Understanding Notice-to-Reader Financial Statements 

Are you facing a situation where your bank has requested financial statements? And even after providing them, they’re now asking for a notice-to-reader? Let’s delve into what this means. 

Deciphering Financial Statements 

Financial statements are crucial documents that depict a business’s financial health over a specific duration. They typically comprise: 

• Balance Sheet 
• Income Statement 
• Cash Flow Statement 

While some businesses might use bookkeeping software to generate these, others might rely on professional accountants or bookkeepers to make necessary adjustments and finalize these statements. In Canada, these statements can be aligned with either the International Financial Reporting Standard (IFRS) or the Accounting Standards for Private Enterprises (ASPE), with the latter being exclusive to non-public companies. 

Issuing a Notice to Reader 

While those with a solid grasp of accounting can draft their company’s financial statements, third parties like banks or investors usually prefer these documents to be curated by a professional accountant. For an accounting firm to issue a notice-to-reader, it must be registered with the provincial CPA bodies. These firms use data provided by the company’s management to prepare the Notice to Reader financial statements. However, it’s essential to note that these statements don’t undergo audits or reviews. Hence, they don’t offer any assurance to the readers. The term “notice-to-reader” is used to inform users that the CPA or CA hasn’t reviewed or audited the data provided by the management. 

Benefits of Notice to Reader Financial Statements 

What sets the Notice to Reader financial statements apart from regular ones is their adherence to standards set by AASB. Even though they don’t provide assurance, they comply with the accounting standards and principles established by AASB. 

Corporate Tax Returns and Notice to Reader Statements 

In Canada, corporate tax returns are a periodic requirement. Financial statements assist in completing the General index of financial information (GIFI) attached to the corporate income tax return. However, a notice-to-reader isn’t mandatory for preparing these tax returns. Typically, when a CPA firm drafts a corporate income tax return, it also issues a notice-to-reader alongside the financial statements. 

Why are Notice to Reader Financial Statements Essential? 

These statements become pivotal when attracting investors, selling the business, or notably, when seeking bank loans. They provide banks with insights into your company’s financial health and creditworthiness.