Notice to Reader vs Review Engagement vs Audit

Notice to Reader vs Review Engagement vs Audit

Do you need financial statements prepared to meet certain requirements for external parties such as investors and shareholders? Our experienced staff can help you determine what type of statement best meets your needs. We can then guide you through the process and help provide assurance to the readers of your financial statements.

The financial statement you require depends upon the level of assurance you need. There are three types of financial statements: • • •

Notice to Reader – Compilation Engagement Review Engagement Audit Engagement

Notice to Reader – Compilation Engagement When chartered accountant (CA) firms offer no assurance on financial statements that they prepare or assist in preparing, they issue a Notice to Reader report with the statements. Since the accountant simply compiles financial statements based on the information provided by the client, this service is referred to as a Compilation Engagement. When preparing financial statements, it is the most basic level of service a CA firm can provide. This service usually involves assistance with bookkeeping, posting adjusting entries, and preparing the annual tax return.

When preparing a Compilation Engagement, CA firms must still comply with professional standards and abide by basic accounting principles. Despite providing no level of assurance on financial statements, the accountant must apply professional judgement and consider the reasonability of the information provided by the client. Should an accountant conclude the information is not reasonable, then financial statements cannot be prepared based on the data provided. The accountant’s concerns must be satisfied or new financial information made available.

Review Engagement A Review Engagement Report is issued when needed to meet bank or statutory requirements. Unlike a Compilation Engagement, a low level of assurance is provided. This assurance can be given because the accountant considers the plausibility of the information provided by the client. The accountant determines the plausibility of the financial statements primarily through the use of enquiry, analytical procedures and discussions with the client. Once plausibility is established, the accountant issues a Review Engagement Report with the financial statements.

The low level of assurance provided with a Review Engagement is commonly referred to as Negative Assurance. It means that nothing has come to the attention of the accountant causing them to believe that the financial statements are not, in all material respects, in accordance with Canadian Generally Accepted Accounting Principles (GAAP). It is considered a low level of assurance relative to that provided by an Audit Engagement.

Audit Engagement In addition to the Review Engagement procedures, the accountant also performs substantive procedures and obtains an understanding of the client’s system of internal controls. This is a much more extensive process than a review, which enables the accountant to provide a much higher level of assurance through the issuance of an Auditors’ Report, which states that the company’s financial statements are in accordance with Generally Accepted Accounting Principles (GAAP).

540 Lacolle Way . Ottawa . Ontario . K4A 0N9 613.837.8282 . info@andrews.ca . www.andrews.ca

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Notice to Reader vs Review Engagement vs Audit

When issuing an opinion, the accountant is also required to provide an Audit Findings or Management Letter. This letter summarizes the accountant’s evaluation of the client’s internal controls, significant accounting policies, unusual transactions, disagreements with management, and other pertinent findings. This service is not available for Review Engagements since many of these evaluations are only performed during an Audit Engagement.

Choosing an engagement As mentioned earlier, the choice of engagement type is primarily driven by the users of the financial statements. Those providing capital often require clients to provide financial statements that have some level of assurance. This can include bank loans, government grants, contribution agreements, or even the issuance of public equities or securities. Partnerships and other joint ownership arrangements may also require assurance as a way of making sure that bonuses, salaries, and cash are allocated and spent properly. Parties engaged in revenue and profit sharing agreements may also seek assurance to verify that the financial statements are materially accurate.

Assurance provides a number of benefits, including: • • • •

Management letter advising on various internal operations.

Increased financial statement reliability.

Reduced risk of filing an incorrect or inaccurate corporate tax return.

Enhanced financial statement credibility, which is important if the client plans to: - seek financing from a third party - sell their shares - request some form of government financing - issue public securities.

Those not seeking assurance can choose a Compilation Engagement that allows an accountant to file your corporate tax return and to provide related taxation planning. In addition, the client can consult the accountant for management, bookkeeping, payroll and other business advice.

Please call us if you need assistance in determining the level of assurance you need.

540 Lacolle Way . Ottawa . Ontario . K4A 0N9 613.837.8282 . info@andrews.ca . www.andrews.ca