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Business Year-end
Every business, especially those operating as a corporation, must prepare formal financial statements annually. Such statements should include a balance sheet, income statement, cash flow statement, and notes to disclose related information, and be prepared in accordance with generally accepted accounting principals (GAAP).
In addition, corporations must file separate annual tax returns, both federal and provincial; non-profit organizations must file charitable information returns. We identify the necessary statements and returns, and prepare each from original bookkeeping records. This process includes the planning required to minimize income tax and optimize cash flow between the business and its owners.
Levels of Assurance
A public accountant can provide one of three distinct reports to attest to their involvement with the preparation of the financial statements. None of these reports make any assertion about the internal controls that prevent fraud; the prevention and detection of illegal acts remains the responsibility of management.
Compilation Engagement
The lowest level of involvement is a simple compilation, with no assurance provided with respect to the accuracy or completeness of the statements. We compile the business’ financial records into a standard format without making any effort to ensure the assertions or disclosures are complete, accurate, or evidenced by supporting documents. Furthermore, the financial statements may lack disclosures specifically required by GAAP. The report takes the form of a Notice to Reader which cautions individuals reading the statements about their limited nature, and specifically warning that it may be inappropriate to rely on the statements for their individual purposes.
Financial statements with Notice to Reader (compilation) reports are appropriate for businesses whose owners are involved in the day to day management of the business. The statements are used primarily for government reporting and banking purposes. These third party users have legislative or contractual authority to gain assurance over specific financial information, so the general assurance provided by Review or Audit engagements does not add value to the business’ financial statements.
Review Engagement
The next level of involvement results in a Review Engagement report attached to the financial statements, which provides ‘negative assurance’ with respect to their accuracy and completeness. After examining detailed records that support the assertions and disclosures embodied in the financial statements, we state that "nothing has come to our attention that leads us to believe the statements are not correct in all material respects". If something does come to our attention during the examination, we can withold the report and/or disclose the error in the report.
A Review Engagement report is useful where some or all of the owners are not active in the daily management of the business, or to satisfy contractual covenants imposed by lenders or other investors. It provides limited assurance about the overall financial statements, and ensures presentation and disclosure of financial information in accordance with GAAP.
Audit Engagement
The highest level of involvement results in an Audit Opinion attached to the financial statements, which provides ‘positive assurance’ with respect to their accuracy and completeness. An audit consists of a statistically valid examination of detailed records, including independent confirmation of critical items directly with third parties, to support the detailed assertions and disclosures in the financial statements. The audit report states that "in our opinion, these financial statements present fairly, in all material respects, the financial position of the organization"; if the scope of the examination is limited, or if the results prove material misstatement, the audit report is restated accordingly.
Audit Opinions are required by law for publically traded corporations, and all registered charities and amateur athletic associations. Non-statutory audits are common when minority or absentee owners, or major creditors or funders, demand the highest assurance with respect to the facts asserted and disclosed in the financial statements.
Last Modified: Sunday, September 28, 2003
Design and maintenance by NPC
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