Scott Park, CPA, CA
A new standard for compilation engagements called Canadian Standard on Related Services (CSRS) 4200, Compilation Engagements has been issued by the Auditing and Assurance Standards Board of Canada. This new standard is a significant update to what was previously called a “Notice to Reader” engagement and is effective for compiled financial information for periods ending on or after December 14, 2021.
The new standard will affect the work we do for you when you engage us to help you complete your year end financial statements and related tax return.
Following the new standard will require us to spend more time on your year end. The standard setters believe that the changes they have made will help users of compiled financial information have a better understanding of the level of work we have performed as well as the underlying basis of the compiled financial information presented.
One of the main changes under the new standard is that Scott Park & Co Inc. is required to ask you about the intended use of the compiled financial information including whether that information may be used by a third party. If it’s possible you will be providing the compiled financial information to third parties, it is important to understand who the users will be before accepting the engagement. The most common example of a third party is a lender (i.e. banks).
Basis of Accounting
Another key change is that a basis of accounting needs to be selected by management and disclosed in a note to the compiled financial information. This will assist users in understanding how the compiled financial information is prepared. The basis used in compiled financial information (such as a cash basis with certain accruals at year end) typically differs from a general purpose framework (such as Canadian accounting standards for private enterprises). We would be happy to assist you with deciding how to describe the basis of accounting, here is an example for an investment holding company:
The basis of accounting applied in the preparation of the balance sheet of ABC Company as at Month-Day, 20XX, and the income statement for the year then ended, reflects cash transactions with the addition of:
Where the financial information is intended for use by third parties, the third parties will have to either:
In the circumstances where neither of these criteria are met, the relevancy of a compilation engagement should be discussed with us.
Scott Park & Co Inc. will be required to discuss and document our understanding of your business and operations, the nature of your accounting systems and the maintenance of your accounting records in more detail than we have previously. Any significant judgments that Scott Park & Co Inc. assists you with (such as estimating an allowance for potentially uncollectible accounts receivable) will need to be discussed with you so that you can accept responsibility and understand the impact of these matters on the compiled financial information.
New Report Format
A new Compilation Engagement report (replacing the former ‘Notice to Reader’) will be utilized, an example is provided in the separate engagement letter we will provide to you. The new report provides greater detail as to the specific responsibilities of management and Scott Park & Co Inc. as your accounting practitioner. A compilation engagement still does not provide any form of assurance on the compiled financial information.
The summary above is a high-level overview of the changes under the new standard for compilation engagements. We look forward to having a conversation about how these changes will impact our year end process with you. If you have any questions or need further information, please feel free to reach out to us.
Disclaimer: The blogs posted on Scott Park & Co Inc. website provide information of a general nature. These blog posts should not be considered specific advice since each person's personal financial situation is unique and fact specific. Please contact us prior to implementing or acting upon any of the information contained in one of our blogs. Scott Park & Co Inc. cannot accept any liability for the tax consequences that may result from acting based on the information contained therein.
C A T E G O R I E S
P O P U L A R P O S T S