Most Canadian private companies never need an audit. What they do need — often at the request of a bank, a funder or their own board — is a review engagement, and occasionally a full audit. The preparation is broadly the same, and the businesses that find it painful are almost always the ones that start preparing after the year end rather than before it.
First, know which engagement you actually need
The three levels of service are not interchangeable, and being clear on which one applies saves both cost and argument:
- Compilation — financial information assembled from what you provide, with no assurance expressed. Adequate for many owner-managed businesses and for filing a corporate return.
- Review engagement — limited assurance. The practitioner performs enquiry and analytical procedures and concludes whether anything has come to their attention suggesting the statements are not plausible. This is what most lenders and most not-for-profit bylaws call for.
- Audit — reasonable assurance, the highest level. Substantive testing, third-party confirmations, control evaluation and an opinion on whether the statements are fairly presented.
If a lender has asked for “audited statements,” it is worth confirming what they mean before committing to the cost. In our experience a meaningful share of those requests are satisfied by a review engagement, and nobody asks the question until the invoice arrives.
Reconcile everything, and reconcile it early
The largest single driver of engagement cost is unreconciled accounts. Before the fieldwork starts, every balance sheet account should tie to something external or to a schedule you can defend:
- Bank and credit card accounts reconciled to statements for all twelve months, with no stale outstanding items carried forward
- Accounts receivable agreeing to an aged listing, with a considered allowance for anything genuinely uncollectible
- Accounts payable agreeing to an aged listing, including invoices received after year end for pre-year-end work
- Inventory supported by a physical count taken at or near the year-end date, with the valuation basis documented
- Loans agreeing to lender statements, with the current and long-term portions split correctly
- Payroll liabilities agreeing to CRA remittance records, and HST agreeing to filed returns
Have the supporting documents ready, not findable
There is a real difference between “we can get that” and “here it is.” Assemble in advance: signed loan, lease and financing agreements; invoices for every asset addition and disposal; the minute book with resolutions for dividends, salaries and share transactions; insurance policies; and any new contracts that change how or when you recognise revenue.
For a not-for-profit, add board minutes, funding agreements with their reporting conditions, and documentation of restricted versus unrestricted funds. Fund accounting errors are the most common finding we see in the sector, and they are almost always fixable before the engagement rather than during it.
Know where the judgement calls are
Your practitioner will focus on the areas where the numbers depend on estimates rather than invoices — revenue recognition and cut-off, work in progress on incomplete jobs, allowances for doubtful accounts, inventory obsolescence, accrued liabilities, and related party transactions.
Go into the engagement with a written rationale for each of these. Not a defensive one — simply a record of what you decided and why. It moves the conversation from “justify this” to “here is the basis,” and it is the clearest signal that the file is under control.
Sort out last year’s adjustments
If the prior engagement produced adjusting entries, confirm they were actually posted to your books rather than living only in the accountant’s file. Opening balances that do not agree to last year’s closing statements will be found immediately, and unwinding them is tedious and entirely avoidable.
Treat it as a deadline that works backwards
A corporate return is due six months after the fiscal year end, but the assurance engagement has to be finished well before that, and lenders usually impose their own earlier deadline. Work backwards from the date the statements are actually needed, not from the CRA filing deadline, and agree a timetable with your practitioner before the year end rather than after it.
What a good engagement should leave behind
A review or audit that produces only a signed set of statements has done the minimum. The version worth paying for also leaves you with a clear picture of where your internal controls are thin, which processes created the most adjustments, and what to change so next year costs less.
We provide review engagements, compilations, audit support and ASNPO reporting for businesses and non-profit organizations across Canada. Get in touch to discuss your year end, or see our full range of services.
This article is general information, not advice for a specific situation. Please confirm the requirements that apply to your organization before acting.
