining them. So she began training bankers how to analyze tax returns to determine cash flow available to pay debt. “Lenders don’t need to know everything the CPA knows about tax returns, but the part they do need to know, they really need to understand well,” says Keith.

Since 1979, Keith has been a trainer on a mission to improve the ability of CPAs and others to translate financial statements. “In many cases CPAs in public practice are providing financial statements but not adding the extra explanation that will lead to actionable insights by clients. And clients often don’t realize they could get more benefit from what the CPA is doing. Let’s move from numbers to insights that allow us to make or recommend decisions,” she urges.

Why go to the trouble? The answer is simple: client loyalty, says Keith. Clients’ loyalty to an accounting firm depends on the value they get from the relationship. If they can get the same thing from every other CPA in town, they have no reason to be loyal. “No one recommends with much gusto a CPA who just spits out the numbers,” says Keith. “But give them insights about what’s going on in their business and they’ll keeping coming to you as a trusted advisor,” says Keith.

How fluent are you with financial statements? View Keith’s free webinar on Financial Statement Basics: Balance Sheets, Income Statements and Cash Flow.

Learn to explain financial statements to your clients

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by Sue Anderson - Based on 30 years of experience in continuing education for accountants. Currently program director for online CPE provider, CPE Link. Formerly with the California CPA Education Foundation managing key operational areas including marketing, program development, and distance learning.

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