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Notice to Reader Financial Statements

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If you have ever applied for a bank loan or sought investors for your company, you may be familiar with Notice to Reader financial statements.

Notice to Reader, or NTR, financial statements, are a requirement for a number of financial activities that could affect a business. Reporting finances to shareholders at year-end, seeking new investors, obtaining a loan from a bank - these are all situations that may require a Notice to Reader financial statement.

How can your business benefit from Notice to Reader financial statements? Accountor CPA can help you determine what type of financial statement is best for your company.

What is a Notice to Reader Statement?

A Notice to Reader Report, also known as a Compilation Engagement or Compilation Report, is a type of financial statement for businesses. It is a compilation of financial statements provided by management and prepared by accountants.

Importantly, a Notice to Reader report does not provide assurance on the correctness of the financial statements. It is meant to provide a level of trustworthiness for a company in the eyes of shareholders, investors, directors, and others with vested interest in a corporation. For more in-depth financial statements, a business will need to obtain Review Engagement or Audited Review financial statements.

A Notice to Reader report is still likely to be far superior to a business financial statement provided by an uncertified bookkeeper using accounting software in-house. A Notice to Reader report by an accountant is held to the high standards of the Chartered Accountant designation.

Why Are Notice to Reader Financial Statements Needed?

NTR financial statements can be used in a number of situations to lend credibility or to fulfil requirements.

  • Annual reporting to owner

    Although this may not be required, a business owner or shareholders may want a formal NTR to be prepared for their own uses or to add to their corporation binder with board meeting minutes.

  • Bank loans and creditors

    An NTR financial statement is a very common requirement by banks and creditors to evaluate the trustworthiness of a business when providing loans or credit.

  • Investors

    While most investors in corporations will require reviewed or audited financial statements, investors in start-ups or smaller businesses may simply require a Notice to Reader.

  • Selling a business

    When selling a business, prospective buyers will want to see NTR financial statements from 3 to 5 years prior to complete their due diligence. For larger business deals above $5 million, reviewed or audited financial statements will likely be required.

  • Income tax filing

    A Notice to Reader financial statement can be prepared during year-end income tax filing by an accountant to ensure you do not overpay your taxes due to overstated income.

Who Can Sign a Notice to Reader?

A notice to reader financial statement must be signed by an external chartered accountant. Even if a business has a sophisticated financial or accounting team in-house, they must use an external CPA (Chartered Professional Accountants) to create and sign a Notice to Reader.

A common misconception about Notice to Reader financial statements is that in-house staff can produce them with the aid of accounting software. Accounting software can produce balance sheets, cash flow statements, and income statements for your review, but do not qualify as Notice to Reader statements.

What is the Notice to Reader Cost for Preparation?

The fees for an accountant to create a Notice to Reader financial statement vary depending on the business. There will always be an associated cost, as only a chartered accountant can make these. If an accountant has to prepare a Notice to Reader statement for multiple years of financial records at one time, it will have a higher cost than if they are creating an NTR for one year. Similarly, a larger business will have a higher cost for preparation than a start up or a small business.

A Notice to Reader will typically have a lower rate than a review engagement or audited review statement because of the level of review and verification required for these types of financial statements.

It is always recommended to consult with your accountant to determine how often they should prepare Notice to Reader statements, whether or not they are required at the time, to save time and money in the future.

How To Prepare a Notice to Reader Financial Statement

Typically, chartered accountants produce Notice to Reader statements at the end of a company’s fiscal year - usually December 31st.

The team at Accountor CPA usually requires the following documents and adheres to these steps to create NTR reports:

  1. Obtaining the trial balance - a summary of all transactions recorded into bookkeeping software
  2. Scanning the company’s accounts to observe anything that may be erroneous or missing
  3. Preparing to adjust journal entries to correct errors or omissions, such as accrued expenses, taxes, or depreciation of fixed assets.
  4. Grouping accounts to which adjusting entries has been completed
  5. Using the Notice to Reader statements for year-end corporate tax returns
  6. Updating the NTR report with the final adjusting entry for the tax return Providing the Notice to Reader to report to relevant parties

Components of an NTR in Canada

A Notice to Reader financial statement differs from other types of CPA-prepared financial statements in how it is prepared and the components involved. A Notice to Reader report has three main elements.

  • Nature of assignment

    The report must explicitly state the nature of work that the accountant is required to perform. The accountant should include that the compiled financial statements were prepared based on information provided by management or owners of the company and that he or she did not conduct an audit or review of the statements. This is to separate it from other types of financial statements and to caution the user against interpreting the report as fully verified.

  • Scope limitation

    The scope limitation informs users that there is no form of assurance that is expressed within the financial statements.

  • Caution to reader

    The financial statement compilation should include a clear “Notice to Reader” heading to denote that it may not be appropriate for the user’s purposes. It must be made explicitly clear that readers should be cautioned on the level of reliability of the report.

Notice to Reader Sample

Below is a basic Notice to Reader template example that can be customized for a business’ financial statements. The Notice to Reader wording is important for fitting the requirements of an NTR financial statement.

On the basis of information provided by management, we have compiled the balance sheet of ABC Company as of December 31, 2020 and the statement of income and retained earnings for the year then ended.

We have not performed an audit or a review engagement in respect of these financial statements and, accordingly, we express no assurance thereon.

Readers are cautioned that these statements may not be appropriate for their purposes.

Chartered Accountants, Licensed Public Accountants

Place ______

Date _______

Review Engagement vs Notice to Reader

A Review Engagement financial statement is the “step up” from a Notice to Reader. The review engagement is also performed by a chartered accountant but with a higher focus on verification and analysis than a Notice to Reader.

The difference in a review engagement compared to a notice to reader is that your accountant will review all of the numbers provided by management before preparing the statement. They look for internal consistency, analyze specific account balances, and ask for further explanations or details if something seems unusual.

A review engagement statement is more likely to be used when applying for a loan above a certain threshold.

The highest tier of a CPA-prepared financial statement is the Audit Engagement. At this level, the accountant scrutinizes every number and verifies it. An audit also tests your financial reporting routines and practices to find gaps or inconsistencies. Audits are the most trusted financial statements due to the stringent requirements and analysis that goes into them by a CPA.

Prepare a Notice to Reader in Ontario and Canada with Accountor CPA

At Accountor CPA, our team of experienced chartered accountants can provide Notice to Reader financial statements for your small business, SME, or corporation.

If your company needs to prepare a Notice to Reader financial statement, we can help. Contact us today for a consultation.

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