Financial statements – the good, bad and ugly
The financial statements are a written record of the operations of a business at a specific point in time. Usually for a small to medium enterprise (SME) this is a year end.
In British Columbia, every company is charged with having such a record prepared. ( Part 6 of the British Columbia Business Corporations Act deals with this stuff, if you’re a keener.) All of the stuff in that section really says “Directors, get some formal statements done”.
There are several levels of financial statement preparation. In British Columbia, the most common are audited, reviewed and compilation (aka the “Notice to Reader”). The latter is really just making things pretty and doing a small amount of compliance but all the liability rests with the directors. The audited statement takes the company’s in-house statements and gives an opinion as to their fair representation. Sort of. In other words, it says “we think these are correct within an immaterial amount”. The liability moves more to the auditor, who, in BC, for the most part, is usually a CPA. In the middle is the review, which gives a negative “well, we can’t find any reason not to say these are correct within an immaterial amount”.
For a small business, the statement engagement you get often depends on either your lending parties, or the people who are investing money, like mom and dad.
There are exceptions, though, if you read on.
200 (1) Directors are relieved from their obligation under section 198 to produce and publish financial statements
a) if all of the shareholders of the company, whether or not their shares otherwise carry the right to vote, resolve by a unanimous resolution to waive the production and publication of the financial statements, or
(b) if and to the extent provided by a court order waiving the production and publication of some or all of the financial statements and on any terms the court considers appropriate.
(2) A waiver referred to in subsection (1) of this section may be given before, on or after the date on which financial statements are, under this Division, required to be produced and published and is effective for those financial statements only.
Thus you don’t always have to have a formal financial statement.
So maybe you’re looking at your shiny, new business and you’ve just had a quote from the accountant for financial statements which caused you to gasp and consider selling a body part. You may think you can wait on those financial statements but you need to make the government happy to avoid their robo-like calls. Sometimes there are options. If you don’t know what they are, you won’t know to ask but it’s always worth checking into whether you can qualify for a “T2 (corporate tax return) only” engagement.
If you don’t ask, you won’t know.