In certain situations, you may be asked to provide additional documents relating to the raw financial data you initially provided. If you plan on selling your business, you can expect prospective buyers to review, at minimum, the Notice to Reader financial statements going back 2 to 3 years as part of their due diligence process. You may need reviewed or audited financial statements, especially if you intend on selling a larger business. While this might not be a specific requirement, owners or shareholders often use Notice to Reader financial statements for insight into the business operations.
Role of the accountant the accountant compiles the information provided by the client without performing any verification or analysis. Their responsibility is limited to ensuring that the financial statements are in proper form and comply with applicable reporting standards. No assurance provided a compilation engagement does not include an assessment of whether the financial statements are free from material misstatement. Basis of information the financial statements are prepared solely using information provided by management. Report issued the accountant provides a “Notice to Reader” report with the compiled financial statements. This notice clarifies that the accountant has not audited, reviewed, or verified the information and, therefore, offers no assurance.
Should the certified general accountant conclude the information is not reasonable, then the business financial statements cannot be prepared based on the data provided. Compilation Engagement Financial Statements are financial statements prepared by an accountant based solely on information provided by the company’s management. The accountant organizes and presents the financial data in accordance with relevant accounting principles, but does not perform any verification, audit, or review of the information. Therefore, no assurance is provided regarding the accuracy or completeness of the financial statements. These types of statements are typically used for internal purposes, basic reporting, or to meet minimal external requirements. Purpose to organize financial data into a standard financial statement format that is understandable and suitable for stakeholders, such as creditors or management.
This is crucial information for not only banks, who may be evaluating your credit worthiness as part of the decision to lend you money, but for any potential purchasers of your business. A Notice to Reader is a disclaimer attached to financial statements in a Compilation Engagement, stating that the accountant has not audited, reviewed, or verified the information and provides no assurance on its accuracy or completeness. The CRA requires the inclusion of the General Index of Financial Information which is based on the preparation of a company’s financial statements. Compilation Engagement financial statements are used to create financial statements to facilitate this reporting.
The work carried out is not intended to offer any assurance on the trust worthiness of the information which has been compiled. To warn the reader of this absence of assurances, each page of the financial statements must bear a warning entitled “Notice to reader”. This notice, attached to the financial statements, specifies that the information has not been the object of an audit and that the information may not be suitable for the use of the reader. In this series we examine how to put together financial statements and prepare corporate tax returns for small business clients.
Generally, we found that firms’ interpretations of how much work is enough has always varied widely, which is why working with different accounting firms would often yield a different set of experiences. The cost of Notice to Reader financial statements can vary based on the extent of the business, its industry, the complexity of the transactions, and whether the end-user has specific requirements on the presentation of the financial statements. The turnaround time for financial statement report may take a few weeks to even a few months, depending on the size of the business, the nature of the business, the complexity of the transactions, and the total volume of transactions for the fiscal year. To avoid delays, work with a reliable bookkeeper to ensure the financial and tax records are in good order and be sure to collect the above documents before you meet with your CPA. After your CPA conducts a preliminary review of the required documents, you may be asked to clarify certain transactions or a specific account.
Compilations assist owner managers to assess their businesses’ financial position and the statements are used to report the company’s earnings for tax purposes. The compiled information provided no information as the basis of accounting applied in its preparation. A compilation engagement involves preparing financial statements based on information provided by management without verifying it or providing any assurance. A review engagement includes limited procedures to provide moderate assurance that the financial statements are free from material misstatement, but it is less extensive than an audit. That is, the external accountant is required to “compile” the financial statements based on the raw information that is provided by the client. Better accountants will ask for the bank to be reconciled and perform a high-level reasonability of the trial balance, especially on any new material transactions during the year, but the standards do not require them to.
If new information is provided, the CPA’s concerns must be satisfied before preparing the new NTR financial statement or report. A Notice to Reader, or Compilation engagement, is the base level engagement provided by an accountant, unlike a Review or Audit, no assurance nor opinion is provided on the presentation of the financial statements. Only when these two issues have been addressed can an accountant accept the Compilation Engagement.
If you or your financial statement users do not require any level of assurance, this would be the most inexpensive way to have your financial statements prepared. Generally, these are sufficient if your financial statements are only used to prepare your corporate (T2) tax return. Compilation or Notice-to-Reader (NTR) Financial Statements are the lowest level of assurance provided by a CPA on a set of financial statements.
A review engagement is often required instead of an Notice to Reader when the business applies for a larger bank loan. The lender would need a greater level of assurance on the financial statement to approve the loan, given the additional risks involved in the event of a default. Having said that, most businesses would prefer having a CPA issue the Notice to Reader financial statements to provide higher reliability on the financial information. This is a way to ensure that the company is optimizing its taxes since most tax planning strategies require using the company’s financial information.
Compilations can provide users of the financial statements with many notice to reader ntr compilation engagements different types of information, but it has not been audited and therefore cannot provide the adequate assurance. These compiled statements can be released quickly to third parties since there is no auditing of the financial information, which some companies might see as an advantage. Should the CPA conclude that the data provided is not reasonable, then the compiled financial statements cannot be prepared based on that data and the accountant has the right to make this judgment call.
He is the creator of a number of courses dealing with business, tax and investment matters that are designed to make difficult topics easy to understand for everyone. If you want based on ASPEs, please do not purchase this gig, instead contact me first, as the work involved and pricing is much more for those. When the language of the new standards was released, we felt that it now more closely reflected what we have been doing for years. That being said, there are a number of considerations (some of which are new), which now require documentation in our files.
Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above. For more information about our services or to discuss how Farnham can provide insightful financial support to your business, please contact us today. After much anticipation, the new standards governing Notice to Reader engagements are coming into effect for fiscal years ending on or after December 14, 2021, with early adoption permitted. To simplify the transition process, we will be adopting these new standards for all year ends that we begin working on from January 1, 2022 onward. 01 This section provides general principles for engagements performed in accordance with Statements on Standards for Accounting and Review Services (SSARSs) issued by the Accounting and Review Services Committee (ARSC) and codified into AR-C sections.
Businesses and lenders accustomed to requesting or reviewing Notice to Reader financial statements will want to take note of an important change coming into effect later this year. Starting for periods ending on or after December 14, 2021, Notice to Reader engagements will now be known as Compilation Engagements. The new Compilation Engagements will include a more thorough discussion with management at the outset, require a more detailed review of the financials, and include more informative documentation for the reader on the specifics of the engagement. When financial statements are audited or reviewed, the report we issue is in reference to a set of generally accepted accounting principals (known as “GAAP”). In Canada, two sets of standards are widely used – ASPE (Accounting Standards for Private Enterprises), which is used for private companies, and IFRS (International Financial Reporting Standards), used by publicly-listed entities. A review engagement must be conducted by licensed Chartered Professional Accountants (CPA), which primarily consists of inquiries with the company’s management and evaluates the financial information based on analytical procedures performed.
