AUDITS / REVIEWS / NOTICE TO READER
AUDITS
The highest level of Assurance in an Accountant’s Report is an Audit opinion. This is mandatory for public companies (where shares are listed on a stock exchange), but seldom required for small or medium sized companies. Some Not For Profits (NFP’s) organizations and small financial institutions, like Cooperatives, must have audited statements. You may be surprised to know that all CPA firms in Canada are NOT allowed to conduct an Audit. Our affiliated firm, Rauf B. Kadri, Chartered Professional Accountant, is in this small authorized list.
What is more common for small and medium sized companies is ‘Special Audit’ or ‘Internal Audit’. A Special Audit is an audit that only looks at a specific area of an organization’s activities. This type of audit may be initiated by a government agency, but could be authorized by any entity, or even internally. Examples of special audits are:
- Compensation audits
- Compliance audits
- Construction audits
- Controls audits
- Cost audits
- Fraud audits
- Information systems audit
- Royalty audits
- Contractual Compliance audits
But the most feared and common audit is a Canada Revenue Agency (CRA) audit. We will discuss this more in the section dealing with Taxes.
Another common type of audit is the Internal Audit. This is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.
RK International and its affiliated concern have over 3000 hours of experience in Special and Internal Audits.
REVIEWS
After audits, the second highest level of assurance provided by an external accountant is through a ‘Review’ engagement. Many small and medium sized enterprises which have a bank or other financial institution loans, are required to have a Review conducted. The loan threshold for a Review differs from bank to bank.
A review engagement is considered weaker than an Audit engagement, in terms of assurance provided by the external accountant, and costs about 30-40% less (for comparable companies). In an Audit, the auditor gives an opinion that the financial statements of an entity are prepared in accordance with the proper accounting framework and a reasonable assurance that the statements are free from any material misstatement. In a Review, a limited assurance is provided that the statements are prepared in accordance with the proper accounting framework, but NO opinion is provided on the fairness of the financial statements taken as a whole.
Similar to an audit, our firm cannot do your accounting work if we are conducting a Review. However, as explained in the section relating to Accounting Services & Outsourcing, (provide a hyperlink) we can arrange to outsource all your accounting needs to a third party.
Like in the case of audits, all CPA firms in Canada are NOT allowed to carry out Review engagements. Our affiliated firm, Rauf B. Kadri, Chartered Professional Accountant, is in this small authorized list.
RK International and its affiliated concern have over 4000 hours of experience in Review Engagements.
NOTICE TO READER (COMPILATION)
A Notice to Reader Report (NTR) or as it is called in USA and UK, a Compilation Report, provides no assurance to the reader and is thus the third level of an external accountant’s reporting after Audits and Reviews.
Unlike an Audit or Review, nearly all CPA firms in Canada can issue these reports. It is a common misbelief that to file a company tax return, an NTR must be prepared. There is no such requirement by CRA. However, there are other good reasons to prepare an NTR.
First of all, financial statements prepared by bookkeepers from accounting software, generally fail to properly classify uncommon transactions (for a bookkeeper, sales, purchases, cheques received & issued are the common transactions). This could result in the company filing the tax returns incorrectly.
Secondly, if the bookkeeper has not properly accrued revenue and expenses, accounted for depreciation or split principal and interest payments, the owner of the business will not have a true idea of the true expenses and profitability and the cash flow for the business.
In spite of the limited external use of an NTR, these reports can be very useful to the business owner and is considered much better than a bookkeeper’s financial statements.
The cost of an NTR will depend on the size of the company and the number of transactions. It will also depend on the quality of the bookkeeper’s work. Our billing starts at $2,500/year and is capped at $ 5,000/year. This includes all adjusting entries we need to make, but does NOT include the basic bookkeeping.
RK International and its affiliated concern have over 5000 hours of experience in Review Engagements.