Somewhere between your fiscal year-end and your T2 deadline, someone usually says the words "compilation engagement." It might be your lender, or it might be a line in an accountant's engagement letter. Either way, many owners come away believing a compilation is a required step on the road to filing. By default, it isn't. The two services solve different problems, and choosing the wrong one either costs you money or leaves a gap when a lender asks for something you don't have.

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What is a Compilation Engagement?

A Compilation Engagement is governed by CSRS 4200, the Canadian standard that applies to compiled financial information for periods ending on or after December 14, 2021. A CPA helps management prepare and present financial information using an agreed basis of accounting, then issues a Compilation Engagement Report that accompanies the statements.

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The CPA does not verify the numbers. A compilation provides no assurance. A review provides limited assurance and an audit provides reasonable assurance, which is why a party that needs comfort about accuracy asks for one of those instead.

If you have heard the term "Notice to Reader" (NTR), that was the old name for the report. CSRS 4200 replaced the previous standard, Section 9200, and its report replaced the Notice to Reader. The new report tells readers more, including the basis of accounting used, and the standard sets minimum work and documentation requirements for the CPA.

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Do I need financial statements to file a T2?

Every corporation resident in Canada files a T2 each year, even with no income and no tax owing. The return is due six months after your fiscal year-end, and any tax owing is generally due sooner, two months after year-end or three for many Canadian-controlled private corporations.

What the CRA asks for is financial statement information, reported through the General Index of Financial Information (GIFI), typically as Schedule 100 (balance sheet) and Schedule 125 (income statement). The CRA's own guidance says that if it needs your traditional financial statements, it will ask for them.

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CPA Canada addresses the compilation question directly. Under the scope exclusions in CSRS 4200, a compilation is generally not required when an accountant prepares a T2 from financial information the client provides, or from the client's accounting records as part of a bookkeeping engagement, because the information appears solely in government-prescribed forms. This is commonly called a tax-only engagement. CPA Canada describes it as an increasingly common arrangement, and adds that an accountant can still perform a compilation whenever it would be valuable to the client.

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One detail worth knowing: Schedule 141, the notes checklist filed with the T2, asks about the accountant's involvement. It was originally built around audit, review and compilation. The CRA released a revised version in 2022 so that CPAs can describe their role more accurately when no financial statements were prepared, as in a tax-only engagement.

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When a Compilation Engagement does make sense

• A lender requires it. Loan agreements often include a reporting covenant. For smaller loans, compilation-level statements (formerly Notice to Reader) are a common requirement, while larger or higher-risk facilities often ask for a review or audit. Read the wording of your credit agreement before deciding, because a compilation will not satisfy a covenant that specifies a review or audit.
• An outside party will rely on your statements. That could be an investor, a prospective buyer or another third party. CSRS 4200 adds acceptance requirements when a third party will use compiled information, so raise this with your CPA early.
• You want formal statements for management. Some owners simply want a standard set of statements to track the business, and that is a reasonable use of the service.

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A mistake worth avoiding: sending your T2 instead of statements

Banks sometimes ask for a copy of the tax return or the GIFI schedules. Your corporation can provide them, but a tax return is not a compilation and carries no compilation report. CPA Canada's guidance is that the only communication that should be attached to financial information under the standard is a compilation engagement report, so disclaimers on tax forms are discouraged because readers may be misled by them.

If a lender asks for your tax forms, the suggested practice is for you to send them directly so the accountant's role is clear. If the lender wants statements it can rely on, that points back to a compilation.

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Three questions that settle it

1. Who outside the corporation will read or rely on your financial information?
2. What does that party require in writing: a compilation, a review or an audit?
3. If the answer to the first question is no one, is your goal CRA compliance and internal records? In that case, a tax-only engagement may be an option, depending on your circumstances.

The answer can change from year to year. A corporation that is tax-only this year may need compiled statements next year because it is applying for financing. Raising that with your CPA before year-end avoids a scramble, and your engagement letter should state the scope of services you have agreed to.

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How RH&A CPA LLP approaches it

At RH&A CPA LLP, we start with how your financial information will be used. Where appropriate, we prepare your year-end accounting information for internal and CRA compliance purposes and file your T2 without a Compilation Engagement. When a lender or other third party needs compiled financial information, we perform the compilation under CSRS 4200 and issue the report.

Not sure which one applies to your corporation? Contact us before your year-end and we will review your situation with you.

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FAQ

Does preparing my books mean I need a compilation? No. Under CSRS 4200, financial information prepared as part of a bookkeeping engagement is a scope exclusion, so bookkeeping or year-end adjusting entries followed by T2 preparation does not by itself call for a compilation.

Can I request a compilation even if I don't need one? Yes. It is your choice, and some owners prefer to have formal statements on file before a financing conversation comes up.

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This article is general information and not advice for your specific situation. Requirements depend on your lender agreements, your corporate documents and the intended use of your financial information.

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Sources: CPA Canada: New standard on compilation engagements and tax work | CPA Canada: New T2 Schedule 141 | CRA: General Index of Financial Information (GIFI) | CPA Canada: CSRS 4200 effective date and overview