Compilation vs Review vs Audit: A Guide to Calgary Financial Statement Types

Calgary financial statement types can be confusing for decision-makers and business owners who are not accounting experts. In Alberta (and across Canada), there are three main types of engagements a Chartered Professional Accountant (CPA) can provide for your financial statements: a Compilation Engagement (commonly known as a Notice to Reader), a Review Engagement, and an Audit Engagement. These represent three levels of scrutiny and assurance, each more detailed (and costly) than the last.

Understanding the differences between compilation, review, and audit engagements is crucial for Calgary business owners, students, and professionals doing due diligence – it ensures you choose the right level of service for your needs and compliance requirements. In this article, we define each type, compare their key features in a handy table, provide real-world Calgary examples of when each is needed, and offer guidance on deciding which option is best for your business – all while highlighting how Sahil & Mehar Accountants and Consultants can help with these services, including corporate tax support.

What is a Compilation Engagement (Notice to Reader)?

A Compilation Engagement, often called a Notice to Reader (NTR) in Canada, is the most basic level of financial statement service provided by a CPA. In a compilation, the accountant takes the financial information provided by management and compiles it into standard financial statement format without providing any assurance (i.e. no verification or audit work is done on the numbers). The CPA will attach a “Notice to Reader” report (hence the name), which explicitly states that the statements are unaudited and no assurance is being provided that the statements are free of material misstatement. In other words, the accountant is not verifying the accuracy of the data – they are simply presenting the information supplied by the company in proper financial statement form.

Compilation engagements are typically used for internal purposes or basic external requirements where a full audit or review is not necessary. For example, many owner-managed Calgary businesses use compiled financial statements to file corporate tax returns and for internal planning. (In fact, compilation services are often paired with corporate tax preparation – accountants frequently prepare the year-end financial statements and the T2 corporate tax return together in one engagement.) Because no detailed testing is done, a compilation engagement is fast and cost-effective. It provides no assurance to third parties, but it meets the needs of small businesses that just need a formal set of statements for tax or management use. If you have no outside investors, lenders, or regulatory requirements for an audit, a compilation may suffice for your Calgary company’s needs.

(Note: The term “Notice to Reader” comes from the disclaimer letter that accompanies compiled statements. As of recent Canadian standards changes (CSRS 4200), the official term is just Compilation Engagement, but many Calgary professionals and bankers still informally refer to compiled financials as NTR statements.)

What is a Review Engagement?

A Review Engagement is the middle level of assurance for financial statements – more scrutiny than a compilation, but less than an audit. In a review, a CPA performs primarily analytical procedures and inquiries (e.g. ratio analysis, discussions with management) to assess whether the financial statements are “plausible” or credible based on the information provided. The goal is to obtain limited assurance that the financial statements do not require material modifications to be in accordance with the applicable accounting framework (such as ASPE or IFRS).

Unlike an audit, the reviewer does not perform extensive verification of transactions or internal controls – instead, they do a high-level check for anything obviously inconsistent or problematic. If nothing major comes to the accountant’s attention through these review procedures, they issue a Review Engagement Report. This report states that the reviewer is not aware of any material modifications needed for the statements to follow accounting standards – essentially a form of negative assurance (saying nothing wrong came up).

Who needs a review?

Review engagements are often requested by third-party stakeholders who want some assurance on the financial statements but do not require a full audit.

For example, a Calgary business’s bank or minority investors might ask for reviewed financial statements to gain confidence in the numbers, especially if an audit seems too costly or unnecessary for their purposes.

In practice, some Calgary banks or credit unions will accept a review instead of an audit for medium-sized loans or financing deals. Reviewed statements provide a moderate level of credibility that can satisfy lenders or partners that the financial results are at least plausible and free of obvious errors, without the company having to incur audit-level costs. The cost and time commitment for a review is lower than an audit (but higher than a compilation), making it a popular middle-ground for many privately held companies in Alberta.

What is an Audit Engagement?

An Audit Engagement is the most comprehensive of the financial statement services, providing the highest level of assurance that the financial statements are free of material misstatements. In an audit, the CPA (acting as an external auditor) will thoroughly examine the company’s financial records and supporting documents, and perform detailed testing of transactions, account balances, and internal controls. The audit process often includes confirming account balances with third parties, physically inspecting assets (like inventory counts), testing samples of transactions against invoices or contracts, and evaluating the company’s accounting processes and controls. Because of this in-depth work, an audit provides “reasonable assurance” – a high (though not absolute) level of confidence – that the financial statements present a true and fair view of the company’s financial position.

After an audit, the CPA issues an Independent Auditor’s Report, which includes the auditor’s opinion on whether the financial statements are presented fairly in all material respects following the accounting framework. A clean (unqualified) audit opinion will explicitly state that the statements “fairly represent” the company’s financial status. This positive assurance is stronger than the negative assurance of a review engagement. Audited financial statements carry the most credibility with readers, which is why large stakeholders and regulations often demand audits.

Who needs an audit?

Audits are generally required for public companies and other reporting issuers by law. In Calgary and the rest of Canada, many large private corporations also undergo audits, especially if they have numerous shareholders or high levels of debt. Banks may require audited financial statements for significant loans or financing deals (typically for larger businesses or higher risk situations).

Investors or buyers performing due diligence in a major transaction will usually expect audited statements to trust the numbers. Additionally, certain industries and nonprofits in Alberta have statutory audit requirements once they exceed certain size thresholds. Because audits involve extensive work, they are time-consuming and costly – the most expensive option among the three services.

However, the payoff is the highest level of assurance and credibility. If your Calgary-based business is seeking to boost its financial credibility to external parties, or if you are legally required to, an audit engagement is the appropriate choice.

Compilation vs Review vs Audit: Key Differences at a Glance

To summarize the differences, the table below compares the three engagement types on key factors such as level of assurance, the work the CPA performs, the type of report issued, typical use cases, and relative cost:

Aspect	Compilation Engagement (Notice to Reader)	Review Engagement	Audit Engagement
Level of Assurance	None. No assurance provided – statements are unaudited and simply compiled from client information.	Limited. Provides limited assurance (negative assurance) that nothing material has come to the accountant’s attention.	Reasonable (High). Provides a high level of assurance – the auditor gives an opinion that statements are fairly presented.
CPA Procedures	Assembles financial data into statements; no testing or verification of figures. CPA relies on info provided by management.	Performs analytical review and inquiries of management. Checks for plausibility of figures through ratio analysis, discussions, etc., but no in-depth testing of source documents.	Performs detailed testing and verification of financial records. Examines supporting documents, confirmations, and evaluates internal controls to gather evidence.
Report Issued	Notice to Reader (Compilation Report) – a disclaimer letter stating no audit or review was done, and no assurance is provided.	Review Engagement Report – states that nothing has come to the CPA’s attention to suggest material misstatement (limited assurance conclusion).	Independent Auditor’s Report – includes the auditor’s opinion on fairness of the financial statements (with reasonable assurance).
Typical Uses	Internal use, basic compliance, tax filing. Suited for owner-managed businesses with no outside requirement for audited statements. Often used just to support a corporate tax return or internal planning. Not intended for lending or investor purposes (no third-party assurance).	Moderate assurance needs. Often requested by banks, credit unions, or investors who want some credibility on financials but not a full audit. Useful for medium-sized private companies seeking loans or courting investors, where an audit may be overkill.	High assurance needs. Required for public companies and often for large private companies, especially if mandated by shareholders or regulators. Common when raising substantial capital, applying for large loans, or selling the business – any situation where maximum credibility of statements is needed.
Cost & Time	Lowest cost (minimal work by CPA) and fastest turnaround. Most affordable option for small businesses.	Moderate cost, less expensive than an audit. Takes less time than an audit but more than a basic compilation.	Highest cost due to extensive work. It can be time-intensive and requires significant involvement from company staff during the process.

Real-World Calgary Examples: When to Choose Each Engagement

Choosing between a compilation, review, or audit depends on your company’s circumstances, stakeholder requirements, and goals. Here are a few real-world examples of how different Calgary businesses might choose the appropriate financial statement engagement:

Small Owner-Operated Business (Compilation)

Scenario: 

You run a Calgary-based retail shop with no other shareholders and no significant debt. You mainly need financial statements to file your corporate tax return and to track your business performance. In this case, a Compilation Engagement is usually sufficient. The statements will be prepared in proper form for tax filing and management purposes, and you will avoid the extra cost of a review or audit since no external party (like a bank or investor) is demanding assurance on your numbers. Many small businesses in Calgary opt for compiled financial statements for this reason – it fulfills basic requirements at a low cost.

Growing Business Seeking Financing (Review)

Scenario:

Your Calgary technology startup is in growth mode, and you plan to apply for a bank loan or attract a new investor. The bank or investor wants more confidence in your financial statements, but your company isn’t large enough to justify an audit. A Review Engagement can be a good middle-ground. For example, a Calgary mid-sized enterprise might provide reviewed financial statements to ATB or another lender for a moderate loan. The review report offers limited assurance that the statements are plausible, which often satisfies lenders’ requirements for companies of your size. It’s also quicker and less costly than a full audit, which helps you save resources while still boosting credibility with third parties.

Large Company or Regulated Entity (Audit)

Scenario:

Your company has grown substantially or operates in a regulated industry. Perhaps you have multiple shareholders or plan to raise significant capital, or you’re in the process of selling the business. In such cases, you’ll likely need an Audit Engagement. For instance, a Calgary manufacturing company with numerous investors may require annual audited financial statements to comply with shareholder agreements. Or, if you’re seeking a major investment, venture capital firms will insist on audited books to trust the financial information. Similarly, nonprofits or condo corporations in Alberta that exceed certain size thresholds are mandated to have audits. An audit provides the high level of assurance and detailed scrutiny of these situations. Although it comes with a higher cost and effort, it is worthwhile whenever confidence and compliance are paramount.

Conclusion – Making the Right Choice and Next Steps

Understanding the differences between compilation, review, and audit engagements will help you make an informed decision for your financial reporting needs. In summary, a Compilation (NTR) is best for basic needs with no external assurance required, a Review Engagement offers a checkpoint of credibility for moderate assurance needs, and an Audit provides the highest assurance for situations that demand full confidence. Small and mid-size Calgary businesses should weigh the cost versus benefit: often, you can start with a compilation and only step up to a review or audit when a stakeholder or regulation compels it. Keep in mind that all three types of financial statements – whether compiled, reviewed, or audited – should be prepared under accounting standards (ASPE or IFRS) and by a qualified CPA to ensure they are usable and reliable.

At Sahil & Mehar Accountants and Consultants, we specialize in all three engagement levels and can guide you on which one fits your Calgary business scenario. Our experienced team will discuss your goals and obligations (for example, bank loan conditions or investor expectations) and help you choose the most appropriate service – be it a straightforward compilation for your year-end financial statements and corporate tax return, a review engagement for limited assurance, or a full audit for maximum assurance. We also provide corporate tax planning and filing services alongside financial statement preparation, so you can address all your compliance needs in one place.

Ready to decide between a Notice to Reader, Review, or Audit? Contact Sahil & Mehar Accountants and Consultants in Calgary today for a consultation. We’ll ensure your financial statements meet all necessary requirements and help strengthen your business’s financial credibility. Let our local Calgary accounting experts give you peace of mind with the right financial reporting solution – so you can focus on running and growing your business.