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skills/financials-normalizer/references/qa-rules.md
6.42 KB · Oct 5, 2026 · 18:28 UTC
# QA rules Use these checks before any normalized financials are handed to modeling, memo, deck, credit, diligence, FP&A, or earnings skills. ## Required QA outputs Create `QA_Flags` with: `flag_id`, `severity`, `entity`, `period`, `area`, `issue`, `impact`, `recommended_fix`, `source_id`, and `status`. Severity: - `blocker`: cannot use downstream until resolved. - `high`: materially affects valuation, credit, IC memo, earnings interpretation, covenant analysis, or board/CFO reporting. - `medium`: should be reviewed before senior/client/committee use. - `low`: documentation, labeling, or immaterial cleanup. ## Source checks - Every material value has a source ID and source location. - Every source ID exists in `Source_Index`. - Every source has source date, period coverage, and source type. - User, management, provider, calculated, adjusted, estimated, and inferred values are separately labeled. - Conflicting source values are retained in `Conflict_Log`. - Stale or preliminary values are flagged but not automatically discarded. ## Period checks - Fiscal year-end is identified or marked unknown. - Annual, quarter, month, YTD, LTM/TTM, budget, forecast, estimate, and pro forma periods are labeled distinctly. - Period end dates align with fiscal labels. - Stub periods are not mixed with full periods without disclosure. - Restated values supersede prior values when restatement status is clear. ## Scale, unit, and currency checks - Currency and units are identified for every value. - Source units and normalized units are preserved. - Factor-of-1,000 / 1,000,000 differences are flagged. - Per-share, percentage, bps, count, and dollar values are not mixed. - FX conversions include rate, date, and source. ## Income statement checks - Revenue - COGS ties to gross profit when all values are available. - Gross profit - operating expenses ties to operating income when all values are available. - Pretax income - tax expense ties to net income when all values are available. - EPS directionally ties to net income and share counts when available. - Non-GAAP values are not treated as GAAP facts. - Discontinued operations, minority interest, preferred dividends, and non-operating items are isolated when material. ## Balance sheet checks - Total assets tie to total liabilities plus equity when available. - Current assets and current liabilities tie to component sums when available. - Ending cash ties to cash-flow statement ending cash when available. - Debt, leases, preferred stock, and noncontrolling interest are not hidden inside generic liabilities/equity without notes. ## Cash flow checks - CFO + CFI + CFF + FX effect ties to net change in cash when available. - Beginning cash + net change ties to ending cash when available. - Capex sign is explicit. - FCF formula is explicit and not assumed to match company definition. - Working-capital cash-flow signs preserve source convention unless clearly converted and documented. ## KPI and segment checks - KPI definitions are captured or marked missing. - Segment totals tie to consolidated totals when source provides reconciliations. - Company-defined metrics are labeled company-defined. - Sector metrics include units and definition: ARR, NRR, RPO, GMV, AUM, NIM, loss ratio, NOI, production, reserves, bookings, backlog, cohort data, and similar. ## Downstream readiness Mark readiness as `ready`, `partial`, or `not_ready` for relevant downstream skills. - Valuation/DCF: revenue, margins/EBIT/EBITDA, tax, D&A, capex, working capital, cash, debt, shares, and forecast basis. - LBO/sponsor returns: historicals, EBITDA, capex, working capital, cash/debt, tax, and forecast drivers. - QoE: financials, trial balance/detail, management adjustments, add-back support, customer/vendor concentration, and NWC support. - Earnings: reported financials, guidance/KPIs, transcript/source commentary if requested, and consensus if available. - Private credit: historicals, debt schedule, liquidity, collateral, covenants, and downside drivers. - FP&A: actuals, budget/forecast, account/cost center mappings, department owners, and refresh timestamp. ## Financing and Take-Private Treatment Checks When normalized outputs support acquisition financing, leverage, or take-private work: - Separate reported statements, company-disclosed adjustments, management projections, derived screening metrics, and accepted financing metrics. - Require a readable `EBITDA_Treatment_Matrix` or equivalent bridge section that identifies company treatment, preliminary financing treatment, cash/non-cash status, recurrence or run-rate risk, double-count risk, required support, and readiness for each material adjustment. - Do not treat calculated YTD, projected, company-adjusted, or proxy-defined EBITDA as accepted LTM financing EBITDA without lender/QoE support and the applicable definition. - Require a readable `Net_Debt_Treatment_Matrix` or equivalent bridge section that identifies cash-only baseline inclusion, candidate treatment, accepted treatment, required support, and readiness for each material debt-like or cash-like item. - Do not include, exclude, or net leases, legal liabilities, securitization debt, derivatives, restricted cash, investments, pensions, preferred equity, or financing commitments without documenting the applicable treatment and remaining diligence. - Label projected EBITDA prominently as management-projected or forecast and label financing commitments as context only unless opening capitalization or funds-flow support is established. ## Workbook Readability and First-Read QA For substantive workbook outputs: - Require a polished first visible tab following `../../../references/workbook-first-tab-standard.md` with decision question, source/period posture, key normalized outputs, open diligence, and a model-map or next-step view. - For financing-use workbooks, show `Reported statement integrity`, `EBITDA readiness`, `Net debt readiness`, and `Financing model handoff` separately on the first visible tab. - Permit statement tie-outs to pass while EBITDA, net debt, or financing-model readiness remains `partial`, `open`, `blocked`, or `not_ready`. - Render and inspect the first-read tab, material treatment views, reported statement summaries, and checks tab at normal zoom before delivery. - Preserve long-form staging and full audit ledgers, but do not require their full-sheet renders to serve as reader-facing pages; provide compact decision-facing views for material adjustment, debt-perimeter, conflict, and diligence findings.
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