As a Chartered Professional Accounting (CPA) firm, Avisar’s services are governed by standards set at a national level. Recently, the standards that apply to compilation financial statements (sometimes referred to as a Notice to Reader) have been updated. Changes in the standards are normal as the environment in which businesses operate is constantly evolving and the standards must be revised accordingly.

There are several reasons why these standards are changing now:

The standards had not been updated in over 30 years and were outdated;
The new rules promote more consistency amongst CPA firms in the amount of work done on compilation engagements, particularly in understanding their clients’ businesses;
The new standards will provide more useful information for the users of compiled financial statements (e.g., lenders, bonding companies); and
They will also help CPAs clearly outline the work they have done on the financial statements from management’s responsibility for the financial information.

What you Need To Know About The Effect of These Changes:

The changes come into effect for all fiscal years ending on or after December 14, 2021. If your company’s next fiscal year-end is November 30, 2021, or earlier, these changes will not impact you until 2022.

We do not expect that these changes in standards will lead to a significant increase in fees in most cases.

These changes are focused on the standards around compilation engagements. If we currently provide you with a financial statement that has a “Notice to Reader” attached to it, you will be impacted. If the statements are audited or reviewed or we only prepare tax returns for you then you will not be impacted.

There will be two main changes to your Compilation Statements:

The report at the front of the financial statements will be titled Compilation Engagement Report instead of Notice to Reader. It will also be longer and include more information about the nature of a compilation, our responsibilities and management’s responsibilities; and
A note will be added to the financial statements titled Basis of Accounting. This note will include brief summary of accounting policies for the significant items recorded within your company’s financial statements.

For the most part, you won’t notice any significant changes in what we are asking for at the beginning of our engagement.

Important Points to Note:

Prior to issuing the engagement letter, we will ask a few questions about who, other than you, receives copies of these financial statements and for what purposes they use the financial statements. A typical example would be a bank for lending purposes, a bonding agent, or a minority shareholder;
Our engagement letter will identify these additional users and will include acknowledgement from you that they are in a position to obtain any further information from you that they require and they have agreed to the basis of accounting used in the preparation of the financial statements;
We will ask some questions about your business operations and your processes for keeping financial data and bookkeeping practices. This will enable us to draft the wording for the Basis of Accounting note disclosure; and
The information we will require you to review and sign at the end of the engagement to approve the financial statements, will look a little different than before.

In preparation for the adoption of the new standards, as we complete this year end’s financial statements on a compilation basis, we will set up a meeting with you to review the statements, how the upcoming changes will impact your company, and to ask you some additional questions in preparation for your next year-end. After our meeting, we will provide you with a summary of the changes as they affect you and documentation of what we discussed.

If you have any questions regarding anything discussed in this post or any other matter that you wish to discuss, please reach out to your contact at Avisar and we will be pleased to discuss further with you.

Disclaimer: Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein.

Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.