What Is a Compilation Engagement (Formerly Notice to Reader)?

As a small business owner, you're focused on running your company — not decoding accounting terms. But when it comes to year-end financial statements, you'll likely hear terms like compilation engagement, review engagement or audit. So what exactly is a compilation engagement, and do you need one?

What Is a Compilation Engagement?

A compilation engagement is a service in which a Chartered Professional Accountant (CPA) compiles financial statements from information provided by the business. It is the most basic level of service a CPA provides on financial statements and is commonly used by small and medium-sized businesses in Canada.

Compilation engagements are performed under Canadian Standard on Related Services (CSRS) 4200, Compilation Engagements, which replaced the previous standard, Section 9200, for periods ending on or after December 14, 2021. The finished product is a set of compiled financial statements accompanied by a Compilation Engagement Report from the CPA.

The CPA does not audit, review or verify the information you provide. In simple terms: compiled financial statements are a formal presentation of your financials, prepared by a CPA, with no assurance provided.

Compilation vs. Review vs. Audit

When Do You Need a Compilation Engagement?

You may want compiled financial statements in several common scenarios:

• You're incorporated and want year-end financial statements to support your T2 corporate tax return
• Your bank or lender asks for CPA-compiled statements as part of a loan application or annual reporting
• You have shareholders who want regular financial statements
• You want professional financials for internal planning or tax filing

If a lender or other third party is asking for statements, check what they need. Some require a review or audit rather than a compilation.

What's Included in a Compilation Engagement?

A typical set of compiled financial statements includes:

• Balance sheet
• Income statement
• A note describing the basis of accounting used
• Other notes, where needed
• The Compilation Engagement Report from the CPA

The statements are compiled using information you or your bookkeeper provide. Management is responsible for that information and for the basis of accounting used. That basis may be Accounting Standards for Private Enterprises (ASPE) or another basis, such as an income tax basis or cash basis, and it is described in a note to the statements. Each page of the statements refers to the Compilation Engagement Report.

Do All Businesses Need One?

Not necessarily. The CRA does not require financial statements to be compiled by a CPA. Corporations report their financial information to the CRA with the T2 return using the General Index of Financial Information (GIFI). If you're a sole proprietor or running a very small operation, you may not need formal financial statements at all. That said, many incorporated businesses choose to have compiled financial statements prepared each year, and lenders or shareholders may ask for them.

Why Work with a CPA?

Even though a compilation provides no assurance, it is still performed under professional standards. A CPA performing a compilation engagement follows CSRS 4200, presents your financial information clearly on the stated basis of accounting, can coordinate the statements with your T2 corporate tax return, and issues a Compilation Engagement Report that tells readers what was and wasn't done.