Do you need financial statements prepared by a professional? Does your company have stakeholders, or potential investors or creditors, that have requested financial statements that meet specific requirements? If that is the case, then you should know the difference between the various services, and types of engagements that a Chartered Professional Accountant (CPA) can provide, and what is involved in each.
The different types of engagements are as follows:
Compilation Engagement (Notice to Reader)
This type of engagement involves the preparation of financial statements by a CPA. Included with the financial statements that are prepared is a report that is called a “Notice to Reader” stating that the financial statements are unaudited, and that there is no assurance provided by the CPA that the amounts are free from materially misstatements. The CPA simply compiles the financial statements with information provided by the client, or the client’s bookkeeper.
Typically, a review engagement is requested by stakeholders in a company (bank, shareholders, etc.) to ensure that the amounts within the financial statements is plausible. Whereas in a Notice to Reader, there is no assurance provided, a review engagement provides a low level of assurance from the CPA. The accountant will perform various analytical procedures, as well as discussions with the client, to ensure that the financial statement information is plausible. Should the CPA find that the amounts in the financial statements are plausible, a review engagement report is issued.
A review provides what is called negative assurance. This is a low level of assurance, meaning that nothing has come to the attention of the accountant that would leave them to believe that the financial statements are not, in all material respects, in accordance with Accounting Standards for Private Enterprises (ASPE) or International Financial Reporting Standards (IFRS), depending on which standards the company follows.
An audit engagement builds upon the procedures performed in a review engagement. In addition to the analytical and discussion procedures, the CPA will perform what is referred to as substantive procedures. Substantive procedures are more in depth examination of the materials that back-up the amounts that make up the financial statements, i.e. physically examining invoices and purchase orders, physically observing that inventory exists, etc.
In addition to the substantive procedures, the accountant must obtain an understanding of the company’s internal controls, and evaluate them for any significant deficiencies.
The CPA, or Auditor, will provide an audit report once the engagement is complete. The level of assurance is much higher than a review engagement, that the company’s financial statements are free of material misstatement.
Also included with an audit engagement is a Management Letter. This is a letter that is provided to management, along with the Audit Report, that provides an evaluation of the company’s internal controls, any recommendations to improve controls, and any other significant findings.
If you require any of the above engagements for your company, please call us with any questions that you may have or to book an appointment for a consultation.