Services · Audit and Accounting
Audit, review, and accounting for Ontario private companies
Year-end financial statements at the level your lenders, investors, and shareholders need, with the corporate tax return built from the same numbers. Amir Rosenthal, CPA, CA, LPA, CBV, CFF, is a Licensed Public Accountant in Ontario.
Three levels of year-end financial statements
Not every company needs an audit. In Canada there are three common levels of work on a private company’s annual financial statements. They differ in how much comfort, or assurance, they give to someone reading the statements, and in how much work is involved.
Compilation, review, or audit: how they compare
Compilation
CSRS 4200
- Assurance
- None. The accountant compiles statements from the information provided.
- Typical work
- Organizing the records, preparing the statements, and checking for obvious errors.
- Often used for
- Tax filing and management use, when no one requires more.
Review engagement
CSRE 2400
- Assurance
- Limited. Nothing has come to the accountant’s attention suggesting a material misstatement.
- Typical work
- Inquiry of management and analytical procedures.
- Often used for
- Lenders or shareholders who want independent comfort without the cost of an audit.
Audit
Canadian Auditing Standards (CAS)
- Assurance
- Reasonable (high, but not absolute). The auditor gives an opinion on the statements.
- Typical work
- Testing evidence: confirmations, inspection of records, and assessing internal controls.
- Often used for
- Investors, larger lenders, agreements that require it, or companies without a section 148 exemption.
Do you need an audit?
The Ontario Business Corporations Act generally requires a corporation to appoint an auditor. Under section 148, a corporation that is not offering its securities to the public is exempt for a financial year if all of its shareholders, including holders of non-voting shares, consent in writing for that year. Many private companies use this exemption every year. Even so, a bank, an investor, a franchise or shareholder agreement, or a prospective buyer may ask for a review engagement or an audit.
Licensing in Ontario
Under Ontario’s Public Accounting Act, 2004, assurance engagements such as audits and reviews are “public accounting” when others, such as a bank or investor, can reasonably be expected to rely on them, and must be performed by a licensed public accountant. A compilation that third parties are expected to rely on also requires a licence unless it carries the prescribed notice. Amir Rosenthal holds the LPA designation, so all three levels can be done in the same practice.
Year-end accounting and corporate tax
An engagement can include the year-end adjusting entries, the financial statements, and the corporate income tax return (T2), so the tax filing matches the statements. Private companies usually report under Accounting Standards for Private Enterprises (ASPE). Not-for-profit organizations have their own standards. For tax planning around the year-end, see owner-managed businesses and tax planning and tax returns.
Who this is for
- Private companies that need year-end statements and a T2 return.
- Companies whose lender, investors, or shareholders require a review or an audit.
- Companies preparing for a sale, where a buyer will look closely at the statements (see selling a business).
- Charities and not-for-profits reporting under ASNPO (see charities and not-for-profits).
This page is general information. Whether an audit is required, and which standards apply, depends on your corporation, its agreements, and who relies on the statements.
Related pages: high net-worth individuals, owner-managed businesses, Ontario accountant, and all services.
Audit and accounting questions
What is the difference between a compilation, a review, and an audit?
A compilation (CSRS 4200) puts your financial information into financial statements but gives no assurance. A review engagement (CSRE 2400) gives limited assurance, mostly through inquiry and analysis, that nothing has come to the accountant’s attention suggesting the statements are materially misstated. An audit (Canadian Auditing Standards) gives reasonable assurance and involves testing evidence, such as confirming balances and examining records.
Does my Ontario corporation need an audit?
The Ontario Business Corporations Act generally requires an auditor, but under section 148 a corporation that does not offer its securities to the public is exempt for a financial year if all shareholders, including non-voting shareholders, consent in writing for that year. Many private companies rely on that exemption. Lenders, investors, or agreements may still require an audit or a review.
Who is allowed to perform an audit or review in Ontario?
Under Ontario’s Public Accounting Act, 2004, audits and review engagements that others are expected to rely on, and compilations that third parties are expected to rely on without the prescribed notice, are “public accounting” and require a public accounting licence. Amir Rosenthal is a Licensed Public Accountant (LPA) in Ontario.
Which level should we choose?
It depends on who will rely on the statements and what they require. A bank covenant, an investor, a shareholder agreement, or a buyer may set the level. If no one requires more, a compilation is often enough for tax filing and management. The choice is discussed before the engagement starts.
What accounting framework is used?
Most Canadian private companies report under Accounting Standards for Private Enterprises (ASPE), Part II of the CPA Canada Handbook. Not-for-profit organizations have their own standards in Part III. The framework is confirmed at the start of the engagement.
Is corporate tax part of the work?
Yes. Year-end statements and the corporate tax return (T2) are usually prepared together, so the tax filing reflects the same numbers as the financial statements.
Complimentary discussion
If a lender or investor has asked for a particular level of statements, mention it when you call or write.