Definition of Notice To Reader
A Notice to Reader is an unaudited financial statement prepared by a Chartered Accountant. Since the financial statement has not been audited or reviewed, it does not have the level of reliability associated with audits or review engagements. Nevertheless, it is still likely to be far superior to a financial statement produced by an uncertified bookkeeper using accounting software, on the premises of the company. The reason for this is because the overall standards and experience of Chartered Accountants play a significant part in the process of preparing the financial statements. On the other hand, the role of the bookkeeper is to enter transactions into the books of the company using accounting software. The bookkeeper does not normally ensure that the accounts used to classify transactions are appropriate, and also does not usually enter transactions that are outside the daily routine of sales invoices, purchase invoices, cheques received and cheques issued. What is the reason to produce reliable financial statements?
- Many small business owners feel they can run their business without seeing the financial statements. They think the only purpose of the financial statements is to send them to the government along with the corporate tax return. This is actually the first reason to produce reliable financial statements: to ensure that tax is not overpaid due to overstated income.
- Although bookkeeping software is designed to easily produce monthly or quarterly financial statements, many small business owners do not realize that these interim statements can and should be used to bring problem areas to the attention of the owner. For example, unusually high travel expenses in the first quarter should prompt the owner to rethink how much travel ought to be done in the remainder of the year if profit is not to be compromised. Although the Chartered Accountant is not normally brought in to produce Notice to Reader financial statements until the end of the fiscal year, a quick quarterly check on the bookkeeper’s work is a good approach, combined with a discussion with the owner concerning expense and revenue trends. With this approach, the Chartered Accountant is assisting the company to stay on track during the course of the year by using the financial statements to highlight areas of improvement before it is too late.
- In cases where there is an outstanding bank loan, the bank often requests quarterly information from the company to ensure that scheduled loan payments are not in danger of default. If this information is provided directly by the bookkeeper without any input from the Chartered Accountant, there is a greater likelihood of alarming the bank unnecessarily when the information is not correct.
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Definition of Notice to Reader | Simkover and Associates