Every Canadian corporation is required to file an annual tax return to the Canada Revenue Agency (CRA). There are 3 types of Accounting engagements depending what the small business requires; Notice to Reader, Review Engagement, and a Business Audit.
3 Types of Accounting Engagements
Notice to Reader (NTR)/ Compilation
Most commonly used by small businesses to prepare for T2 tax returns and basic financial statements. Since an NTR is not an audit or review, the accountant is not required to give an opinion on the statements prepared from the documents presented by the owner or bookkeeper. The Canadian Income Tax Act requires the inclusion of financial statements on Schedule 100 and 125 when submitting the corporate tax return.
A Review Engagement is normally requested by stakeholders of the business. Stakeholders are banks, shareholders, and not-for-profit organizations ensuring the amounts showing on the financial statements are believable. The two most common requests for this service are when;
- A bank requests a review engagement when a business is interested in borrowing an amount below a minimum threshold
- Multiple owners (stakeholders) are involved and each is requesting assurance that the financial statements have been objectively reviewed
- Not-for-profit government grants are utilized correctly
The purpose of a financial statement audit is to add credibility to the reported financial position and performance of a business. An audit is the most expensive and thorough type of examination of financial statements. Normally a Business Audit is performed for large firms, publicly traded firms, and not-for-profits that have received funds from government programs.
What to expect from a Notice to Reader
A Notice to Reader has the lowest accounting fees in comparison to a review or audit engagement. If you do not require assurance for your business, this is the best choice to have your financial statements prepared by a CPA for your annual corporate tax return.
The financial statement from the NTR report outlines 4 distinct areas;
- Nature of the assignment – compile data received from the owner or bookkeeper to prepare into financial statements
- Scope and limitations – clearly state a review or audit has not been performed and the accuracy of the data has not been verified
- Caution to readers – the statements may not be suitable for their use
- Who prepared the NTR – the reader is aware of the competence/professional status of the person and the firm who performed the report
Why you should hire a Chartered Professional Accountant (CPA)
The most important reason for a business to have their financial statements done is to ensure taxes are not being overpaid due to overstated income. A CPA stays up to date with all the new Canada Revenue Agency (CRA) rules and changes. As well a CPA firm has up to date business accounting software specifically designed to produce corporate financial statements.
A CPA will go over your financial statements with you and explain how to read them properly. CPA’s are trained to spot irregularities in financial statements which help business owners make better decisions. The advantage is assisting the business to stay on track during the year and to highlight areas to improve.
Does your small business need an Accounting Engagement? Contact Banka & Company, CPA to schedule an appointment with one of our Accountants.