Every company must produce financial statements for external readers. These, not having been involved in the day-to-day affairs of the company, cannot know whether they really reflect the state of the company’s finances. Is there fraud? Were the accounting standards respected?
It is for this reason that the CPA Order allows the CPA to publish official documents to reassure those who will bind the financial statements. There are three levels: the compilation mission (notice to the reader), the review mission and the audit.
Here is a table which summarizes the different missions:
|
Internal (home) financial statements |
Compilation mission (notice to reader) |
Exam mission |
Audit |
| Price |
0$
Internal financial statements should not generate external costs, although producing them requires a lot of work up front. |
$1500 to $5000
The price of the compilation mission is generally combined with that of the income tax return. |
$7,500 to $25,000
In addition to cost, the review engagement will require internal work to assemble the documentation. |
$15,000+
In addition to the price, the audit will require internal work to assemble the documentation |
| Insurance |
No insurance is provided. |
No insurance is provided, but produced by a CPA. |
The CPA expresses a moderate level of assurance |
The CPA expresses the highest level of assurance |
| Accounting reference |
Not necessary |
Not necessary |
Recognized accounting framework (NCECF / IFRS / US GAAP |
Recognized accounting framework (NCECF / IFRS / US GAAP |
| Who can do it? |
Everyone! |
A CPA |
A CPA auditor
The auditors cannot be the ones who did the bookkeeping. |
A CPA auditor
The auditors cannot be the ones who did the bookkeeping. |
What to choose for my business?
The choice of a mission results from an arbitration between the desires of the company and external readers. The company wants to minimize its costs and reduce the time spent on accountability, so prefers a low level of assurance. The external reader wants to have maximum confidence in the financial statements since he is far from the action, he prefers a high level of assurance.
Here are the factors that determine the choice of a mission
1. The mission is required by a donor
Many funders (loans or grants) will require a review mission or audit. It is often possible for the company to negotiate this requirement, which should be done systematically.
2. The mission is required by the shareholders’ agreement
A higher level of assurance is often found in shareholder agreements, especially when some of the shareholders are far removed from the company’s finances.
3. The company wants to sell soon
If the next goal is to sell, providing a higher level of assurance on the financial statements can increase the value of the company.
4. Management wants to have its accounting team audited
A review mission or an audit is necessarily carried out by a CPA independent of the company. With this in mind, you can validate the work done by your accounting team during the year.
What are the advantages and disadvantages of each mission?
Level 0: Internal (house) financial statements
What is this document?
These are financial statements produced by the company, without going through a mission carried out by a CPA. Often, it is a .PDF or an Excel file taken directly from the company’s accounting software.
Why produce this document?
Legally and fiscally, it is not necessary for a company to produce anything other than internal documents. Some very small businesses may be satisfied with internal financial statements.
For more mature companies, internal financial statements will be submitted when the work to produce official documents has not yet been done (such as mid-year, or just after the end of the year). Some actors will be satisfied with this temporarily, such as a board of directors or banks:
Benefits :
- Very quick to come out
- Cheap
- Do not require the intervention of a CPA
Disadvantages:
- Not recognized as a sufficient document by most stakeholders surrounding a modern business
Level 1: The compilation mission
What is this document?
These are financial statements produced by a CPA, with signature. The CPA reminds the reader that it does not provide assurance on the financial statements, although they follow a standard format.
Even if the CPA does not provide insurance, most of them will still make v and suggest adjusting entries. However, this is not a requirement.
Why produce this document?
Almost all external stakeholders request at least a compilation mission. This is the industry standard.
Benefits :
- The least expensive mission that can be accomplished by a CPA
- Demonstrates the seriousness of the company
- Faster processing times
Disadvantages:
- Does not provide any assurance to the external drive
Level 2: The review mission
What is this document?
These are financial statements produced by a CPA who has obtained a permit from the CPA Order to carry out this type of work . The CPA tells the reader that there is nothing to suggest that the financial statements do not comply with the accounting standards.
Why produce this document?
The review engagement provides a reasonable level of assurance to the external reader.
Benefits :
- Less expensive than an audit
- Provides more robust financial statements
- Force to better document financial processes
Disadvantages:
- More expensive than a compilation mission
- The company must respond to numerous requests for information
- Rather long to execute
Level 3: The audit
What is this document?
These are financial statements produced by a CPA auditor, with signature. The CPA tells the reader that the financial statements do not contain any significant anomalies.
Why produce this document?
The audit provides the greatest level of assurance to the external reader. The auditor will document the processes and perform a battery of tests to validate the veracity of the financial information.
Benefits :
- Demonstrates the utmost seriousness of the company
- Provides the most substantiated and reliable financial statements
Disadvantages:
- You have to find a room for the listeners (less and less true).
- The company must respond to numerous requests for information
- Very long to execute
To help you with your choice, do not hesitate to contact us or discuss it with your trusted accounting professional!
