financial-reporting

Files (4)

• README.md
• SKILL.md
• evals.json
• board-deck-template.md · references/

SKILL.md (first lines)

## Key principles

1. **Accuracy over aesthetics** - A beautiful deck with wrong numbers destroys
   credibility. Reconcile every figure back to source data before formatting.
   Numbers must tie across all reports in the same package.

2. **Audience-first framing** - A board wants strategic signals and exception
   reporting. Operators want line-level variance details. Investors want growth
   and unit economics. Shape the same underlying data to the reader's decisions.

3. **Variance always needs context** - Never present a number without comparing
   it to budget, prior period, or forecast. The delta tells the story; the
   explanation of the delta tells the business story.

4. **Materiality discipline** - Not every line item deserves equal attention.
   Apply materiality thresholds (typically 5% of revenue or net income) to focus
   commentary on what actually matters to the decision being made.

5. **Consistency enables trust** - Use the same definitions, the same
   calculation methodology, and the same chart formats every period. Changing
   how you define gross margin mid-year, without explicit disclosure, signals
   something is being hidden.

---

## Core concepts

### The three financial statements and how they connect

**Income Statement (P&L)** - Measures performance over a period. Shows revenue,
cost of goods sold, gross profit, operating expenses, EBITDA, and net income.
The bottom line (net income) flows into retained earnings on the balance sheet.

**Balance Sheet** - A snapshot of what the company owns (assets), owes
(liabilities), and what's left for owners (equity) at a single point in time.
The fundamental equation: `Assets = Liabilities + Equity`. Retained earnings
accumulates all past net income minus dividends.

**Cash Flow Statement** - Explains the change in the cash balance between two
balance sheet dates. Divided into three sections: operating (cash from running
the business), investing (capex, acquisitions), and financing (debt, equity).
Net income is not cash flow - the bridge between them is the operating section.

**How they connect:**
- Net income (P&L) -> increases retained earnings (balance sheet equity)
- Changes in working capital (balance sheet) -> appear in operating cash flow
- Depreciation (P&L non-cash expense) -> added back in operating cash flow
- Cash on the cash flow statement must equal cash on the balance sheet

### GAAP vs IFRS basics

| Dimension | US GAAP | IFRS |
|---|---|---|
| Authority | FASB (Financial Accounting Standards Board) | IASB (International Accounting Standards Board) |
| Used in | United States | 140+ countries including EU, UK, Australia |
| Revenue recognition | ASC 606 (5-step model) | IFRS 15 (similar, some differences in licenses) |
| Inventory | LIFO permitted | LIFO prohibited |
| Development costs | Expensed as incurred | Capitalized when technically feasible |
| Presentation | More prescriptive | More principles-based |

For most startup and growth-stage reporting, the practical differences are minor.
Flag the accounting standard being used on every financial package.

### Reporting cadence

| Audience | Cadence | Depth |
|---|---|---|
| Board of directors | Monthly or quarterly | High-level KPIs + exceptions + forward-looking |
| Investors (VC/PE) | Monthly (early stage), quarterly (growth) | MRR/ARR, burn, runway, key metrics |
| Management team | Weekly or monthly | Full P&L + operational KPIs |
| External (public company) | Quarterly + annual (10-Q, 10-K) | Full audited statements + MD&A |

### Materiality

A misstatement or omission is material if it would reasonably influence the
decisions of a user of the financial statements. Practical thresholds:
- **5% of revenue** - common threshold for P&L line items
- **0.5% of total assets** - common for balance sheet items
- **Qualitative materiality** - even a small dollar amount is material if it
  involves fraud, regulatory breach, or related-party transactions

---

## Common tasks

### 1. Prepare a P&L statement

**Structure (top-down):**

```
Revenue
  - Product revenue
  - Services revenue
  = Total revenue

Cost of Revenue (COGS)
  - Direct materials / hosting / fulfillment
  = Gross Profit
  Gross Margin % = Gross Profit / Revenue

Operating Expenses
  - Sales & Marketing
  - Research & Development
  - General & Administrative
  = Total OpEx

  = EBITDA  (Earnings Before Interest, Tax, Depreciation, Amortization)
  - Depreciation & Amortization
  = EBIT (Operating Income)
  - Interest expense / income
  - Tax provision
  = Net Income
```

**Process:**
1. Pull actuals from the GL (general ledger) for the period
2. Map GL accounts to report line items using a chart of accounts mapping
3. Populate budget and prior period columns for comparison
4. Calculate variances ($ and %) for every line

From mkurman/zorai, MIT.

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