If you’re a small business owner seeking accounting and bookkeeping services, it’s important to be aware of the new standard issued by CPA Canada and the Auditing and Assurance Standards Board (AASB). At CPA4IT, we take pride in the fact that we are always up to date with all the latest laws and standards in order to ensure that our clients’ accounting practices are always compliant with the CRA guidelines.
Here are some things you can start doing immediately to promote awareness, understanding, and effective implementation of the new standard:
Make sure to go through the Free Guidance Material:
The good news is that there is free guidance available to help you understand the changes. The AASB has published a number of resources, which include:
- the full compilation engagements standard
- the Basis for Conclusions
- a brief yet informative news article on the new standard
- a short video featuring the Chair of the AASB
- a practitioner’s alert, briefing and third party briefing specifically tailored to different audiences
- an archived practitioners pulse webinar from July 2020
- and most importantly, the Practitioner’s Implementation Tool which walks your accountant through the steps required to implement CSRS 4200.
Observe how the new standard will affect your accountant’s present engagements
Effective date: Start planning in 2021
Your accountants need to start planning for the new CSRS 4200 standard now. The effective date is December 14, 2021, but earlier application is permitted. This new standard impacts compiled financial information for periods ending on or after that date. So what does that mean for your current engagements with your accountant?
If you’re working with an accountant who isn’t aware of the new CSRS 4200 standard, it’s time to start looking for a new one. But don’t worry. CPA4IT has got your back. Our team of experts is up-to-date on the latest changes in accounting standards, so you can be confident that your financial statements are accurate and compliant.
Engagement Confirmation or Continuance Requirements
When the gathered financial data is going be utilized by a third party, CSRS 4200 provides certain engagement confirmation or continuance requirements that must be met. If the requirements are not completed, you are not allowed to accept the engagement unless the assembled financial information will be prepared using a general-purpose framework as the basis of accounting. To assist you and your accountant in making the choice to accept (or continue) the engagement, the Practitioner’s Implementation Tool has a decision tree.
Reassess the services provided by your accountant
There are some changes to the services you can seek out, depending on what you need.
- Compilation engagements are still performed, but under a new standard: CSRS 4200.
- Bookkeeping is now distinguished from compilation engagements.
- CPA Canada has issued a Practitioner Alert and Practitioner’s Implementation Tool which will help your accountant identify which services fall within the scope of CSRS 4200.
- Their Practitioner’s Pulse Webinar (July 2020) also includes a discussion on scope which may be helpful.
Collaborate with your customers to pick the basis of accounting and the note
The most significant change in practice with the new CSRS 4200 regulations is the requirement to include a note describing the basis of accounting applied in the preparation of compiled financial information. This note will help you and your accountant understand how the compiled financial information was prepared. CPA Canada has released a Practitioner’s Implementation Tool that includes examples of different bases of accounting notes. It is important to work with your service provider to select the basis of accounting that is best suited for your business. Our team of experts at CPA4IT can utilize our decades’ worth of experience to help you decide which basis of accounting is the right fit for your company. However, it is ultimately up to management to ensure that the compiled financial information is prepared using an appropriate basis of accounting.
Re-evaluate your current work effort and documentation practices
If you’re a small business owner looking for help with your accounting and bookkeeping, it’s important to start thinking about how CSRS 4200 will impact the services you’re looking for. The new standard establishes minimum work effort and documentation requirements, so depending on your existing situation, you may see a significant change in the services offered by your accountant or bookkeeper. At CPA4IT, we make sure to always keep our customers in the loop whenever we implement such changes in our services. This ensures that our customers always have the peace of mind that their financial accounts are in good hands.
CPAs Canada’s Practitioner’s Implementation Tool can help walk your accountants through the process of compiling financial information and understanding the related work effort and documentation requirements. It also includes an example extract of possible documentation related to business operations, accounting systems, and records for a simple entity. So if you’re looking for help complying with CSRS 4200, be sure to check it out!
A new compilation engagement report
It is important to understand the new compilation engagement report form that CSRS 4200 requires. This report clearly describes the responsibilities of management and the practitioner, as well as the nature and scope of the engagement. Financial information that falls outside the scope of the standard will not have any practitioner’s communication included or attached, so it is important to note any such exclusions before signing up for services. If your accountant decides, or is requested, to issue a communication on such financial information, the only appropriate form of communication is a compilation engagement report, which means that all the requirements of CSRS 4200 will apply.
Chat with your accountants about the potential impact on them
- Talk to your accountants about the new CPA Canada Standard – CSRS 4200.
- Explain your needs to your accountants and discuss the impact of the new standard with them.
- Refer to the Management Briefing and other resources to help facilitate these discussions.
- Take the help of your accountant to make decisions about the type of service you require.
- Remember that you may need to have discussions with relevant third parties before understanding what type of services you require.
Impact of this change on small business owners
More Questions will be asked by your Accountant
As per the new CSRS 4200 standard, your accountant will ask more questions related to your business. This will help them in achieving a better understanding of your business and how to prepare more accurate statements.
Some of the questions that will need to be answered include: what basis of accounting was used, who are the intended users of the financial statements, and whether or not any third-party users have agreed on the basis of accounting. Having this information ready will help ensure that your accountant can provide the best possible service for you and your business.
Increase in Accounting Costs
The cost of accounting services is likely to go up, because your accountant will now be needing to do more work. But don’t worry – the increased effort will be worth it, as your financial statements will be prepared to a higher standard.
Financial Information by Management’s Responsibility
– The new standard for financial statements holds management responsible for the final version of the statements.
– This usually comes in the form of signing off on the final copy of the statements.
– If you’re already taking a close look at your financial statements and agreeing that they seem acceptable to you, this will take it one step further with written confirmation.
Change in Financial Statements
Accountants will now be issuing a “Compilation Engagement Report” rather than a “Notice to Reader” report. It will also include information on the basis of accounting that was used to compile your financial statements. You may also see a disclosure stating that your financial statements may not be in accordance with any specific reporting framework.
Change in Engagement Letter
If you’re like most small business owners, you probably receive an engagement letter from your accountant every year that’s long and full of legalese. But things will be changing going forward.
Starting this year, accountants will be issuing engagement letters that are specifically tailored to compilation engagements. These letters will outline the objectives and scope of the compilation, as well as the intended use of the financial information and the responsibilities of management and the accountant.
So what does this mean for you? Well, first and foremost, it means that you’ll have a better understanding of what your accountant is doing and what you’re responsible for. Additionally, it can help ensure that your financial information is used for its intended purpose – whether that’s filing taxes or making important business decisions.
When it comes to reporting, the new standard introduces a new form of communication between practitioners and management. This communication should clearly describe the responsibilities of both management and the practitioner, as well as the nature and scope of the engagement. A compilation engagement, however, does not provide any form of assurance. If you require any level of assurance written in the communication, you may want to consider other types of engagements i.e audits and reviews.
Basis of your Accounting – Understanding it Further
An agreed upon basis of accounting would be used as a framework for the CSRS 4200 Compilation Engagement. There are several different options, but the most common is the cash basis. This basis recognizes revenue when it is received and expenses when they are paid. Another option is the cash basis with selected estimates and accruals. This includes recognition of some revenue and expenses when they are incurred, even if they haven’t been paid yet. This option can be helpful for businesses with a lot of transactions that occur over time, like a construction company. A basis prescribed by a contract with a third party is another option. This could be the basis used by a business that sells products to a specific customer or contractor on a contract basis. Lastly, a basis of accounting can also be set by your creditors / landlords with whom you’ve entered into an agreement or contract with. If this is the case, be sure to disclose which financial statement line items are not being carried on the cash basis in your financial statements. This will help ensure transparency and compliance with any agreements you may have in place.
Start putting the new standard into practice
As small business owners and practitioners begin to learn about the new CSRS 4200 standard, a number of them have questions about what it means for them. The Practitioner’s Implementation Tool from CPA Canada includes a wealth of practical information to help with the transition. For example, the one-page diagram summarizes the key components of a compilation engagement under CSRS 4200. Along with detailed explanations of each area including differences between CSRS 4200 and Section 9200, the tool also includes many FAQs. This can be a valuable resource as small business owners work to understand and implement the new standard.
The new CSRS 4200 standard is designed to provide guidance to small business owners looking to learn about compilation engagements. The FAQs in the implementation tool are based on questions received from practitioners and address such themes as how much knowledge you need in order to perform a compilation engagement and what types of engagements are in scope of the new standard. The FAQs also provide practical advice on preparing the compilation engagement report.
Utilize supplementary resources on compilation engagements
- There are a number of resources available to help small business owners and their accountants understand and comply with the new CSRS 4200 standard, including CPA Canada’s compilation engagements resource page and the AASB compilation engagements resource page.
- Both websites provide comprehensive step-by-step guidance, as well as templates, letters and reports.
- Additionally, your accountants and you can find learning and development courses related to the new standard through their respective provincial bodies.
Now that you and your accountant understand the basics of the CSRS 4200, it’s time for business owners to get started on implementation. The Practitioner’s Implementation Tool from CPA Canada is a valuable resource, as are the FAQs in the tool. Additionally, practitioners can find learning and development courses related to the new standard through their respective provincial bodies. But if you are still unsure, don’t worry! CPA4IT is here to help. Make sure to book a FREE consultation with our experts to learn how we can utilize this standard to help you organize finances, create wealth, and transform that wealth into a legacy.