Canadian small businesses are going to experience substantial changes to year-end financial statements in December 2021.
This text will review the forthcoming changes along with important points for business owners to consider moving forward.
1. Who exactly do these changes affect?
The adjustments will affect a huge amount of Canadian small businesses.
Small Canadian business owners who appoint an accountant to prepare “Notice to Reader” financial statements. These are also called “NRTs”, “Compilation Engagements”, and “year-end financial statements”.
If your year-end financial statements are not “Audited/Reviewed” by an accountants Mississauga, it can cause a negative impact to you and your business.
2. What do you call these changes?
The “Notice to Reader” financial statements are going to be known as “Compilation Engagement” financial statements. The specific standard that many may be used to seeing is Canadian Standard on Related Services 4200 along with CSRS 4200.
3. When Do the Changes Take Effect?
These changes will be taken into effect for recorded financial statements for cycles ending by December 14, 2021 or after the resulting date.
4. Why are the guidelines of financial statements changing?
Many factors are taken into consideration for changes to be made. The sole reasons are summarized below!
Standardizing the Amount of Work Put in by Accountants.
There is a broad range of work accountants do while preparing Notice to Reader Financial Statements.
As of now, your accountant is only entitled to get your financial information and put it onto financial statements. It can even mean bringing pieces together just for the compiling of an income statement and balance sheet.
5. Who is entitled to utilize Financial Statements?
The existing “Notice to Reader” standard presumes that financial statements are just going to be used within business owners and their administration. Though, in actuality banks and investors have access to these financial statements as well so that they can obtain loans and external investments.
To make sure Third Parties know what Compiled Financials imply.
Since there is such an array of the work accountants put in when preparing Notice of Reader financial statements, third parties such as a bank or investor might not know what they are staring at.
In example, a prospective investor will find that the accountant that produced the Notice of Reader statement merged bank accounts and asked for the firm’s financial information.
Even if that is not the case, the accountant might not even access any of that information which brings in a question of accuracy within the financial statements.
However, the new policy and standards will ensure what procedures the accountants are expected to follow when formulating Compiled Financial Statements. Which will also allow third party corporations to have more confidence with the accountants preparing accurate financial statements.
To Ensure the Basis of Accounting by Businesses are the same.
Reporting Standards today do not necessitate the basis of accounting procedure to be unveiled on financial statements.
Which makes things harder since there can be two different accounting procedures when looking at different businesses.
Thankfully, the changes that are coming up will necessitate the basis of accounting to be stipulated on the financial statements.
6. What does this imply for business owners?
Do you think this will bring any change to you for being the owner of a business?
The accountant you are with will ask you a lot of questions.
Your accountant will get clear insight of your business which will help compile accurate statements. Questions such as
- Basis of Accounting- What Basis of accounting was in use?
- Intended Users- Who will these financial statements go to? Who are the intended users that your business will share these files?
- Third parties such as investors and banks- Will any third-party users be able to get any more information? The accountants will ensure that they have approved based on accounting being in place.
- Consult with an accountant!
You have until December 2021 to ask any questions as the accounting firm will be preparing for the brand-new standards.
If you have not heard anything from your accountant about this change, reach out to them now and examine how it will affect your business.