For the first time in almost 35 years, CPA Canada has updated the standard under which compilation engagements are to be conducted. We have put together a collection of resources including FAQs to assist with the implementation of this standard
Frequently Asked Questions:
My company’s financial statements were previously issued with a “Notice-to-Reader” report on them. Do I have to change to the new standard?
Unless you change your financial statement engagement to an audit or review engagement, you will need to transition to the new standard for fiscal years ending on or after December 14, 2021.
If no financial statements are required, an engagement for a tax return only is also an option.
Who is requiring this and why do we need a new standard?
The Auditing and Assurance Standards Board has released the new standard. As Chartered Professional Accountants, we are required to comply with this and other standards contained in the Accounting and Assurance Handbooks issued by CPA Canada.
The previous standard was intended for statements that would only be used by management. In practice, financial statements with a Notice-to-Reader report are often provided to third parties. Under the old standard, there is no requirement for the statements to include any details on how the financial information in the statements has been accounted for. While the new standard does not specify how the financial information should be accounted for, it does require that a note be included in the statements to provide details on how the financial information was prepared (i.e. the “basis of accounting” note).
Why fiscal years ending on or after December 14, 2021 and not December 31, 2021?
Not all fiscal years end right on the last day of the month. This will effectively implement the new standard for all December 2021 year ends and onwards.
I really don’t understand this “basis of accounting” idea. Why do we need to bother with this?
It’s important that users of the financial information understand how it has been prepared. Different methods of preparing financial information could produce very different financial results for the same company. For example, a company could choose to expense inventory as it is purchased instead of waiting to expense it until it is used or sold. While there is still no requirement under this standard to account for items in a certain way, the users of the financial information will be better positioned understand how it was prepared.
While your Wilkinson & Company representatives are able to assist with the development of the basis of accounting ultimately management is responsible for the selection of the basis of accounting and we are required to document this acknowledgement in order to complete the engagement under the new standard.
We will provide you with documentation prior to the start of your engagement to assist with the development of the basis of accounting. Until we provide you with that documentation, nothing further is required.
Do I have to discuss the “basis of accounting” with any third-party recipients of the financial statements?
When third party recipients (i.e. the bank, other lenders, etc.) of the financial information are able to request and obtain additional information from you with respect to the financial information, you are not required to acknowledge you have discussed the basis of accounting with said third party. We expect this will be the case most of the time.
However, if third parties are not able to request and obtain additional information with respect to the financial information, the new standard requires that you and the third party come to an agreement on the basis of accounting.
How will the new engagement with Wilkinson & Company under the new standard differ from the engagement under the old standard?
There will be some new requirements for us to complete the engagement under the new standard. These include:
- Inquiries of whether the information will be provided to third parties
- Acknowledgement from management that they are responsible for the selection of the basis of accounting
- Your financial statements will have a new compilation engagement report and a new basis of accounting note
- Inquiries to document our understanding of the operations of the company including the accounting systems used
It is possible we will already have a lot of the information needed to meet the documentation requirements under the new standards from our experience during previous engagements with you. However, additional inquiries may be required to update our understanding of the entity and fill in any gaps required to meet the requirements of the new standard.