Accounting and Your Year End with an Accounting Principal

Alicia McDonald, CPA, CA joins us to discuss the different levels of engagements and how they differ in information provided but also information required. She also touches on accounting standards, how they change and why they matter, and some tips to help make this tax season smooth for everyone.

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Transcript

00;00;05;11 - 00;00;31;07
Speaker 1
Hello and welcome to Integrating for Success, a Ward and Uptigrove podcast. My name is Amy Noonan and I will be your host. Today we're welcoming Alicia McDonald, a principal in our accounting department serving both agriculture and business clients. Alicia has been with Warden and Uptigrove since 2011 and she's here today to chat about some of the nuances you may not be aware of when it comes to different accounting services.

00;00;31;08 - 00;00;32;29
Speaker 1
So welcome to the podcast, Alicia.

00;00;34;04 - 00;00;34;21
Speaker 2
Thanks, Amy.

00;00;36;00 - 00;00;59;06
Speaker 1
So Alicia, from from the outside looking in, I think it's fair to say non accountants have a very generalized idea of what accountants do and may not realize there are different services available depending on what is required. So maybe you could walk us through what they are and what they provide for the client. You know, we say accounting and assurance services.

00;00;59;06 - 00;01;01;00
Speaker 1
So what does that look like?

00;01;02;13 - 00;01;29;14
Speaker 2
Yeah. So accounting and assurance services are a significant portion of the services that Ward & Uptigroves provides to our clients. There are three types of engagements that we provide. So audit review and compilation engagements, the type of engagement that we provide is requested by the client, usually based on the users of the financial statements and the level of assurance that they want to see in the report.

00;01;30;20 - 00;01;40;14
Speaker 2
In most cases, it's the bank or the creditors, which will state in the banking agreement the type of financial statement engagement that they require from the client. But usually for financing purposes.

00;01;40;21 - 00;01;41;01
Speaker 1
Sure.

00;01;41;23 - 00;02;14;17
Speaker 2
So we'll focus more today, I think, on the compilation and review engagements. Audits obviously provide the highest level of assurance requiring some procedures on the financial information, but most of our clients require compilation or review engagements. So we'll talk more about those today. So start with compilation. So with compilation engagement, there's no assurance provided. Simply put, we're compiling the financial information provided by management into a balance sheet and income statement.

00;02;15;04 - 00;02;59;20
Speaker 2
There's no procedures that are required to be performed to evaluate accuracy and completeness of that information. But we do need to ensure the engagements completed in accordance with Canadian compilation standards, right? CPA One of the standards is for completion engagements is ensuring there's just the basis of the accounting note which states how the financial statement information was compiled usually on a historical basis, with the addition of accruals like accounts receivable and accounts payable, usually a compilation engagement is prepared when there's no third party users to the financial statements or where those third parties, such as the bank or creditors are not requiring limited assurance.

00;03;00;04 - 00;03;24;15
Speaker 2
So review engagements, they are a limited assurance engagement provided to the users of the statements. The objective with the review engagement is to provide a report with the financial statements expressing a conclusion that nothing has come to our attention that causes us to believe the financial statements do not present fairly, in all material respects, the financial position of the company.

00;03;25;22 - 00;03;51;26
Speaker 2
In order to provide that conclusion, we do need to perform some procedures with review engagements based on the Canadian generally accepted review of standards as well. Right? So yeah, procedures for a review, not as substantive as an audit, but do require some analytical or variance review of the Financial Information Inquiry and discussion with management as well, just to support that financial information.

00;03;52;09 - 00;04;15;03
Speaker 2
Mm hmm. Most of our review engagement entities are also required to follow accounting standards for private enterprises, which provides guidelines for financial reporting and disclosures or notes to the financial statements that we do have to follow as well as the case. No disclosures on the financial statements are much more comprehensive with a review engagement than a compilation engagement.

00;04;15;08 - 00;04;24;06
Speaker 2
But those financial statement notes are important components of the financial position of the company that users will find helpful.

00;04;24;19 - 00;04;43;11
Speaker 1
Right. Okay, great. And I think that's that's great for anyone. Just kind of wondering what each of those those things mean, you know, and I think you can sort of think of like a compilation engagement is like a first level review is like a second level and audit being sort of that third highest level. So imagining they're at those levels.

00;04;43;11 - 00;04;51;16
Speaker 1
You said review engagements where the second level, let's say, what kind of additional information might be required for a review engagement?

00;04;52;15 - 00;05;18;01
Speaker 2
Yeah. So with a review engagement, we are required to perform procedures to ensure those financial statements are presented fairly and that we can provide that, that conclusion that we talked about on the financial statement report. So it does require some additional information from the client. We may need to review some invoices or inventory values, for example, which requires us to request additional documents from our clients.

00;05;18;15 - 00;05;43;29
Speaker 2
So for any analytical procedures, we might look at trends or variances, ratios, unusual items, considering our knowledge of the client's operation and industries. So then we'll inquire, just discuss this information with the clients that we can document the fairness of the presentation. So with a review, engagement as inquiry with the client on operations can't occur until the financial information is put together.

00;05;44;08 - 00;06;06;01
Speaker 2
Just requires more discussion near the end of the engagement. So for example, we would discuss subsequent events or things that may have changed the client's financial position subsequent to their year end before our report date. So there's just there's more information that's gathered subsequent to putting that the nature of time together.

00;06;06;13 - 00;06;18;24
Speaker 1
Right. And I think earlier on, you mentioned something about accounting standards and that kind of thing. So have there been any changes to the review engagement standards recently that our clients should be aware of?

00;06;19;17 - 00;06;50;09
Speaker 2
Yeah, so there's the occasional change to review standards or accounting standards, and we do have to stay up to date with those changes and make sure that the financial statements are prepared in accordance with those changes. So recently there's been a couple significant ones that have affected our clients. There was the change to the presentation on retractable and mandatorily redeemable shares, or what we call Romer shares.

00;06;50;20 - 00;07;23;18
Speaker 2
In short, so previously those shares can be recorded as equity on a client's financial statements. But this new standard required us to evaluate those shares and how they were originally issued to determine whether they still met that criteria to be recorded as equity. Otherwise, those shares had to be recorded as a liability on the financial statements. And for some of our clients, yeah, some of our clients that did result in some of the large liability on their statements, but they hadn't had before.

00;07;24;04 - 00;08;01;05
Speaker 2
And so again, yeah, a significant change there. Um, another change recently was with our agricultural producers. So a change specific to them with the way that they record agricultural inventories previously agricultural inventories to be recorded at net realizable value is the standard now only requires or only allows that when certain criteria are met. And then the other change, another significant change with that standard is now we record productive biological assets separate from inventory.

00;08;01;05 - 00;08;28;15
Speaker 2
So where you would have sort of your breeding herd as part of your inventory previously, now it is recorded separate on a separate mine on the financial statements and that recorded that cost as opposed to net realizable value interest. So yeah, so some of those changes obviously require some more discussion with the client. With the Romer shares change, we had to look back on the client's information on how the shares were issued.

00;08;28;24 - 00;08;37;25
Speaker 2
With changes to standards, we require more information on the movement of inventory throughout the year within a few livestock produced inventory.

00;08;38;10 - 00;09;09;17
Speaker 1
Right. Wow. Okay. Yeah. So some significant changes that I think people need to be aware of and sounds like especially our ED clients, but pretty much anyone potentially looking at a review engagement. So, you know, we're it's February now we're we're we're in busy season and coming into busy season December year ends are coming in what can clients or even just our listeners do to make sure their year end process is a smooth one?

00;09;10;23 - 00;09;43;15
Speaker 2
Yeah. So yeah, we're into busy season already again, so we provide our clients with an information checklist letter before their year end. Those checklists are customized to the client's operation, so it's a great tool for the client to just go through and ensure that at minimum we have that information before we start. Usually with the financial statement engagement as well, we're completing a corporate tax return or personal tax return.

00;09;43;15 - 00;10;19;19
Speaker 2
So obviously bringing your information in in a timely manner so we can ensure we're meeting those deadlines is important sometimes as well. I'm making agreements. There can be deadlines as well. Thanks things. Looking for the financial statement information. So I'm looking at that and just making sure that we have everything as timely as we can. Yeah, past couple of years we have also implemented a first sort of touchpoint with client information in the office with our accounting technicians, so they ensure that the information that was requested in the information request letter has been received and if not get clients.

00;10;19;19 - 00;10;44;07
Speaker 2
We receive emails or phone calls from them requesting that information right? So they will gather that that information before the accountant or the preparer starts the engagement. Yeah, we've seen some efficiencies internally with that process. Mm hmm. Another thing to do is, just in general, over the years, if there's been a change to your operations, reach out to your accountant.

00;10;44;07 - 00;10;55;07
Speaker 2
Just let them know. Just knowing that information ahead of time rather than when we're actually preparing the engagement can be helpful to make sure things run smoothly.

00;10;55;19 - 00;11;18;00
Speaker 1
Yeah. Yeah. And I think that's great that you noted those those two things. One, that, you know, one of our clients may hear from one of the accounting technicians first so that they're not surprised about that, and that that's really just us trying to do a really good job for you and and to, you know, the more we know, the better, you know, getting, again, that information in early.

00;11;18;00 - 00;11;33;01
Speaker 1
So it's not a surprise when the the accountant does go to do the work. So I think really two really good points for sure. Is there anything else you would want to share? You know, as a principal in the firm with the with our clients.

00;11;33;01 - 00;12;10;24
Speaker 2
I think just in general, accounting like annual accounting and tax compliance is necessary for your business and certain standards. We do need to follow in providing the engagement requested. But ultimately the financial statements are the clients and our goal is to provide useful information and to assist our clients in achieving their business goals. Mm hmm. So, yeah, if you're unsure about which engagement is right for your business or questions about the processes or what type of engagement the creditors or banks are looking for, for operation, I wouldn't hesitate to have that discussion with your accountant.

00;12;11;07 - 00;12;33;24
Speaker 1
Yeah, for sure. Awesome. Okay. So, yeah, I think some again, some super helpful information. You know, if you're here, bankers telling you they need something and you don't know what it means, you know, talk to your accountant and we can definitely help you out. And yeah, let's let's hope for a smooth, busy season for everyone. Thanks for joining, Iliza.

00;12;34;24 - 00;12;37;18
Speaker 2
Thanks for having me, Amy.