Compilation, Review, and Audit Engagements

Definition

A compilation, a review, and an audit are three distinct engagements a Canadian public accountant can perform on financial statements. They differ in the level of assurance provided, the procedures required, and the language used in the practitioner's report. Choosing the right engagement depends on who will rely on the statements (bank, minority shareholders, tax authority, buyer) and what they require.

Key rules

CSRS 4200 replaced the old Section 9200 Notice to Reader effective for periods ending on or after December 14, 2021. It requires the practitioner to describe the basis of accounting, obtain knowledge of the business, and make inquiries when information appears incorrect or incomplete. See notice to reader (compilation) for report wording.

Example

A BC lender's covenant letter often sets the minimum engagement level:

• Operating line under $250,000: compilation usually acceptable.
• Term loans between $250,000 and $2,000,000: review engagement typically required.
• Loans over $2,000,000 or public reporting: audit expected.

A one-person CCPC with no external debt and no outside shareholders usually only needs a compilation, which is enough to prepare the T2 return. When the owner applies for a mortgage or a larger business loan, the bank may require a review.

Common mistakes

• Assuming the CRA needs audited financial statements. It does not. The CRA accepts compiled statements for the T2.
• Confusing a compilation with bookkeeping. CSRS 4200 is an engagement with a practitioner's report; bookkeeping is not.
• Skipping independence assessment for review and audit engagements.
• Presenting comparatives that were prepared under a different engagement level without clearly stating so in the notes.
• Asking for an audit only to save on lender fees, without budgeting for the time and cost that full CAS procedures require.

Related concepts

The engagement level dictates the practitioner's report format. A compilation produces a Compilation Engagement Report, not a formal opinion. Review and audit reports express different levels of assurance but both rely on financial statements prepared under a framework such as ASPE. The notes are required regardless of engagement level whenever the framework requires them.