Financial Statement Standards (NTR, Review, Audit)

Financial statements for private Canadian businesses are prepared under one of three levels of assurance, each reflecting a different degree of verification and carrying different weight with buyers, lenders, and the CRA.

A Notice to Reader (NTR) — formally called a Compilation Engagement under CSRS 4200 — is prepared by a CPA using information provided by management, without any procedures to verify whether the figures are accurate. The CPA takes no responsibility for the accuracy of the numbers. NTR statements are the most common financial statements for small owner-operated businesses and are typically acceptable for business sales below $5 million, though a buyer conducting due diligence will want to see several years of T2 corporate tax returns alongside them to cross-reference the reported figures.

A Review Engagement (prepared under CSRE 2400) involves a CPA applying limited procedures — primarily inquiry and analytical review — to identify material misstatements. The CPA provides limited assurance that the statements are free from material misstatement. Buyers and lenders in mid-market transactions often prefer or require reviewed statements, as they provide a meaningful step up from NTR without the cost of a full audit.

An Audit (conducted under Canadian Auditing Standards, CAS) is the highest level of assurance. The auditor independently verifies the figures through testing of evidence, confirms balances with third parties, and provides a positive opinion on whether the financial statements fairly present the business's financial position. Audited statements are typically required for transactions above $5–10 million, for businesses with institutional lenders, or where the buyer is a private equity firm or institutional acquirer.

See also: Quality of Earnings, T2 Corporate Tax Return, Due Diligence.