NEW STANDARD FOR COMPILATION ENGAGEMENTS

Givens LLP | December 2, 2021

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Dear Valued Client,

Re:New Standard for Compilation Engagements

The purpose of this letter is to explain significant changes that will affect the next engagement for the preparation of your company’s financial statements.  Historically, Givens LLP has provided your company with a compilation and tax engagement. A financial statement compilation engagement is a service that Givens LLP provides to assist you in compiling (but not auditing or reviewing) your financial statements. These statements have included our firm’s “Notice to Reader” report to the users.

As Chartered Professional Accountants, Givens LLP is required to adhere to the accounting standards mandated by our profession’s federal and provincial oversight bodies. Our Institute of Chartered Professional Accountants of Canada (“CPA Canada”) sets the standards for all CPAs. This year, CPA Canada introduced new standards for compilation engagements, which Givens LLP is required to implement.

The reason for the changes to the compilation standard is to improve, and standardize, the information provided in compiled financial statements prepared by all CPAs across Canada. It has become the norm for bankers and others to request the company financial statements of owner managed businesses, whether you are arranging personal or corporate financing. The old accounting standard provided no information about the basis of accounting used in the preparation of compiled financial statements. This resulted in a misunderstanding by users of the statements of the extent of the work performed by the CPA firm.

Our firm’s adoption of the new compilation standard will affect our engagement with your company in the following ways:

1. At the commencement of the engagement Givens LLP. must discuss with management how the compiled information is intended to be used, including whether that information is intended to be used by a third party. In our experience, most clients will provide their financial statements to a lender at some point in the future. Therefore, this will be our default assumption.

When a third party will be using the compiled financial information, management is required to ensure that the third party can request and obtain additional information from the company.

 2. Givens LLP will assist management in selecting the basis of accounting used in the preparation of your company’s financial information and document the policies in the engagement letter between Givens LLP. and you. Examples of common bases of accounting are:

  • Accruals for accounts receivable and/or accounts payable.
  • Accounting estimates of the estimated useful life of furniture, computers, and other assets.
  • Investments recorded at historical cost.

There will now be notes to the compiled financial information to communicate the basis of accounting to the users of the financial information.

3. We are required to document in our files an understanding of your business, and how you record the financial transactions. You may find that we will be asking you more questions about your business and bookkeeping procedures.

 4. The compilation report that we sign and attach to your financial information will change to include more information on our involvement with preparation of the information, as well as management’s responsibility for the accuracy and completeness of the information.

The partners of Givens LLP endorse the change to the compilation standard, as it improves our knowledge of your business allowing us to better serve you and provides you with improved financial information. However, our compliance with the new professional standard, which is required to retain our license to provided accounting services as CPAs, will add time to the completion of our engagement. An increase in your accounting fees is to be expected.

This new standard does not affect the work we do preparing your company’s T2 Corporation Income Tax return.

We have attached an information sheet that provides a condensed version of the new standard. If you have any questions, or would like to discuss any of our services, please feel free to call your Givens LLP partner or senior manager.

Yours sincerely,

Jessica Harquail CPA, Partner
Patrick Sanders CPA CA CGA, Partner
Tim Gilchrist CPA CGA CIA CFE, Partner
Terry Brown CPA CGA, Partner (Retiring)