In my previous blog I was discussing how not all accountants are equal. This is relevant when preparing financial statements. In Ontario, anyone can prepare a set of compilation financial statements to be submitted with a corporation tax return. Compilation financial statements have no assurance expressed on them. In this blog I am going to illustrate why it is important to have compilation financial statements prepared alongside your corporate tax return.
A corporate tax return requires that you report a balance sheet and an income statement. These need to be reported on an accrual or cash basis. Cash basis is exactly how it sounds as you recognize revenues and expenses as you receive or pay the cash. The accrual method is based on when the service is performed.
The reasons I have heard from other accountants include the following:
- It will save the client money due to less fees charged by the accountant.
- Lack of confidence preparing the financial statements.
- They are not necessary.
The thing is, unless you have an accounting professional involved with the day-to-day accounting I firmly believe that a compilation should be prepared by an accountant. An accountant will propose adjustments to the financial statements to make them compliant for tax purposes. As well, when reporting to CRA you need to disclose whether the person that prepared the financial statements has an accounting designation and the type of engagement that was prepared. CRA is probably looking for tax returns that may have a higher risk of being incorrectly reported. This can be costly if CRA were to find any errors as you could be subject to interest and penalties.
Consider hiring an accountant with experience preparing compilations instead of just filing a corporate tax return.