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Standards are Changing: Introducing CSRS 4200
Newest update: Canadian Standards are changing the well-known “Notice to Reader” financial statement. Section 9200, which is the current standard for Compilation Engagements, has been in effect since 1987. That’s 34 years without significant change in an industry of ever-changing and evolving standards!
Why now?
Simply put, there is a gap in how the statements are deployed. Financial statements reported under the old Section 9200 are meant to be used by management, yet often sent out into the world to be used by third parties, such as lenders.
In the practitioner’s office, there are variations in the work performed when preparing Notice to Reader financial statements. This work includes not only the level of work performed by different practitioners but also the level of documentation in each practitioner’s working papers, which is currently not captured in the statements.
On a bigger front, there is lack of clarity as to the basis of accounting applied when practitioners prepare Notice to Reader financial statements.
When did this happen?
The change kicked into effect December 14, 2021.
For periods ending on or after this date, the new Standard CSRS 4200 becomes effective.
What to expect in 2022?
CSRS 4200 changes the performance requirements for Compilation Engagements. There are five critical discussion points to address when conforming to the new Standard.
Scope
CSRS 4200 includes a scope that clarifies which services constitute compilation engagements and which services are excluded from the new standard, such as bookkeeping and preparing a corporate tax return. Determining the scope of your engagement will dictate if you fall under CSRS.
Engagement Acceptance or Continuance
Prior to accepting or continuing a compilation engagement, we are required to discuss with management the intended use of the statements to ensure management agrees with the basis of accounting to be applied.
Basis of Accounting
Under the new standard, it’s required to include a note regarding the basis of accounting in the financial statement.
Work Effort and Documentation
Under the new standard, it’s required to document work effort concerning client knowledge and inquire with management to ensure they understand and accept responsibility for the financial statements. A greater level of documentation is required under the new standard.
Reporting
The report is bigger! The Engagement Report is more comprehensive, so it clearly describes the responsibility of management and the practitioner. This report also describes the nature and scope of the engagement.
As practitioners, we have a responsibility to read CSRS 4200 to understand its objectives and apply this new standard to our clients.
As users of financial statements issued under CSRS 4200, you can expect more inquiries and standardization from your accountant as they relate to compilation engagements. The new standard has a significant impact on all complied financial information and the users of that information.
Users, both management and third parties, benefit from the significant changes. To gain a more comprehensive understanding of the CSRS 4200, it is available for review through CPA Canada.
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