Free consult & free copy of book

E-Myth – “Why most small businesses don’t work & what to do about it”

Contact Us


Most 5 star CPA Google reviews in Canada

Read Reviews

Chartered Professional Accountants E Myth

1 Fixed Monthly Fee - Planning | Accounting | Taxes | Consulting

Helping Canadian businesses beat the odds!

Accounting Outsourcing | What Financial Statements Do Banks Require

Business owners often approach their accountant thinking that they need to prepare an audit or reviewed financial statement they donít know why says accounting outsourcing. As Warren Buffett was famous for saying, ìaccounting is the language of businessî. Helping business owners understand that language can help them understand what they need in their business and become even more successful and grow their business. When business owners are applying for loans, they should be able to understand what the bank is requesting of them, so that they can provide the documents that is needed.

Accounting outsourcing says that understanding the difference between three different types of financial statements that accountants can provide to business owners can help them understand what they need when the bank asks them to provide financial statements in order to secure a loan. Notice to reader is the most common financial statement for a small business to get, this has been verified by the accountant as arithmetically correct and the numbers are plausible. The reviewed financial statement the accountant has tested the reasonability of the numbers to ensure that this numbers are not just plausible but believable. This takes more time for an accountant to produce, and therefore has a higher cost associated with it. Audited financial statements actually got their numbers confirmed by the accountant, they do this by speaking with the bank on amounts, as well as using the Accounts Receivable report to verify that the amounts that are outstanding are accurate and the money is still coming in. This takes a significant amount of time for the accountant to confirm, and is the most expensive out of all of the financial statements to prepare.

Banks used to require entrepreneurs get audited or reviewed financial statements in order to apply for a loan. Accounting outsourcing says the reasons behind that was so that the banks could verify the numbers and the financial statement as accurate which was important when they are approving loans. However, itís becoming more and more common that banks and financial institutions are requiring good interim statements. The reason for that, is because itís becoming more apparent that determining the financial viability of the business as it is now is a much better indicator of financial health of the business then financial statements from a previous year. Because of this, business owners are being requested to provide accountant prepared interim statements as well as financial statements when they are applying for a loan.

Itís often counterproductive for business owners to provide both audited financial statements and good interim statements says accounting outsourcing, simply because an accountant who is preparing audited or reviewed financial statement has a fiduciary duty to the bank to remain impartial and objective. Because of this, accountants that are working on reviewed or audited financial statements are not allowed to work on the interim statements. Which often create hardships for business owners who have been requested to get both in audited financial statement and good interim financial statements for their bank.

It used to be very commonplace for financial institutions to request entrepreneurs to prepare audited financial statements in order to qualify for loans says accounting outsourcing. However, business owners should be aware that banks are no longer requiring audited financial statements in favour of getting accountant prepared interim statements. Being able to tell the financial health of the business presently is a lot more valuable to a financial institution than verifying the numbers in last yearís financial statements.

Even when a business owner is applying for a loan that is more than $1 million, banks are still allowing business owners to provide notice to reader financial statements as long as theyíre also providing accountant prepared interim statements. If entrepreneurs who applied for loans a few years ago donít go back to the bank to see what the new requirements are, may be approaching their accountant and asking them to prepare reviewed or audited financial statements. if thatís the case, they may be asking their accountant to do more work than is absolutely necessary, and also creating difficulties for themselves at the same time. Banks are approving loans for more entrepreneurs at a large amount, even over millions of dollars based on notice to reader financial statements.

If a business owner has asked their accountant to prepare audited financial statements when itís not necessary, when the bank then requests that the business owner also provides accountant prepared interim statements, the business owner may be in a difficult situation, as their accountant is preparing an audit for them is not able to prepare good interim financial statements. In order to comply with the bankís apartments, the entrepreneur must then hire a second CPA in order to provide that interim statement. By being aware of the requirements ahead of time, business owners can ensure they ask their accountant to provide only what the bank needs, so that they can be approved for their loan without going to additional amounts of work, or paying large amounts of money.

Business owners are applying for loans, they should be sure of what the requirements are from their bank, and even if there bank requests that they get audited financial statements, a business owner should question that. As banks and financial institutions are changing their position on only requiring notice to reader financial statements, that information is not making on to all loan applications, which causes a business owner and the bank to believe that they need to still provide reviewed or audited financial statements. By being aware of this change, and questioning the bank, or asking their accountant to check with the bank was absolutely necessary, can help the business owner save time as well as money which is very important when they are applying for a loan. Since business owns can take a long time to approve, saving time is extremely important to business owners.