A change to CPA standards will soon impact on the scope of work we do for many of you.
This change, which has been years in the making, updates the rules for preparing and presenting certain types of financial statements. The goal is to make “Notice to Reader” style financial statements more meaningful – both to you as the business owner, and to whoever else ends up viewing them.
All CPA firms will have to adopt the new standards for fiscal years ending December 14, 2021 and beyond.
Lohn Caulder is planning for a seamless transition to the new standard. Clients should only notice small changes – a slightly altered look to your financial statements, and being asked a few additional questions each year. A brief summary of these changes follows.
What is Changing?
The new standards shouldn’t change the numbers on your financial statements, but they will add additional context. The changes can be found in 2 primary areas:
- Compilation Engagement Report: This is the new name for the “Notice to Reader” report found on page 3 of your statements. It will be quite a bit longer than what you are used to seeing. Most notably, it now describes the responsibilities of both management and practitioner. You can see an example of a the new wording on page 5 of the CPA Canada briefing
- Basis of Accounting Note: The “Basis of accounting” note will describe the accounting method used in your business (most commonly: cash basis, accrual basis, or a mixture of the two). Many of business owners won’t know how to describe their ‘basis of accounting’, so we will help. But please keep this in mind: you will be asked to acknowledge responsibility for the basis of accounting, so please ask as many questions as you need to!
In practical terms, implementing the new standard means we, the accountants, will be collecting more information from you, the business owners. Please bear with us if we ask more questions than usual. Some typical questions include:
- Enquires about the intended and expected users of your financial statements.
- Discussions about the methods of accounting you use.
- Asking you to sign Engagement and Management Representation letters before releasing the financial statements.
- Filling in gaps in our knowledge of your business. This could include things such as the number of people you employee, additions to your product line, or changes to your corporate structure.
For anyone who really wants to dig in we recommend this summary from CPA Canada: Compilation Engagements Management Briefing. Or, as always, give us a call or send us an email.