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Effective December 14, 2021, the Auditing and Assurance Standards Board (AASB) released a new Canadian accounting standard, CSRS 4200, which affects the way how Notice to Reader financial statements will be issued and used going forward. While the mileage rate for charitable use is set by statute, the mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes, meanwhile, is based on only the variable costs from the annual study. Optional standard milage rates are used to calculate the deductible costs of operating vehicles for business, charitable and medical purposes, as well as for active-duty members of the Armed Forces who are moving.

Unique Qualities of NTR Financial Statements

Having said that, most businesses would prefer having a CPA issue the Notice to Reader financial statements to provide higher reliability on the financial information. This is a way to ensure that the company is optimizing its taxes since most tax planning strategies require using the company’s financial information. These financial statements are extremely important for small business owners in analyzing their successes and can highlight areas of opportunity and growth.

Understanding Notice to Reader Reports for Small Businesses

Should the CPA find that the amounts in the financial statements are plausible, a review engagement report is issued. For small businesses, the Notice to Reader report offers an entry point into financial reporting without the complexity and expense of higher-level financial statements. It allows businesses to maintain financial transparency and accountability while keeping costs manageable. Many small business owners appreciate the ability to present financial data in an understandable format, facilitating better financial planning and decision-making.

This approach benefits small businesses needing to provide financial information quickly and efficiently. While notice to reader licensed accountants are required to maintain their independence from their client, the standards that guide notice to reader financial statements are usually less strict on the expected performance of the practitioner. The compiled financial statements should be clearly marked “unaudited” to inform readers that the prepared reports have not been audited and should not be interpreted as an assurance on the correctness of the compiled statements. The notice means that the prepared financial statements have not been audited or reviewed, and therefore, the accountant offers no assurance on the accuracy of the financial statement. However, the report gives confidence to certain users, such as directors and shareholders of the company.

• This is no longer a requirement under the new compilation engagement standard CSRS 4200, as the corporate tax returns can now be prepared with internal financial information only without the Notice to Reader.
• Review engagements require the accountant to obtain a sufficient level of understanding of the organization in order to express their opinion.
• While Notice to Reader financial statements may be required for certain things, having these documents may be prudent to help you make crucial business decisions.
• This report is prepared based on information provided by the company, and the accountant’s role is primarily to compile and present this data in a standardized format.
• It is important to consider whether the notice to reader is sufficient for your needs before proceeding with this process.
• Compilation Engagement financial statements are used to create financial statements to facilitate this reporting.

Should the CPA conclude that the data provided is not reasonable, then the compiled financial statements cannot be prepared based on that data and the accountant has the right to make this judgment call. If new information is provided, the CPA’s concerns must be satisfied before preparing the new NTR financial statement or report. A Compilation Engagement involves providing detailed accounting records to an accountant who prepares the information into a compiled financial statement. You can expect a new report to be attached to your compiled financial information that more clearly describes your responsibilities as management, the responsibilities of the practitioner and an explanation of the limitations of a compilation engagement. A sample compilation engagement report is included below with some of the key points highlighted with callouts. It is a key element in the decision-making process that allows you to plan your company’s future activities.

All about Compilation (NTR) Financial Statements

Users of financial information that do not require a review or audit or the detailed disclosures that accompany such engagements. Compilation Engagement financial statements are useful for many businesses in the preparation of their corporate tax return. Reviewed financial statements must comply with Generally Accepted Accounting Principles (GAAP) and therefore are held to more strict presentation guidelines. A Review involves significantly more work and documentation by the accountant to support a higher level of confidence in the financial statement than that in a Notice to Reader. This additional work is also reflected in the additional costs of a Review over a Notice to Reader. A Review may be requested by a company’s financing institution as these statements are intended to provide a standard and uniform presentation for the financial institution to use as a base in calculating bank covenants and other financial indicators.

What Is the Difference Between Notice to Reader and Review Engagement?

Notice to Reader financial statements can be prepared in a relatively shorter timeframe compared to audited statements. This timeliness is crucial for companies that need to present their financial information promptly to stakeholders or regulatory authorities. One of the primary reasons for opting for Notice to Reader financial statements is their cost-effectiveness. Since these statements do not involve the same level of scrutiny and assurance as audited statements, they are generally more affordable for small and medium-sized businesses. This means that the Notice to Reader financial statements are usually prepared with a very specific purpose – for e.g. to obtain bank financing, for a potential buyer in a M&A transaction, for investors, and so on. As of June 2009, only Chartered Accountants (CPAs) with CA, CGA or CMA designations may provide notice to reader documents.

• Since these statements do not involve the same level of scrutiny and assurance as audited statements, they are generally more affordable for small and medium-sized businesses.
• Only when these two issues have been addressed can an accountant accept the Compilation Engagement.
• For publicly traded companies, Notice to Reader financial statements are crucial for maintaining positive investor relations.
• The compiled financial statements should be clearly marked “unaudited” to inform readers that the prepared reports have not been audited and should not be interpreted as an assurance on the correctness of the compiled statements.
• Ideally, this comes in the form of a data file from a trusted application (i.e. QuickBooks).
• We’re here to provide guidance, answer your queries, and offer valuable insights to empower your financial decision-making.

The management furnishes the accountant with information to be used in compiling financial statements, and it is necessary to caution readers on the level of reliability they should place on the report. The notice to reader report is a compilation of financial statements using financial data provided by the management. The report is prepared by an external chartered accountant, and it does not provide assurance on the correctness of the financial statements. The level of assurance is much higher than a review engagement, that the company’s financial statements are free of material misstatement. A Notice to Reader (NTR) engagement is the most basic level of assurance engagement performed by an accountant. In this type of engagement, the accountant is not required to perform any procedures to verify the correctness of the information provided by the client.

The notice to reader financial statements should include a note that cautions readers that the compiled statements may not be appropriate for their purpose. Usually, the statement is prepared for specific purposes, such as obtaining bank financing from a financial institution or when selling the business. A Notice to Reader or Compilation Report is a financial statement that offers a summarized view of a business’s financial data. It is designed to provide limited assurance to financial statement users like creditors, investors, and stakeholders. This report is prepared based on information provided by the company, and the accountant’s role is primarily to compile and present this data in a standardized format.

Differences from Other Financial Statements

Business owners and management rely on these statements to assess their company’s financial performance, identify areas for improvement, and make informed strategic decisions. Some business owners think it satisfies all external reporting needs, including those for lenders or regulatory bodies. While it can be adequate for certain internal management purposes or external parties not requiring detailed assurance, it is important to recognize its limitations. For substantial financing or significant transactions, lenders or investors may require more comprehensive financial reporting, such as reviewed or audited statements.