Accounting Outsourcing | What Are Review Engagements
Itís very important for entrepreneurs to understand the difference between the three financial statements that accountants can prepare says accounting outsourcing. There are notice to reader financial statements, reviewed engagements, and audited financial statements. Each of them contains the same information in them, but how they are prepared and the amount of due diligence that goes into each one is but itís different. Entrepreneurs should understand the difference between each of them, so they know what type of financial statement is required and when.
Notice to reader financial statements are the most common financial statements for business owners to be asked to prepare. The accountant will ensure that the balance sheet balances, the numbers are arithmetically correct. This will be tested, the numbers considered plausible. This takes the least amount of time to prepare, and because of it is also the most inexpensive to produce. When businesses are doing their financial year end in order to submit to CRA, this is the statements that is created.
Reviewed engagements contain the same information as noticed to reader financial statements, but more than just be arithmetically correct, accountant will test the reasonability of the numbers to ensure that the numbers are believable. Because it takes more time to produce, this is also reflected in the price. This is less done than noticed reader financial statements.
The last type of financial statements is audited financial statements is accounting outsourcing. This also contains the same information, but all of the numbers have been confirmed as accurate by a chartered professional accountant. This means the accountant has gone to the bank to verify totals is accurate, they have spoken to customers with outstanding balances as well as vendors to verify that all outstanding amounts are correct and that any outstanding balances are still arriving. This takes a significant amount of time for an accountant to prepare, and because of that is extremely cost prohibitive. Also, when accountants are preparing and audited financial statements, their fiduciary duty is to the external source that has requested it. They are not working for their client at this point, but for the bank, Board of Directors or whoever requires this report from the business owner. They must remain unbiased and objective.
It used to be extremely commonplace for banks to acquire entrepreneurs to prepare reviewed engagements or audited financial statements in order to grant loans says accounting outsourcing. However, banks are starting to relax this rule, in favour of getting noticed reader financial statements as well as accountant prepared interim financial statements. Rather than spending additional money on verifying the previous years numbers are accurate, banks are starting to prefer interim statements that show the current financial health of the business. Because itís much more important for banks to know the current financial state of the business, extremely large lows are being granted based on notice to reader from Staples as well as interim statements entrepreneurs should be aware of this before they approach their bank in order to secure a loan.
Many entrepreneurs believe that they require reviewed engagements or audited financial statements in order to qualify for bank loans says accounting outsourcing. However, banks are starting to relax their positions on what they require, and entrepreneurs should be aware of this. Rather than requiring business owners to spend additional funds on ensuring that they numbers in their financial statements are accurate, banks are recognizing that itís or more important for business owners to show the current financial health of their business through accountant prepared interim statements.
Itís very important that entrepreneurs are aware of this before they approach their accountant, because while many business owners assume that they still need to prepare reviewed engagements or audited financial statements, this is becoming less the case. If their accountant is currently working on reviewed engagements or audited financial statements, it may put a business owner in a tough spot says accounting outsourcing. The reason is, when accountants are prepared reviewed engagements or audited financial statements, they must remain objective and unbiased because at that point, they are working for the bank in order to verify the numbers and they are no longer working for their client at that moment. Because of that, accounting outsourcing this is that those who are working on reviewed engagements or audited financial statements, are not able to provide good interim financial statements.
Before an entrepreneur approaches their accountant to get them to start working on reviewed engagements or audited financial statements, they should verify with the bank what is needed in order to qualify for that loan so they donít put themselves in a difficult situation. If the bank has told them that they require reviewed engagements or audited financial statements, business owners should approach their chartered professional accountants, asked them to verify with the bank. You may be able to convince the bank that if theyíre going to require good statements later on, that they should be allowed to provide noticed reader statements instead, in order to avoid the difficult situation of not being able to prepare both statements for the bank.
Many entrepreneurs believe that depending on the size of the loan, they would be required to provide reviewed mental statements, accounting outsourcing says that itís becoming more and more commonplace for banks to be lonely large sums of money well into the millions based on providing noticed financial statements and good interim financial statements. Business owners should always be mindful of asking the bank and their accountant what is required before they start doing any work. Since it takes a long time to qualify for a business loan, business owners should be mindful of that and only do the work that is required of them to help them speed the process along.
By understanding what is required by the bank, business owners and their chartered professional accountants can ensure that they are providing the correct documents to their financial institution, ensuring they are doing as much work that is required, but not more work than is needed.