Audits, reviews and compilations

Businesses and organizations in Canada frequently require the compilation of financial statements. The reasons for this can include bank requirements, lenders and investor requirements, as well as CRA compliance. Financial statements serve as a reliable tool for these stakeholders, as well as management to use to assess the state of the business or organization and aid in decision-making.

There are three levels of Corporate Financial Statements and Reporting Engagements:

Compilations (also known as Notice to Reader)

A Notice to Reader Financial Statement is a financial statement compilation engagement prepared by Chartered Professional Accountants which provides no assurance (and provides no opinion). In this situation, the business financial statement has not been audited nor reviewed, therefore it does not have the level of reliability associated with audits or review engagements.

When providing a notice to reader financial statement, the CPA firm must still comply with professional standards and comply with basic accounting principles. Despite providing no level of assurance on business financial statements, the accountant must apply professional judgement and consider the reasonability of the information provided by the client. In the event that the chartered accountant conclude the information is not reasonable, the business financial statements cannot be prepared based on the data provided.

Notice to reader financial statements are appropriate for most types of small and medium-sized businesses.  The data from the financial statements is then used to complete the corporate tax return.

Review Engagements

A review engagement is typically requested by stakeholders in a company (which may include a bank, shareholders, etc.) to ensure that the figures within the financial statements are plausible. The accountant will perform a number of analytical procedures, as well as engage in discussions with the client, to ensure that the financial statement information is reasonable and plausible. If the CPA finds that the amounts in the financial statements are plausible, a review engagement report is provided.

A review provides negative assurance, which is a basic, low level of assurance, meaning that nothing has come to the attention of the accountant that would lead them to believe that the financial statements are not in accordance with Accounting Standards for Private Enterprises (ASPE).

Some not-for-profit organizations and other businesses are required to have Review Engagement Financial Statements by governing bodies or banks/lenders in order to comply with requirements set out by those particular stakeholders.

Audit Engagements

An audit engagement builds upon the procedures performed in a review engagement. In addition to the analytical and discussion procedures, the CPA will perform what is referred to as substantive procedures. Substantive procedures are a more in depth examination of the materials that back-up the figures that make up the financial statements, These procedures can include physically examining invoices and purchase orders, physically observing that inventory exists, etc.

In addition to the substantive procedures, the accountant must obtain an understanding of the organization's internal controls, and review them for any significant deficiencies.

The CPA, or Auditor, will provide an audit report once the engagement is complete. The level of assurance provided is much higher than a review engagement, and indicates that the company’s financial statements are free of material misstatement.

Cogent CPA LLP has substantial audit experience in many not for profit and for profit organizations including (but not limited to): charitable organizations, rural municipalities, condo corporations, towns, cities, co-operatives, religious institutions, school divisions, First Nations bands, and sports organizations.

Please feel free to contact any of our offices to speak to one of our partners about having financial statements prepared in a timely, professional manner!

 

 

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