Compilation Engagements or Notice to Reader reports are types of financial statements businesses use. Accountants prepare and compile financial statements using the information provided by management.
Compilation Engagements do not guarantee that the financial statements are accurate. A company’s trustworthiness is intended to impress shareholders, investors, directors, and others with a vested interest in it. An audited review or review engagement financial statement will provide an in-depth view of a business’s finances.
A Notice to Reader financial statement report is still likely superior if an uncertified bookkeeper uses in-house accounting software to prepare a business financial statement. Bookkeepers are actually now allowed to issue NTR reports. As part of the Chartered Professional Accountant designation, accountants must adhere to high standards in their Compilation Engagement.
Why Are Compilation Engagements Needed?
There are several situations in which NTR financial statements can lend credibility or meet requirements. The following are some reasons why businesses need compilation engagements;
1. Provide business owners with annual reports
That may be optional, but it is common for a business owner or shareholder to want a formal NTR prepared for use or inclusion in their corporate binder with minutes of board meetings, even though this may not be required.
- Bank loans and creditors
Compilation engagements are a general financial statement requirement by banks and creditors to evaluate the trustworthiness of a business when providing a loan or a credit facility to the company.
- When Selling a business
For large business deals exceeding $5 million, prospective buyers typically require reviewed or audited financial statements from three to five years before completing their due diligence.
- Income tax filing
An accountant can prepare a Notice to Reader financial statement or compilation engagement during year-end income tax filing to ensure you do not overpay your taxes due to overstated income.
Components of a compilation engagement in Canada
CPAs prepare Notice to Reader financial statements differently from other financial reports. A compilation engagement has three main components.
Nature of assignment – As part of the report, the accountant’s responsibilities must be stated explicitly. During preparing the compiled financial statements, the accountant should indicate that the company’s management or owners provided the information and that no audit or review was conducted. It is to distinguish it from other financial statements and warn the user against interpreting it as wholly verified.
Scope limitation – Financial statements do not express any assurance indicated by the scope limitation.
Caution to the reader – A “Notice to Reader” heading should indicate that the compilation may not be appropriate for the reader’s needs. It must be explicitly stated that readers should be cautioned about its level of reliability.
Prepare a Compilation Engagement with the right firm in Canada
Preparing a compilation engagement is not a problem. WTC Chartered Professional Accountant can assist with Compilation Engagement for your small business, SME, or corporation. Their accountant can help you understand your company’s internal controls and determine the type of financial statement most appropriate for your business.
