Notice to Reader Financial Statements: Everything You Need to Know

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. Notice to Reader financial statements can be great resources for improving investors’ confidence as it would allow them to analyze the company’s current financial position and assess the future growth potential of the business. While no level of assurance is provided, the accounting firm must still comply with professional standards and abide by basic accounting principles. The accountant must apply professional judgment and consider the reasonability of the information provided by the client.

  1. It is still likely to be far superior to a business financial statement produced by an uncertified bookkeeper using accounting software.
  2. We won’t get into the details of what these financial statements, but more so into what are NTR Financial Statements, some of its unique aspects and why they are needed.
  3. The new standard will have a significant impact on all complied financial information and the users of that information.
  4. Maroof HS CPA Professional Corporation is a professional accounting firm registered with CPA Ontario and CPA Alberta in Canada.

This article is a small glimpse into the upcoming changes for compilation engagements. To gain a more comprehensive understanding of CSRS 4200, the Standard is available for review through CPA Canada. On a bigger front there is lack of clarity as to the basis of accounting applied when practitioners prepare Notice to Reader financial statements. This means that the Notice to Reader financial statements are usually prepared with a very specific purpose – for e.g. to obtain bank financing, for a potential buyer in a M&A transaction, for investors, and so on. To ensure that the users of compiled financial statements are aware of the statement’s limitations, there is always a “Notice to Reader” report attached detailing the limited work performed by the CPA.

Selling a business

On the basis of information provided by management, we have compiled the balance sheet of ABC Company as of December 31, 2022 and the statement of income and retained earnings for the year then ended. During this transition to the Engagement Compilation, QuickBooks is providing a letter template for Compilation Engagement Report as well as a template for Notes to the Financial Statements for its professional accountants. You will also outline the level of assurance, like you did in the Notice to Reader, and conclude with the date you completed the engagement, including management’s acknowledgement of its responsibility for the final documentation.

What You Need to Know About the New Standard CSRS 4200 Compilation Engagements

If your business works with external parties, such as banks and potential investors, you may need Notice to Reader financial statements to satisfy their requirements. While licensed accountants are required to maintain their independence from their client, the standards that guide notice to reader financial statements are usually less strict on the expected performance of the practitioner. The purpose of the notice to reader is to compile financial statements based on the raw financial data provided by the management.

What Accounting Standard CSRS 4200 Means for Notice to Reader

Each ratio informs you about factors such as the earning power, solvency, efficiency and debt load of your business. Here at Accountor CPA, we are always happy to provide nice people with a free consultation and our pricing. Readers are cautioned that these statements may not be appropriate for their purposes.

Now that you have a clear grasp of what a Notice-to-Reader or Compilation Report is and its limited assurance, you’re better equipped to interpret financial statements. This report plays a crucial role in providing a summarized financial snapshot for businesses, but remember, it doesn’t offer the same level of assurance as an audit or review. The NTR financial statements are comprised of a balance sheet, an income statement, and may include a cash flow statement.

When the compiled financial information is intended to be used by a third party, such as current or potential lenders for borrowing purposes, a practitioner can accept or continue the engagement only when certain conditions are met. The third party must either be in a position to request and obtain further information from the entity or have agreed with management on the basis of accounting to be applied. If neither of these conditions are met, CSRS 4200 provides further conditions that must be met for the practitioner to accept or continue the engagement.

The accountant does not express an opinion on the financial statements and does not provide assurance about the accuracy or completeness of the information presented. Instead, the report serves as a standardized presentation of financial data for the benefit of financial statement users. Also, you are not required to complete a compilation of engagement report if asked to provide services that are not in the scope of CSRS 4200. For example, if you are performing bookkeeping services and preparing corporate tax returns, you do not have to complete a compilation engagement under CSRS 4200. If, as a practitioner, you haven’t done so already, Berger notes, you should consider how the new standard impacts you.

Investors

Previously, under the Notice to Reader, a note was attached to financial statements stating that you have not conducted an audit on the enclosed information. Now, under the new CSRS 4200 Compilations of Engagement, a letter must be attached outlining which accounting basis you used and descriptions of your responsibilities alongside management’s responsibilities. Your client may also need to have discussions with relevant third parties before they can understand what type of service they require.

Check out Wall Street Oasis for other articles and courses to learn more technical skills and kickstart your career in business. In terms of compilation, the process involves retrieving, cleaning, organizing, and presenting the data in such a way that relevant figures are together. Josh graduated Magna Cum Laude from the University of Maryland, College Park with a Bachelor of Science in Finance and is currently an MBA candidate at Duke University Fuqua School of Business with a concentration in Corporate Strategy.

Since the chartered accountant simply compiles the business financial statements based on the information provided by the client, this service is also referred to as a Compilation https://adprun.net/ Engagement. The New CSRS 4200 clarifies which services are part of compilation engagements. There are new exclusions from the scope and adds clarification about when they apply.

CSRS 4200 requires that the compiled financial information include a note describing the basis of accounting applied in the preparation of the compiled financial information. The purpose of describing the basis notice to reader of accounting is to help users understand how the compiled financial information was prepared. Our aforementioned Practitioner’s Implementation Tool includes examples of different bases of accounting notes.

This is one of the most common scenarios where a Notice to Reader financial statement is required (as opposed to recommended) as it is necessary to prove financial credibility. Providing a Notice to Reader is usually required, and it increases the chance of securing the right loan for your financial needs. When you own a corporation in Canada, you are required to file a T2 income tax return each year…. If your company needs to prepare a Notice to Reader financial statement, we can help.

The cover letter discloses what type of financial statement is being released. Any assumptions made in preparing the statement will be described in the notes to the financial statements. A Notice to Reader financial statement could be useful (or even required) based on your company’s specific needs and circumstances. In addition, the report contains a note which states the basis of accounting for the numbers reported on the financial statement. Effective December 14, 2021, the Auditing and Assurance Standards Board (AASB) released a new Canadian accounting standard, CSRS 4200, which affects the way how Notice to Reader financial statements will be issued and used going forward.

This type of engagement involves the preparation of financial statements by a CPA. The CPA simply compiles the financial statements with information provided by the client, or the client’s bookkeeper. Well the big thing is, for any small business, their financial statements, prepared by a professional accountant, are the “window” through which potential financiers or even clients can look into your business.