We are writing to inform you of changes for Chartered Professional Accountants and the application of a new standard when conducting compilation (informally referred to as “Notice to Reader”) engagements. The new standard, Canadian Standard on Related Services (CSRS) 4200, Compilation Engagements is effective for periods ending on or after 14 December 2021 and will therefore affect any organizations that have fiscal year ends of 31 December 2021 onwards. The following is a summary of changes to expect:
New Letters
The wording in our engagement letter will be modified in accordance with the new standard. The new engagement letter will include the objective and scope of the compilation engagement, the intended use of the financial information, our responsibilities as the practitioner and your responsibilities and acknowledgments as specified in the new standard.
Users of the Financial Statements
We will ask you whether the compiled financial information is intended to be used by a third party (e.g. your lender). When compiled financial information is to be used by a third party, you must acknowledge that the third party is in a position to request and obtain further information from you or has agreed with you on the basis of accounting before we can accept or continue the Notice to Reader engagement under this new standard.
Basis of Accounting
We will discuss with you the expected basis of accounting. The basis of accounting will be included in the notes to your financial statements. The purpose of this is to assist users in understanding how the compiled financial information is prepared. Examples of bases of accounting commonly encountered in compilation engagements are:
- a cash basis of accounting
- a cash basis of accounting with selected accruals and accounting estimates
- a basis of accounting prescribed by a contract or other form of agreement established
by a creditor or a regulator
We can help you select the basis of accounting; however, the basis of accounting is still your responsibility, and you will be asked to acknowledge this responsibility.
Knowledge of Business
We will discuss with you your business and operations, accounting system and accounting records which will allow us to perform the engagement in accordance with the new standard.
More Discussion, Inquiry and Documentation
We will discuss with you and document any significant judgments that we assist you with in the preparation of the compiled financial information. An example of a significant judgment could include the allowance for doubtful accounts or the recognition and measurement of revenue.
We will be required to review the compiled financial information to identify any areas that appear misleading. If any such areas are identified, we will discuss these with you to determine the appropriate course of action.
Management Acknowledgement
You will have to acknowledge that you take responsibility for the final version of the financial information.
New Report
You can expect a new Compilation Engagement Report to be attached to your compiled financial information. This report more clearly describes your responsibilities as management, the responsibilities of the practitioner and an explanation of the limitations of a compilation engagement. A sample compilation engagement report is attached.
Fees
In this year of transition to the new compilation standards, we expect our professional fees for conducting the Notice to Reader engagement will increase from the prior year. However, the amount of increase in the fees can be minimized if you provide us with the required documentation. We will discuss this with you when planning for the compilation engagement.
If you have any questions about the contents, please contact us. In due course, we will send you our engagement letter to outline the relevant terms governing the compilation engagement and reach out to you for more information.
We appreciate the opportunity of continuing to be of service to your organization. We look forward to a seamless transition to the new compilation engagement standard.
