Most corporate entities and not for profit organizations in Canada are required by law to prepare annual financial statements that are audited by a Chartered Professional Accountant with a Public Accounting License. However, certain private corporate entities and small not for profit organizations may opt out of this requirement if they have unanimous stakeholder approval to do so.

If this is a possibility, the entity stakeholders must ask themselves: “what level of assurance do we need from our accountants”? And, the needs of third-party users of their financial statements (such as banks, lenders and investors) must also be considered.

There are several engagement options: 

• Audit
• Review Engagement
• Compilation
• Tax Return Preparation

An Audit Engagement will provide the users of the financial statements with the highest level of assurance. Numerous procedures, including tests of transactions and verification of balances, will be performed by the auditor to provide an opinion as to whether they believe that the financial statements and accompanying disclosures are free from material misstatement in accordance with the appropriate financial reporting framework (such as Canadian Accounting Standards for Private Enterprises). 

A Review Engagement will provide a reduced level of assurance. The accountant will perform procedures primarily consisting of inquiries of management and analytical review. The accountant will not provide an opinion, but rather a conclusion whether anything has come to their attention that causes them to believe that the financial statements and accompanying disclosures are not presented fairly, in all material respects in accordance with the appropriate financial reporting framework. 

A Compilation Engagement is not intended to provide any assurance to the users of the financial statements. The accountant will attach a “Notice to Reader” cautioning the reader to this fact and stating that they have not performed an audit or a review engagement in respect of the financial statements and that they express no assurance thereon. 

Finally, for a Tax Only Engagement an accountant may only be engaged to perform the task of preparing a corporate tax return and otherwise not be involved with the entity’s financial statements and attach no report or notice to those statements.

There are many factors that stakeholders and management of private entities must consider when deciding the level of involvement to be provided by their auditors or accountants – including, but not limited to, their own needs based on the size of the entity, complexity of the accounting systems and number of employees, requirements imposed by third party lenders and interests of potential future users of the financial statements.

If you need guidance on making this decision and more details on what is involved in and provided from each level of engagement, please contact our team of assurance.