Audited Financial Statements

Financial Statements

Accounting Standards and Financial Statements

Highly-valued businesses know a Chartered Professional Accountant (CPA)'s key role in their operations. CPAs are not just involved in bookkeeping, which is simply the recording of financial transactions, but their responsibilities reach much further. They interpret, analyze, summarize, and communicate financial data to relevant parties. Unlike standard bookkeepers, CPAs handle complex, non-routine transactions. At ProBusiness Tax and Accounting, we understand the necessity and power of Accounting Standards. These standards provide the roadmap for our professional accountants to navigate the intricate world of finance, thus enabling them to perform their indispensable roles.
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Choosing Accounting Standards: GAAP and IFRS in the Canadian Business Environment

In the Canadian business environment, companies can adopt one of two classifications of Accounting Standards to guide their financial reporting. The choices available include:

  1. Generally Accepted Accounting Principles (GAAP), which could be Canadian or USA oriented, with the Canadian version of the Accounting Standards for Private Enterprises (ASPE).
  2. International Financial Reporting Standards (IFRS)

Alternatively, businesses might opt for non-GAAP reporting, applicable in specific scenarios such as tax planning or management purposes. The options here include the following:

  1. Accrual basis
  2. Cash basis - exclusive to farming or fishing businesses in Canada or for self-employed commission sales agents for tax purposes.

At ProBusiness Tax and Accounting, we help you navigate these choices, ensuring your financial reporting aligns with your business needs while complying with all relevant standards.

Understand Your Financial Statements Better with ProBusiness Tax and Accounting

Deciphering the jargon in financial statements can be overwhelming. So whether you're seeking assurance or non-assurance, ProBusiness Tax and Accounting is your reliable partner to help you navigate Canada's financial statement landscape.

What Does Financial Statement Assurance Mean?

Canada has two categories of financial statements: assurance and non-assurance, each with distinct types - audit, review, and notice to the reader. In the context of assurance, it implies that a professional accountant confirms the financial data's material correctness.

When a financial statement bears assurance, a Certified Professional Accountant (CPA) has audited or reviewed it, offering a report to enhance your confidence. In addition, as a prerequisite, some investors or lenders may demand an audited or reviewed statement in exchange for their participation. Therefore, CPAs must utilize the Generally Accepted Accounting Principles (GAAP) for audited or reviewed statements.

Non-assurance, or 'notice to reader' statements, on the other hand, can be compiled by any accountant without the necessity for GAAP. These statements are limited in utility and are typically used solely for tax purposes since they are based on company-provided information.

Understanding Audited Financial Statements

An audited financial statement represents the pinnacle of assurance. After meticulous scrutiny based on generally accepted auditing standards, an independent auditor offers a report vouching for the statement's fairness. This offers the highest level of assurance that an accountant, as an auditor, can provide.


Financial Statement Reviews and Their Importance

One notch below an audit is a financial statement review conducted by an independent accountant. The goal is to obtain limited assurance that material modifications are unnecessary for the statement to comply with the relevant financial reporting framework, such as IFSR, ASPE, or US GAAP.


The Role of 'Notice To Reader' Financial Statements

'Notice to Reader' financial statements are prepared without an audit or review and must carry the same assurance or reliability level. This type of financial statements can be prepared by uncertified accountants or bookkeepers, typically using accounting software, and they don't not need to be independent. However, a 'Notice to Reader' letter discloses that they must provide more assurance. A CPA's standards and experience can improve the statement's quality compared to those produced by uncertified individuals.

IFRS: The International Perspective

The International Financial Reporting Standards (IFRS) aim to foster consistency across different jurisdictions, primarily for multinational and public corporations. Canada adopted IFRS in 2011, though small businesses might find the implementation costs. Also, as the United States still needs to adopt IFRS, businesses with a US interest might prefer US GAAP.

The ASPE Alternative

The Accounting Standards for Private Enterprises (ASPE) is an alternative to IFRS, designed for private enterprises. Adopted in Canada in 2011, ASPE offers flexibility and alternatives suitable for different business sizes.

Non-GAAP: The Accrual Basis for Tax Purposes

In scenarios where audited or reviewed statements (and consequently, GAAP) aren't necessary, the only relevant standard is the tax reporting requirement. In Canada, this requires accrual accounting unless exempted by law. Such statements are typically simple and provide limited information, which may only meet the needs of some readers or third-party users.

ProBusiness Tax and Accounting is here to make sense of these intricate details for you. So trust us to provide top-tier services for your financial statement needs.

Selecting an Accounting Standard and Financial Statement

Accounting standard
Beneficial or required when:
Typical Financial Statement
Publicly accountable in Canada