Purpose of Financial Statements
The objective of financial statements is to provide information about the financial position, performance, and changes in the financial position of an enterprise that is useful to a wide range of users in making economic decisions (IASB Framework).
Following are the main users and their respective use of financial statements:
- Managers: to manage the company’s affairs.
- Shareholders: assess the risk and return of their investment in the company.
- Prospective Investors: assess the viability of investing in a company.
- Financial Institutions: assess financial health to decide whether to grant a loan or credit to a business.
- Suppliers: assess the creditworthiness of a business.
- Customers: assess to ensure the steady supply of goods in future.
- Employees: assess company’s profitability and its consequence on their future remuneration and job security.
- Competitors: compare their performance to learn and develop strategies to build on their competitiveness.
- General Public: reviewing the effects of a company on the economy, environment, and the local community.
- Governments: assess to determine the accuracy of tax declared in the tax returns.
Types of Financial Statements
i. Audited
ii. Reviewed by an accountant
iii. Notice to Reader
All three are prepared according to International Financial Reporting Standards (IFRS) or Accounting Standards for Private Enterprises (ASPE)
What is a Notice to Reader Financial Statement?
Notice to Reader statement is simply a compilation of raw financial data provided by the company’s management. The name ‘notice to reader’ signifies to alert users that the information does not undergo an audit or review, and therefore, the accountant preparing it offers no opinion or assurance on the accuracy of financial statements. Accordingly, they simply put the readers “on notice.” This engagement is also referred to as a “Compilation engagement”.
Who can prepare Notice to Reader Financial Statement?
Notice to Reader Financial Statement cannot be prepared internally by the business owner or the in-house bookkeeper using the company’s accounting system. The company’s accountant can be well versed with accounting aspects, but they may not be able to issue NTR financial statements.
It is prepared by the licensed external qualified accountant. Although no assurance is provided by the preparer of the notice to reader financial statement, the accountant must still comply with professional and ethical standards and abide by basic accounting principles.
Why does a Business Need Notice to Reader Financial Statements?
It is very clearly stated by the preparer on the cover letter to these financial statements that “Readers are cautioned that these statements may not be appropriate for their purposes' '. This signifies that NTR financial statements are usually prepared with a very specific purpose. Here are some definite reasons for which NTR financial statements may be prepared:
- These formal financial statements may be prepared for management’s own use to be assessed and reviewed at board meetings for making business decisions.
- Banks need to ensure the creditworthiness of a business. NTR financial statement serves this very common requirement by banks to review the financial health of a business before issuing a loan.
- Investors sometimes require to just review an overall picture of the business’s financial footing for which NTR financial statements may sufficiently serve the cause.
- In the case of the sale of small businesses with less complex structures, prospective buyers will want to see at least NTR financial statements for the prior 3 to 5 years for their due diligence.
Imperative Components of Notice to Reader Financial Statement?
- Nature of work is explicitly stated to give caution to users of the financial statements to determine their level of reliance on the report.
- A scope limitation is clearly communicated that no assurance is provided for the accuracy of financial statements. The facts shared are based upon the information shared by the organization.
- Caution to the reader is mandatory, that the compiled statements may not be appropriate for their purpose.
Advantages of Notice Reader Financial Statement
- The foremost advantage of the NTR engagement is the cost. It is the most affordable financial statement prepared by accounting professionals.
- NTR statement’s authenticity is far more superior than the one put together by an in-house bookkeeper or tax accountant as they are assured to be prepared by qualified professionals in compliance with international financial reporting standards.
If you are looking for a professional Accountant and bookkeeper who can provide quality service in preparing “Notice to Reader Financial Statements” for your business, then it is best to reach out to any accounting firm like Filing Taxes. Schedule an NTR engagement appointment with us and take the first step towards proper management of your finances.
Disclaimer:
The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Salman Rundhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.