Most business entities are required to prepare financial statements. Business entities include:
Generally, financial statements include a balance sheet, an income statement, a statement of retained earnings or net assets, and a statement of cash flows. Complementing the financial statements are various notes that provide additional information on matters included in the statements or about issues that require disclosure.
- unincorporated businesses
- not-for-profit organizations, including registered charities
Financial statements are generally prepared following Generally Accepted Accounting Principles (GAAP), the primary source of which are found in the Canadian Institute of Chartered Accountants (CICA) Handbook.
Financial statements are needed for various parties and reasons, however they are essential for at least two purposes:
Though the owner/manager may be well-versed allowing him/her to prepare financial statements, most owner/managers and not-for-profit organizations will require the involvement of a public accountant to prepare their financial statements.
- to assist the owner/manager or management in their decision-making roles;
- they are required to accompany most tax filings, mostly corporation income tax returns.
Notice to Reader
In the absence of external users such as a Board of Directors or a financing stakeholder (i.e. lender), your business entity will likely simply require financial statements that have not been subjected to an assurance engagement by the external accountant. Nonetheless, a Notice to Reader report is required to be signed by a licensed public accountant. With a Notice to Reader, accountants provide assistance in compiling financial statements, but are not required to provide any assurances that the financial information is fully disclosed and correct, making the Notice to Reader a non-assurance engagement. For the most part, the financial statements are completed with a balance sheet and a statement of income, along with limited note disclosure, if any. The accountant is not concerned with the accuracy or completeness of the information or if it complies with GAAP.
Such engagements are generally applicable when the only requirement is for corporate tax filing purposes. Logan Katz LLP will therefore conduct this engagement with a particular focus on tax matters to ensure issues are factored in to your tax filing position. For example, in compiling your financial statements, we will invest time to ensure your combined corporate and personal tax filing positions are optimized.
Third parties, including Boards of Directors and lending authorities, will usually require the business entity to submit financial statements that are accompanied by an assurance report issued by a licensed public accountant. Alternatively, the owner-manager may wish to obtain an assurance report for his/her business entity’s financial statements in order to obtain comfort that the financial information is accurate and complete. There are two types of assurance engagements that result in the issuance of an assurance report: (i) a Review Engagement; and (ii) an Audit.
A Review Engagement is the lower level of assurance work offered by the public accountant. The Review Engagement includes enquiry, analytical procedures, and discussion with the limited objective of assessing whether the financial information is plausible in accordance with GAAP. The resulting financial statements will be prepared following GAAP and will include complete disclosure as required by GAAP. However, the Review Engagement does not include certain procedures required under an audit, for example there is no vouching to source documents, and there are no confirmations with third parties.
Review Engagements are a cost-effective way for business entities to have financial statements prepared that satisfy the needs of creditors, generally financial institutions.
An Audit represents the highest level of assurance work offered by the public accountant. It is conducted following a comprehensive set of standards in Canada referred to as Generally Accepted Auditing Standards (GAAS) that harmonize with International Auditing Standards. The Audit includes a mandatory comprehensive overview of the entity’s internal control environment and will usually result in a by-product called a Management Letter. This document will provide management with certain recommendations to improve the internal control environment.
Audits are complex engagements and have become increasingly so since the well-publicized financial scandals mostly in the United States. As a result, business entities will be expected to allocate a higher fee budget for such engagements when assessing the optimum engagement for their financial statements.
Audits will generally apply to not-for-profit organizations (including charities), to small businesses with external boards of directors, and in situations with significant external financing (shareholders or lenders). They are also required for publicly-traded companies.
For all assurance engagements, public accountants are required to be fully independent from their clients to place them in a situation where they are objective in expressing their opinion.
Give us a call for a complimentary consultation. We’d appreciate the opportunity to get to know you and your business entity, and help you determine the best suited option for the public accountant’s association with you.
If you select Logan Katz LLP as your business entity’s public accountant, you can expect personalized service by a competent team of professionals. Generally, you will be assigned a service team comprising of a partner, a manager and an accounting technician. This structure provides you with three different levels of service-providers with whom you can communicate at all times—year round. Do unresponded emails and unreturned phone calls frustrate you? It frustrates us as well, which is why we ensure we get back to you promptly and courteously.
Our value-added approach includes an annual face-to-face meeting with you to discuss our findings and to address other matters—over and above the standard accounting and taxation issues—such as risk management, your information technology structure, human resources, what’s keeping you up at night, and other compliance areas (HST; PST; WSIB), all within our zones of expertise and abilities.
You will find that our fees will be well worth it and that they become an investment in your financial stability and well-being—our clients regularly tell us exactly this!