In Canada, accounting firms are letting their clients know about the new requirement for compilation engagements. This new standard is titled the ‘Compilation Engagement Report.’ This report will contain your company’s compiled financial details.
In Canada, accounting firms are letting their clients know about the new requirement for compilation engagements. This new standard is titled the ‘Compilation Engagement Report.’ This report will contain your company’s compiled financial details.
We are now required to:
- disclose the basis of accounting used to prepare the collected financial information for the financial statements
- provide additional information on the nature of the engagement.
This new standard came into effect for periods ending on or after December 14, of 2021.
Isn’t this still a ‘Notice to Readers’ report?
“Notice to Readers” was the old title of the report. Still, this new standard changes the title to the “Compilation Engagement Report.” Apart from the title and content, your accountant must undertake additional steps and record related information to issue the compilation report.
Why the changes?
The previous standards are decades old and were not really designed to be distributed to third parties who might need to rely on them. As a result, the steps required to generate financial statements were limited. In fact, those creating the standards found that compiled financial statements were being provided to various users, like lenders. As such, a level of discomfort was created given the old standards’ narrow requirements. Other variations were also noted in the accounting methods used to prepare the financial statements, the degree of work carried out, and the amount of documentation included in the accountants’ files.
As a result, standards for compilation engagements are now more detailed and explicit in their requirements. In particular, in situations where the financial information is relied upon by third parties.
What changes are there?
There are two key changes that you will notice:
- The Compilation Engagement Report
As previously noted, the accountant’s report will include a more comprehensive accounting of the role and responsibility of both the client and the accountant. It will also have more detail on the nature of the engagement.
- Notes to the compiled financial information
The newly formatted statements will include a note that explains the Basis of Accounting used.
We shall dig further into the topic in our next post.