How do I know what level of assurance is needed?
There are three basic types of assurance engagement for year-end financial statements: the Notice to Reader (NTR), the Review, and the Audit, each of which vary in terms of cost, thoroughness, and level of assurance. So for what sort of engagement should you ask your Toronto audit firm?
To help you understand the three levels of year end engagements, we have outlined them in detail, below, and how they can benefit your Toronto business.
Is the Assurance Only for the Owner and the CRA? An NTR Will Suffice.
An NTR (sometimes referred to as a compilation) is the most basic level of assurance. In an NTR, the accountant simply compiles the statements and records that the business already has on-hand, without offering any investigation as to their accuracy, or opinions as to their feasibility.
The NTR is typically the most inexpensive of the three engagement types, and is commonly used for internal purposes, such as end-of-period compilations or to assist with filing taxes.
Since the NTR doesn’t offer any assurance as to the veracity or feasibility of the records, they are typically not sufficient for banks or other creditors, and they offer no assessment of potential fraud risks, nor do they offer protection from inaccurate information or actual fraud.
Is the Assurance Required by a Bank, or as Part of a CRA Audit? Then You Likely Need at Least a Review.
The Review is the ‘middle option’, offering more assurance than an NTR, and generally at less expense than a full audit. In a Review, the accountant does not provide an opinion on the financial statements, but instead uses financial data analysis and discussions with business leadership to express that everything looks to be in order.
The assurance offered by a review is often sufficient to meet the requirements of banks and creditors, as the review will verify that the records meet accounting standards, and that there does not appear to be any misrepresentation of the figures.
However, while the Review will often be able to identify major discrepancies in the figures reported, it does not confirm the accuracy of these figures, nor does it assess vulnerabilities to fraud or check the efficiency of internal controls or procedures.
Is the Assurance Required for Obtaining Funding, to Prove Compliance in a Highly Regulated Industry, or Requested by an Absentee Shareholder? A Full Audit from a Toronto Firm is Likely Necessary.
A full Audit is the most thorough engagement, providing the highest level of assurance possible. An Audit will take an in-depth look at a number of factors, including an assessment of the organization itself, its control systems, confirming costs and balances with third parties, and even performing physical inventory counts.
A full audit is typically the most expensive assurance engagement, as it offers the greatest level of assurance. As such, it’s most often only requested in instances where a business is subject to intense scrutiny, such as by a governing body or a potential investor or lender.
However, in addition to meeting assurance requirements for third parties, full audits can also be extremely useful for internal purposes. The insights obtained through this thorough assessment of your organization’s internal workings can both inform you of inefficiencies in internal procedures and controls and assess the security and oversight of your finances to identify any fraud risks.
Each level of assurance engagement is well-tailored to match very specific conditions. For a complimentary consultation with a leading Toronto audit firm, contact the team at Fuller Landau LLP, today.