A new Compilation Report (replacing “Notice to Reader”)

As a small or medium-sized business owner, you may be familiar with “Notice to Reader” or “NTR” under the current standard (under Section 9200). It is going to change soon. A practitioner would issue a new report going forward. A practitioner is a professional accountant providing accounting service to the public licensed by CPA Canada or a Provincial CPA body. 

The Auditing and Assurance Standards Board (AASB) has issued a new standard on compilation engagements, Canadian Standard on Related Services (CSRS) 4200, Compilation Engagements.

When Is the Standard Effective? 

CSRS 4200, Compilation Engagements, is effective for compiled financial information for periods ending on or after December 14, 2021.

What Changes to Expect in a Compilation Engagement?

The new compilation standard requires practitioners to do more extensive and robust work. Therefore, as a business owner, you should expect the accountant to ask more questions before issuing the compilation report. 

Here is the summary of the main steps of the process;-

1. Before accepting the engagement, the practitioner needs to ask you of the intended use (or user) of the compiled information. If the user includes a third party (such as a lender), you must provide the acknowledgement that the third party is in a position to request additional information from you or has agreed with you on the basis of accounting. 

2. Basis of accounting: For Notice to Reader/NTR, the practitioner is not required to discuss how financial statements are prepared. However, under the new compilation standard, a practitioner is required to include a note on the basis of accounting applied. It is to assist the third-party user in understanding how the compiled financial information is prepared. 

3. A new engagement letter: New standard introduces a new engagement letter to communicate the role and responsibilities of both the practitioner and the management. The engagement letter includes the objective and scope of the compilation engagement, the intended use of the financial information, the responsibilities of the practitioner, and your responsibilities and acknowledgments as specified in the new standard.

4. Obtain Knowledge of the Entity: The new compilation standard requires the practitioner to obtain knowledge of the entity and its business. The practitioner will ask questions about the nature of business, operations, accounting system, accounting records. You will need to provide information about the size, complexity of the business, nature of assets, revenue, liability, expense, etc.

5. Discussion with the management regarding significant judgments, where the practitioner has assisted the management in preparing the compiled financial information. The objective of the discussion is to ensure that management understands their impact on the compiled financial information and accepts responsibility for them. 

6. The practitioner will compile the information and include a note describing the basis of accounting. 

7. The practitioner will read the compiled financial information before issuing the report along with all the knowledge obtained during the process to consider whether the compiled information does not appear “misleading“. If the practitioner has any questions, he may ask for clarification to ensure the information is not misleading. Where applicable, the practitioner may also ask management to address these matters. 

8. You acknowledge that you take responsibility for the final version of the financial information.

9. The new compilation engagement report will be attached to your compiled financial information, which will contain a mandatory note regarding the basis of accounting. 

Under the existing standard for Notice to Reader/NTR, the practitioner’s work efforts are mainly limited to arranging information into the form of a financial statement and checking that the assembly of information is arithmetically correct, since the practitioner was not associated with the financial information. But you can see from above that that new standard requires substantial work from the practitioner as he/she is required to ensure that the compiled information is not “misleading”. 

It is important for small or medium-sized business owners to understand the requirements and implications of the new standards. It is critical to discuss these changes with your accountant and know what to expect when you need a new compilation report.  If you need any assistance, the professional team at Source Accounting Professional Corporation (CPA) will be happy to assist and answer your questions.

If you have any questions or any other tax and accounting issues, please feel free to reach out to Source Accounting Professional Corporation (CPA). Source Accounting is a full-service accounting firm in Mississauga, dedicated to individuals, small and medium-sized businesses, providing tax preparation, corporate tax filing, accounting, bookkeeping services, payroll solutions, etc. We serve clients from Mississauga, Toronto, Brampton, Milton, Hamilton, Oakville, and across GTA. And if you find this post helpful, please let us know in your comments.

Disclaimer: The above contents are provided for general guidance only, based on information believed to be accurate and complete, but we cannot guarantee its accuracy or completeness. It does not provide legal advice, nor can it or should it be relied upon. Please contact/consult a qualified tax professional specific to your case.