Compilation or Notice-to-Reader (NTR) Financial Statements are the lowest level of assurance provided by a CPA on a set of financial statements. These types of Financial Statements are valuable for management because they involve a knowledgeable CPA assisting management with the preparation of the financial information in accordance with a basis of accounting selected by management.
After the company has completed their fiscal year‐end accounting, the CPA takes the figures provided by the company’s management (via documents such as the trial balance and general ledger) and puts them into a standard financial statement format, which usually includes a balance sheet and income statement. Accordingly, very little work is done by the CPA to ensure that the financial statements are a true reflection of the business’s activity.
Bases of accounting
Financial information may be prepared and presented in accordance with different bases of accounting, as selected by management. These bases of accounting may be established by an authorized or recognized standard-setting organization, prescribed by law, regulation or contract, or developed internally by management. Examples include:
A cash basis of accounting with accruals.
A cash receipts and disbursements basis of accounting.
A financial reporting provision of a contract or other form of agreement established by a creditor or a regulator.
At Arria CPA, we have experience working with various different bases of accounting, and can help advise you on the appropriate bases of accounting for your business.
Limitations
A compilation engagement is not an assurance engagement, as it does not require the CPA to perform procedures to verify the accuracy or completeness of the information provided by management, and therefore does not have the level of reliability associated with audits or review engagements. The users of compiled statements must trust management’s honesty and record keeping skills for the accuracy of the information.
Accordingly, the CPA does not express an audit opinion or a review conclusion, or provide any form of assurance on the financial information. However, typically a CPA would not be associated with NTR financial statements if they knowingly included false or misleading information.
To ensure that the users of compiled financial statements are aware of the statement’s limitations, there is always a “Notice to Reader” report attached detailing the limited work performed by the CPA.
Price
The accounting fees are lowest for this type of service. If you or your financial statement users do not require any level of assurance, this would be the most inexpensive way to have your financial statements prepared. Generally, these are sufficient if your financial statements are only used to prepare your corporate (T2) tax return.
Schedule a meeting
At Arria CPA, we frequently work with our clients to prepare timely Compilation Financial Statements and the associated annual corporate (T2) tax returns. We also schedule a year-end review meeting to discuss your business activities during the year, and provide a detailed management letter outlining your upcoming tax liability and filing responsibilities, and any other concerns identified during the compilation process.
Contact us for a free, no-obligation consultation to learn more about how Arria CPA can help prepare Compilation Financial Statements for your business this upcoming year-end.
Disclaimer: Please note that this is only a brief summary and is based on current accounting regulations and tax law interpretations. Accounting regulations and tax laws are subject to continual review and change, so should the facts provided to us be inaccurate or incomplete, or should the law or its interpretation change, our summary may be inappropriate for your uses. This article is written for educational purposes only, and as such, we recommend you consult a professional before making an accounting or tax decision. If you have any concerns, or would like further consultation regarding this matter, please contact us.
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