Compilation, Review or Audit? Choosing the Right Financial Statements for Your Business

Every incorporated business needs annual financial statements — they are the starting point for your corporate tax return, and banks, landlords and investors regularly ask for them. But not all financial statements are the same. In Canada, a CPA can prepare them under three main types of engagement, each offering a different level of assurance.

What happened to “Notice to Reader”?

For decades, most small private companies received “Notice to Reader” financial statements. That standard was replaced by CSRS 4200, Compilation Engagements, effective for financial statements for periods ending on or after December 14, 2021. A compilation report now explains more clearly what the accountant did, and the financial statements must disclose the basis of accounting used.

1. Compilation engagement

The accountant compiles your financial information into financial statements using the basis of accounting you choose. No assurance is provided: the accountant does not audit or review the figures. A compilation is the most common and most affordable option, and it is usually all a small owner-managed corporation needs for tax filing.

2. Review engagement

In a review, the accountant performs inquiry and analytical procedures to obtain limited assurance that the statements are free of material misstatement. Reviews are often requested by lenders for larger loans or by investors, and they must be prepared using an acceptable financial reporting framework such as ASPE.

3. Audit

An audit provides reasonable assurance, the highest level, through detailed testing of transactions, balances and internal controls. Audits are required for public companies and some regulated or grant-funded organizations, and occasionally by agreements with lenders or shareholders.

Which one do you need?

• Just filing your T2? A compilation is usually enough.
• Applying for significant bank financing? Ask your lender; many accept a compilation for smaller loans and require a review for larger ones.
• Bound by a shareholder agreement, grant or regulator? Check the wording — it may specify a review or audit.

What is ASPE?

Accounting Standards for Private Enterprises (ASPE) is the Canadian framework most private companies use. It is simpler than International Financial Reporting Standards (IFRS) while still producing reliable, comparable financial statements.

Get statements you can rely on

We prepare year-end financial statements, review your numbers and offer practical advice to improve your business health, then file your corporate tax return. Talk to our team.

General information only; not professional advice for your specific situation.