15736 100 Ave N.W. Edmonton, Alberta Canada T5P 0L1
Fax (780)486-4393 -------- Phone (780)484-1133

Bob Mcdonald CMA,ISP (780)484-1133

ABOUT FINANCIAL STATEMENTS

The purpose of a financial statement is to enable a business to establish the result of its operations over a period of time and to determine its worth at a specific date. Financial statements are often prepared by business people to assist them in evaluating their financial condition. Sometimes it is necessary to provide specific financial statements at the request of a banker or supplier. Tax returns require a financial statement when a business is involved. Inhouse financial statements can be in any form that is convenient or acceptable to management. When financial statements are provided to outside parties, however, they are required to be in a standard format and follow specific rules of preparation. A basic set of financial statements will consist of a Income Statement, which shows the profit or loss over a period of time, and a Balance Sheet, which is a summary of the Assets, Liabilities and Equity of the business at a specific date. While in house financial statements are often prepared by the business, expert advice is usually called upon when the statements are to be used by outside parties. There are three types of financial statements which can be prepared by an external accountant. These are called Compilation, Review and Audit. In Alberta, Reviews and Audits can only be performed by licensed Accountants.

1) Compilation Engagements

Compilation Engagements are ones in which the public accountant receives information from the client and arranges it into the form of a financial statement. The public accountant is concerned that the assembly of information is arithmetically correct. The public accountant does not attempt to verify the accuracy or completeness of the information provided. No expression of assurance regarding the financial statements is provided by the accountant. A compilation engagement is acceptable to CCRA. Note: Compilation Engagement can be done by anyone with knowledge of the accounting process, in most juristictions they do not need to be done by a licensed Accountant.

2) Review Engagements

Review Engagements are generally nonaudit engagements in which the financial statements are prepared by either the Public Accountant or by the client and are then subject to enquiry, analytical procedures and discussion by the Public Accountant for plausibility in the circumstances. The objective of review engagements is to add a measure of credibility to the financial statements. If you have financing, or are applying for financing, you will require a review. Note: Review Engagements can only be done by a licensed Accountant. It is important to check with the Society of Accountants, in you province, that the Accountant you choose is licensed to do Review Engagements as some provinces do not accept all Accounting designations.

3) Audit Engagements

Audits are required only in very specific circumstances which usually do not apply to private corporations. Generally accepted auditing standards require that a licensed Accountant plan and perform an Audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An Audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An Audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Note: Audit Engagements, as in Review Engagements, require a licensed Accountant to do the Audit. Again, it is important to check with your province's Society of Accountants to see which designations are accepted to do Audit Engagements.

The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a newsletter such as this, a further review should be done by a qualified professional.
Although every reasonable effort has been made to insure the accuracy of the information contained in this, letter, no individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious,
or any other form of liability for its contents or for any consequences arising from its use.

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Created: 01/07/95 at 5:10:34 AM Updated: 9/12/2004 at 7:48:39 AM