During the verification the Commerce Department uses two basic methodologies known as 'up' and 'down'. First, beginning with the information in the response, the Commerce Department traces various items 'up' to the company's financial statement. If the aggregate information is consistent with an audited financial statement, the Commerce Department believes it can more reasonably rely on the accuracy and reliability of the information.

A company will not have a specific line item on its financial statement for all categories of information submitted to the Commerce Department. The verifier usually understands that companies do not design their financial statements to simplify the process of verification. A company must, however, reconcile the information submitted in the response to the audited financial statement.

For example, a first worksheet might show how the individual inland freight reported in the response can be reconciled to the amount of total inland freight for that particular product reported in the general ledger. Then, reconciling the information in the response 'up' to the financials is an exercise in showing that the particular figure in question is included in successively more aggregated accounting entries. The company must have these reconciliations prepared beforehand in the form of worksheets. If the financial statement has a line item for total inland freight for all products, a worksheet might show the breakdown of inland freight by product line (supported by entries from the general ledger).

The second methodology is to trace various items 'down' to the basic supporting documents and accounting records. Again, the starting point is the information in the response. Using inland freight as an example again, the verifiers might trace inland freight charges to individual invoices from the companies supplying the services, to payment records showing that the invoices were actually paid, and to the accounting records showing both the receipt of the invoice and the payment of the invoice. The verifier sometimes even insists on seeing external proof of payment (for example, a cancelled cheque or a debit on a bank account statement) to establish the reliability of the payment records in the company's accounting system. The verifier may also want to check the allocation of the individual charges to particular models using worksheets, evidence of the validity of the allocation factors, and model-by-model records of shipments included in the allocation.

This process of verifying 'up' to the financial statement, and 'down' to the source accounting records is a standard part of every verification. Different Commerce Department staff members, however, apply these two methodologies with different degrees of rigour. Some insist on using both methodologies for every single item in the response, even though it may seem redundant to trace those items specifically linked to the financial statement to source accounting documents as well. Others accept short cuts as long as they are satisfied that the information is correct and there are no serious distortions or errors. The most common short cut is to trace up only to the general ledger once the company has established that this record traces reliably to the financials.

Source: Business Guide to Trade Remedies in the United States: Anti-dumping, countervailing and safeguards legislation practices and procedures