Audit, review or compilation: which year-end statements your corporation actually needs

Summary

Three separate parties can ask your corporation for year-end financial statements, meaning the standard set of reports summarising what the company owns, owes, earned and spent over the year. Two of the three can make you pay an accountant to check them.

1. The Canada Revenue Agency, which never requires you to hire anyone to audit your statements, whatever your revenue, assets or industry (a tax audit by the CRA is a separate thing, and not something you buy). Your corporation’s annual tax return, the T2, asks who prepared the figures.¹ Answering that an accountant or a bookkeeper did the work, with no audit or review, is normal and carries no consequence.² (Charities and not-for-profit corporations work differently and aren’t covered here.)
2. The law your corporation was incorporated under. Federally and in every province we checked, shareholders appoint an auditor each year unless the corporation qualifies to waive that appointment. Most of those laws require every shareholder’s consent, renewed annually, so one refusing holder can force an audit. Alberta instead permits a special resolution, meaning a vote carried by a fixed supermajority, so a small minority holder can be outvoted there.
3. A third party you’ve signed something with: a bank, a bonding company that guarantees your jobs get finished, a franchisor, a buyer, or a regulator that licenses your industry. That group names the level of checking it wants, and no shareholder consent gets you out of it.

If you own your corporation outright, nobody else holds shares, and nothing you’ve signed says otherwise, we’d usually recommend buying no outside checking at all. Have year-end statements prepared alongside the tax work, sign the consent every year, and file it in your minute book (the binder holding your corporation’s formal decisions and the list of who owns its shares). What flips that answer is a reporting covenant, meaning a promise inside a loan agreement about which statements you’ll supply, or a licence condition in your industry, or a second shareholder who declines to sign.

The levels of checking, from least to most

Canadian accounting rules recognise exactly three strengths of outside checking, which accountants call assurance. The labels are counter-intuitive: none, then “limited” (some checking), then “reasonable” (the most checking there is). Below all three sits an option with no formal name, and that’s where most owner-managed corporations sit.

• Statements prepared as part of your tax return. Nobody writes a report on them, no professional standard is named, and no independent name appears on the document. What that buys is the numbers themselves, at no fee beyond the tax work. What it costs is that a lender or a buyer wanting outside comfort gets none.
• A compilation engagement, where an accountant puts the figures you give them into financial statement format and performs no procedures to verify what you handed over. What it buys is a professional’s report and a required note explaining the basis of accounting (e.g. cash accounting or a basis specified in a contract). A compilation doesn’t require an assurance opinion or the independence required for an audit, although professional conduct rules still apply.³ What it costs is a fee for no verification, so ask whether the lender will accept it before commissioning one.
• A review engagement, which gives limited assurance. The accountant asks management questions and compares this year’s figures against last year’s, then concludes only that nothing came to their attention suggesting the statements are wrong. What it buys is enough comfort for many lenders, bonding companies and regulators, though only their own paperwork tells you about yours. What it costs is more than a compilation, several days of your time, and independence rules that often stop the reviewing firm from also keeping your books.
• An audit, which gives reasonable assurance. It’s the only one where the accountant states a conclusion of their own, that the statements present your finances fairly. The accountant tests individual transactions and, where the amounts are large enough to matter, confirms balances with your bank and customers and attends your inventory count. What it buys is a document almost nobody argues with, and what it costs is the largest fee and the largest disruption. A first audit is the hardest, because the auditor also has to prove the figures you started the year with were right.

No government body or standard-setter publishes fee data for any of this, so we aren’t going to invent ranges. What holds is the ordering above, since tax-return statements cost the least and an audit the most. Those tax-return statements are the route we’d usually point an owner to, unless a piece of signed paper names something higher.

Who may sign each level

An audit or a review engagement can only be performed by a CPA specifically authorised to do assurance work, in each of the three provinces we checked (Ontario, British Columbia and Quebec), under a permit whose name changes from province to province. In Ontario that permit is a public accounting licence, and doing the work without one carries a maximum fine of $25,000 for a first offence and $50,000 for a later one, unchanged since the Act was passed in 2004.⁴ The fine falls on the accountant rather than on you, but a cheap audit or review from an unlicensed person is illegal and won’t satisfy your bank either.

Who may perform a compilation is settled province by province rather than nationally, and the rules differ more than the ones for audits do.⁵ The compilation document itself also changed recently: for year-ends on or after December 14, 2021, Ontario’s regulation replaced the old “Notice to Reader” wording with a compilation engagement report, which names the national compilation standard (CSRS 4200) and states that the accountant is vouching for nothing.⁶ If a lender’s checklist still asks you for a Notice to Reader, that document no longer exists, so ask what they’ll take instead before buying anything.

Cadence isn’t a CPA firm, so we don’t provide audits, review engagements or any other independent assurance service, and we don’t issue compilation engagement reports either. The statements we prepare therefore carry no accountant’s report of any kind. If a lender or a franchisor sends you paperwork using the words “audited”, “reviewed” or “compilation”, send it to us before you sign it and we’ll tell you whether what we do fits. Where it doesn’t, we refer that work to an independent CPA firm.

The annual consent that skips the audit

Your corporation was incorporated either federally or under one province’s law, and your certificate of incorporation says which. Under the federal statute, the Canada Business Corporations Act, the shareholders appoint an auditor at every annual meeting, and the directors then present the financial statements to the shareholders along with “the report of the auditor, if any”.⁷ In a one-owner corporation you’re on both sides of that meeting. A corporation whose shares have never been offered to the public can skip the auditor by resolution, meaning a short written decision, signed and kept with the company’s records. It needs consent from every shareholder, including holders of shares that don’t normally carry a vote, and it lapses at the next annual meeting.⁸ Ontario, British Columbia and Quebec also require every shareholder, one financial year at a time.⁹ Alberta needs only a special resolution, a vote carried by a fixed supermajority, so a small minority holder can be outvoted there and not in the other four.¹⁰ Those five statutes are the ones we checked, so an owner incorporated elsewhere (e.g. in Manitoba or Nova Scotia) should have their own looked at.

For a one-owner corporation the consent costs nothing, so the only real exposure is forgetting it. A buyer’s lawyer can find the gap during a sale, leaving legal fees to reconstruct the paperwork plus a delay to closing. A second shareholder (e.g. a family trust, an estate or an outside investor) can refuse consent where the governing law requires unanimity. Alberta’s special-resolution exception means a minority holder doesn’t always have that veto, so check the incorporation statute before assuming an audit is unavoidable.

Events that change the answer

• You sign, renew, increase or refinance a loan or a credit line, or move banks, which is the only cheap window to move the required level in either direction.
• Anyone other than you acquires shares (e.g. an outside investor, an employee share plan, a family trust or an estate on a death).
• A sale or an outside investor becomes plausible, which is worth starting on well before anyone asks, because a first audit has to prove the balances your year opened with and so runs longer than later ones.
• You cross a size threshold in your industry’s licensing rules, often set in revenue or in customer money you hold, or you sign a franchise agreement, a major lease or a government grant carrying reporting conditions.

Closing thoughts

The uncomfortable part of this topic is that the answer rarely comes from accounting at all. The requirement arrives in a paragraph somebody signed years ago, usually without pricing it, and then repeats every year afterwards. Asking for a lower level gets much harder once the ink is dry. If you do one thing with this article, find your loan agreement and read the section listing what you have to send the bank each year, usually headed “Reporting” or “Financial covenants”. The words to look for are audited, reviewed and financial statements, which are three different requirements at three different prices.

How we handle it

Year-end financial statements, prepared without audit or review, are included in every Cadence engagement, alongside your corporation’s T2 and the owners’ personal returns. Where we also keep your books, we keep them to a standard that survives someone else looking at them, and where lender or bonding reporting is in scope, we prepare the extra breakdowns those requests arrive with. Both of those are separate services rather than part of every package. Where an audit or a review engagement is genuinely required, we refer that work to an independent CPA firm and work alongside them.