Learn about Notice to Reader financial statements, their importance, and when your business may need them.
A Notice to Reader (NTR) financial statement, now officially called a Compilation Engagement Report, is a basic form of financial statement compiled by a Chartered Professional Accountant (CPA). This report is created using financial data provided by the business owner or company management. Unlike audits or reviews, NTRs do not provide any assurance of the accuracy of the financial data. Instead, they present the numbers as given, without verification or validation by the accountant.
Key Components of an NTR Statement:
- Balance Sheet: Displays the company’s assets, liabilities, and equity.
- Income Statement: Summarizes revenue and expenses to show profit or loss.
- Cash Flow Statement: (Optional) Tracks the flow of cash in and out of the business.
The accountant’s role is to compile the information into a coherent financial statement without offering opinions or guarantees on the accuracy of the data.
When Does Your Business Need a Notice to Reader Financial Statement?
Here are some common situations where businesses might need an NTR financial statement:
- Applying for Loans or Credit: Banks and financial institutions often require an NTR statement to verify your business’s financial health.
- Annual Reports for Shareholders: Shareholders may request NTR financial statements to assess the business’s performance during board meetings or annual reviews.
- Investor Relations: Startups and small businesses may use NTRs to present financial transparency to investors.
- Filing Corporate Taxes: While not always mandatory, some companies prefer to submit financial statements prepared by a CPA to ensure accurate tax planning.
- Selling a Business: Buyers often require financial statements, including NTRs, as part of their due diligence.
The Impact of CSRS 4200 on NTR Financial Statements
As of December 14, 2021, new Canadian standards have changed how NTRs are prepared. Now referred to as Compilation Engagement Reports, these statements include a note outlining the basis of accounting and the responsibilities of both management and the accountant. This change increases transparency and helps third parties understand the data’s source and limits.
How Much Does it Cost?
The cost of preparing a Notice to Reader financial statement depends on the complexity of your business and transactions. Small businesses can expect to pay between $2,000 and $4,500 on average. This makes NTRs more affordable than review or audit engagements, which can cost significantly more.
Notice to Reader vs. Review Engagement
While both NTRs and review engagements provide financial statements, a review engagement offers a limited level of assurance. A CPA performs more in-depth analysis, makes inquiries, and performs analytical procedures to provide a higher level of credibility. This level of assurance may be required for larger loans or higher-stakes financial decisions.
Documents You’ll Need
To ensure your accountant can compile an accurate NTR statement, be prepared with the following:
- Trial Balance for the fiscal year-end
- General Ledger of all transactions
- Bank and credit card statements
- Accounts Receivable and Accounts Payable aging reports
- Reconciliation reports for each financial account
- Fixed Asset Continuity Schedule for capital assets
Final Thoughts: Why Work with IDM?
Understanding the role of a Notice to Reader financial statement is crucial for making informed business decisions. Whether you’re preparing for a loan, planning your taxes, or selling your business, an NTR provides essential insights.
At IDM, we specialize in crafting comprehensive financial statements that help you focus on what matters—running your business. Contact us today to learn how our expert team can assist you in navigating your tax and accounting needs.
