Keeping your company financially sound and healthy is one of your most important responsibilities. No matter the products or services sold by your business, it cannot grow or survive without proper financial management. Good financial and accounting practices are also necessary to remain within the law.
After our interaction with business owners and entrepreneurs for some time, we have noticed a misunderstanding in their knowledge of what types of year-end financial engagements are there and their purpose. There are three types of engagements and here is a short discussion on what is achieved by each engagement to the users of the financial statements. Usually a third party user of these financial statements will choose for you the type of engagement, especially when borrowing is involved.
At M W Mirza, Chartered Professional Accountant, we offer practical strategies and assurance services to small business owners. Contact us today for a free consultation.
Here are the three types of engagements:
- Compilation Engagements (commonly referred to as a Notice to Reader)
- Review Engagements
- Audit Engagements
Review and audit engagements are also known to as “assurance engagements” and, as such, are subject to a formally developed set of accounting principles known as Accounting standards for private enterprises (ASPE) that require specific disclosures and presentation.
Compilation engagements are not subject to any presentation or disclosure requirements and are typically used when the readers of the financial statements are restricted to the owner/entrepreneur and the taxing authority (Canada Revenue Agency).
Statements prepared under a compilation engagement offer no assurance. These statements are usually prepared when there are third party requirements and are typically used by small businesses for tax compliance purposes. Some banks also require them as a condition for a small loan to small businesses.
Our team is ready and willing to work with you throughout the financial statement process. Our aim is to be as efficient as possible, minimize the interruption to the important task of running your business, and assist you in tracking and meeting your deadlines.
If you want to borrow money or make an investment, your creditors will certainly ask your financial statements to be provided with a review engagement report.
Thus, a creditor will feel more comfortable to rely on the financial information received as there will be an assurance that it has been recorded and presented based on specific accounting rules, ensuring uniformity in the calculation of financial ratios.
Besides, if you would like to sell or attract potential investors, the review engagement report will allow you to present complete and credible financial statements. Indeed, these statements are provided with a review engagement report prepared by a CPA who has a recognized public accounting license.
The review engagement report is an excellent alternative to the auditor’s report because it is quickly produced at a lower cost than an audit.
The work carried out by the licensed public accountant consists primarily of enquiry, comparison and discussion and uses the benchmark of plausibility as its standard. There are no detailed procedures like confirmation, documentation and physical examinations involved, like an audit, which is also mentioned in the review engagement report attached to the financial statements.
When is a Review Engagement Performed?
Although not as stringent as an audit, a review engagement is often performed in the following circumstances:
- Where the amount borrowed is below a certain threshold
- Where there are multiple owners and each wants some assurance that the financial statements have been independently reviewed
- Where it is required by a Provincial or Federal regulatory body
The objective of an audit engagement is to enable the independent public accountant to issue an opinion on the fairness of the client’s financial statements. An audit is meant to provide “reasonable assurance” that the financial statements are free of material misstatement and are in accordance with Accounting Standards for Private Enterprises (ASPE). The term “reasonable” is necessary because absolute assurance is not possible. It acknowledges that limitations exist in all systems of internal control, and that uncertainties and risks may exist, which no one can confidently predict with precision.
Auditors use a variety of methods to determine if the financial statements are free of material misstatement, including study and evaluation of internal controls, inspection of documents, physical counts of assets, making enquiries inside and outside the company, and other procedures that support the Canadian generally accepted auditing standards.
When is an Audit Performed?
- Banks may require you to provide audit financial statements in support of the lending agreement.
- Governing body may require an audit of your financial statements or trust accounts to fulfil your statutory obligations.
- Stakeholders and funding organizations may require your charity / foundation / not-for-profit society to provide assurance in support of the funding requirements.
- You may want assurance on the credibility of financial information
- You wish accountant’s advice to improve the bottom line and operations.
For more information about year-end engagements and auditing and accounting services, contact a professional accounting team.
At M W Mirza, Chartered Professional Accountant, we offer practical strategies assurance services to small business owners in Brampton, Mississauga, Milton, Oakville, Caledon, Etobicoke and Greater Toronto Feel free to contact us at 647-866-1285 or visit our website to book a free Financial Audit consultation here https://mwmca.ca