Financial Statement Reporting Standards Are Changing

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Posted by Sharon Perry on August 10, 2020 in Accounting, Personal Tax, Small Business, Tax Tips

financial-stat-thumb.jpgFor as long as I have been in Public Practice (almost 20 years), I have always prepared Notice To Reader (NTR) financial statements for small business corporate clients. For those who do not know, NTR is the title of the report on page 3 of your financial statements. It is also frequently referred to as a compilation engagement. Other types of financial statement reports are called Review Engagements or Audit (not to be confused with CRA Audits). 

Both Review and Audit engagements have always had clearly documented guidelines and procedures to follow. With NTRs, there was confusion amongst practitioners as to the level of documentation required, the extent of work performed varied, plus a lack of clarity as to the basis of accounting principles being applied. An issue also existed as practitioners prepared the financial statements for management but in reality, the compiled financial information was often being used by third parties (i.e. mortgage brokers, banks, etc) which created a gap in the lenders perception of the amount of work actually done by practitioners and their ability to rely on such information.  

So, this is where we are today. CPA Canada has made significant changes to the NTR reporting standards to clear up any confusion between management of companies, practitioners, and lenders perceptions. The new report, Compilation Engagement Report, is meant to provide clearer communication for the users of the compiled financial information, as to the responsibilities of management and the nature and scope of the compilation engagement as performed by the Accountant. 

As a client of Sharon Perry & Associates, what does this mean for you? Together, we will:

  1. Determine whether you need financial information with a report attached.  
  2. Document the intended use of the compiled information, including any third-party users of such information.
  3. Agree to the basis of accounting expected to be applied in the preparation of the financial information. 

Furthermore, whereby third parties will be using the compiled financial information, you will acknowledge that the third party is in a position to request and obtain further information from us or you, as management, have agreed with the third party on the basis of accounting to be applied. 

The new standards for Compilation Engagement Reports are effective as of February 2020 for all year-ends ending on or after December 14, 2021. We, however, have chosen to adopt the new standards prior to that, allowing for a longer and smoother transition period, also acknowledging the impact which COVID19 has had on all of us.

At Sharon Perry & Associates, Chartered Professional Accountants, we fully acknowledge that this may sound Greek to you. Please know that we will walk you through all decisions needed going forward (just as we always have), whether it be choosing the right accounting policies (i.e. cash basis, accrual basis, selection of accruals or estimates, etc) for your business or assessing with any third party users what is required in your specific situation, on an annual basis. Albeit few like change, we will do our very best to make this seamless and effortless for you. 

Additional information can be found by visiting CPA Canada. Briefings for Management and Third Party users are also available online. 

***This blog is written for the sole purpose of clients only of Sharon Perry Incorporated, operating as Sharon Perry & Associates, Chartered Professional Accountants. Otherwise, this blog is for information only and not to be used as tax advice or planning without first seeking professional advice. Information is subject to change without notice.