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Preparing a Notice To Reader

Following is the usual process of a Chartered Accountant when preparing year-end financial statements on a Notice to Reader basis:

  • Obtain the trial balance from the bookkeeper for the fiscal year. The trial balance is the summary of all transactions input into the bookkeeping software system for the fiscal year. This is the only item that needs to be initially prepared for the Chartered Accountant, in order to get started on the assignment.

  • Group the accounts into financial statement captions similar to those used for the prior year financial statement

  • Scan the accounts in order to observe anything apparently in error or missing from the accounts.

  • Prepare adjusting journal entries to correct the accounts for errors or omissions. Some examples of adjusting entries that often arise are depreciation of fixed assets, expenses accrued because they were paid in the subsequent year but pertain to the current year, and misallocations between principal and interest for long-term loan payments. A typical year-end Notice to Reader assignment for a Chartered Accountant has between 5 and 15 adjusting journal entries, often significantly modifying the accounts as prepared by the bookkeeper.

  • Groupings of accounts that incorporate the adjusting entries are forwarded into the financial statement format. Prior year comparative numbers are also shown alongside each financial statement category.

  • Major variations of current numbers from the prior year comparative numbers are often brought to the attention of the owner-manager of the company. This often results in the discovery of more corrections that need to be implemented in the accounts before the final version is produced.

  • Using the finalized financial statements as a starting point, corporate tax returns are normally produced by the Chartered Accountant. Although corporate tax software is used, the expertise of the Chartered Accountant is brought into play during the production of the tax return. The tax software calculates the tax based on the income statement amounts input into the software, but it is the Chartered Accountant who must notice and act on many items that are not automatically picked up by the software. For example, whether or not any tax instalments were paid during the year, whether there are previous year losses to carry forward, or whether there are financial statement items on the income statement which need to be adjusted for tax purposes (like meals for long-haul truck drivers or interest paid to related parties).

  • After finalizing the corporate income tax returns, the tax impact shown on the tax returns is reflected back onto the financial statements with one more adjusting entry. This is because the actual tax owing or receivable must also be part of the financial statement at the end of the fiscal year.

To insure that your notice to reader is reliable and accurate contact Simkover and Associates

Preparing a Notice to Reader | Simkover and Associates

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