Upcoming changes to reporting standards
The accounting profession is updating the standards by which we report financial information for compilation engagements. In plainer terms, if you receive “Notice to Reader” financial statements each year for your corporation, this change affects you. In general, the work needed for these financial statements is increasing (along with costs). As a client, you may not require these financial statements, and in that case you will only need your corporate tax return prepared. In this case, clients can expect a similar experience as prior years.
WHAT IS CSRS 4200?
In October 2019, the Auditing and Assurance Standards Board (AASB), one of the bodies governing the accounting profession in Canada, released new standards for Compilation Engagements, named Canadian Standards on Related Services 4200 (CSRS 4200.)
These standards take effect for all year-ends subsequent to December 14, 2021.
WHAT IT MEANS FOR METRICS
In adopting these new standards, our file documentation requirements will increase. At Metrics we’ve always strived to have a thorough understanding of our clients’ businesses and their underlying systems; however, there is now a requirement to have this knowledge of business and systems documented to a certain level of detail.
We will also need to articulate and issue financial statement notes regarding the accounting policies which apply to the business. For the most part, statements are produced for tax purposes, and it will be a matter of documenting what exactly that entails from an accounting perspective, but for some, these will be more complicated.
At the end of the day, what it means for us is upon adoption of the standard, is that more professional level time will be required on each file and an increase to some administrative work needed.
WHAT IT MEANS FOR CLIENTS
At first, what this will mean for clients, is increased communication at the outset of the file. We will have more initial questions, such as:
- What third parties (ie. lenders, bonding agents, investors or purchasers) will potentially be using the statements, and whether or not this third party is in a position to request and obtain further information, or if they have agreed with you on the basis of accounting.
- A discussion on the basis of accounting
- Further discussion on the business itself, operations, and accounting systems
- Increased signing requirements, including a new engagement letter (in order to approve the updated report on the financial statements), approval of the statements, approval of any adjusting entries (including those which require professional judgement on our part), and the final trial balance.
This also means there will be an evaluation of reporting needs with your engagement manager at Metrics. These new requirements do not apply to year-end files where only a T2 Corporate Tax Return is required, and depending on your needs (ie. if no third parties aside from CRA will be using the statements), that could be the best option. This means that if you do not need Notice to Reader Financial Statements (for investors, banks, creditors etc), there should be little change to your experience in previous years in terms of turnaround and cost, but you will receive the financial statement summary on the T2 rather than a separate financial statement report.
Our hope is to minimize the interruption and cost of these new standards on both your business and ours, and we plan to achieve that through as much planning in advance as possible so that you’re still able to receive the timely service you’ve grown accustomed to.
You can expect to receive questionnaires from us in conjunction, and possibly prior to, your year-ends to help us ensure that we’re able to meet important deadlines as well as meet the new standards.
If you have any questions as to these new standards and what they might possibly mean for your accounting and advisory needs going forward, please don’t hesitate to reach out.
You can read more about these changes in this briefing from CPA Canada.