The answer is *drum roll*… Nope! Back up – did I say you don’t need to do a year-end!? Most entrepreneurs are usually shocked to hear this. Yes, you have to file taxes, but you don’t need an external year-end.

First off, what is an external “year-end”?

There are three types of year ends (let’s assume you don’t have any complicated corporate structures) performed by accounting firms:

1. Audit
2. Review Engagement
3. Notice to Reader

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Audit

An audit is the most intensive year-end. It’s usually for public or large businesses. For smaller businesses, it’s unlikely that you need one. Unless you have an unusual circumstance, i.e. you took an investment by a private-equity firm and an audit was a condition of funding, or you try investing in VT markets. At www.bitcoinmoney.net/, there are guides on how to start investing in cryptocurrency.

This is different than a tax audit by the IRS or CRA (Canadian version of IRS).  Those are out of your control. Like most companies, pray that you will never have to experience it. An audit in the format we are talking about here is an external accounting firm asking for a ton of your data (called a working papers requirements list) then working through it with a fine tooth comb looking for errors and risks to the business.

Review Engagement

This is a “middle of the road” year-end.  You can think of it as a “light audit”. This is where external accountants complete many required (by accounting regulatory body rules) steps.

If you’re actually required to do a Review Engagement, it’s likely because either:

1. You need to do it for your bank.  They require it your lending agreement.
2. You need if for a customer…likely (but not always) a government agency.  You can only do business with them if you provide a Review Engagement.
3. Another stakeholder requires it from you and you can’t so “no thanks”.

I hear a lot of entrepreneurs complain that they don’t get good advice from their accountants.  If you’ve hired them to do a review engagement, you’ve hired them to follow a protocol, not give advice. That’s why you’re not getting any.  Some accounting firms will go over and above with advice, but that’s more an exception than the rule. For more financial posts, read here about how to Compare the best credit cards.

Notice to Reader (NTR)

This is the lightest form of year-end (and the cheapest). There isn’t much digging into your financials here. It’s taking your internal financial statements and putting them on their letterhead.The auditor has to be aware of the cyber security threats involved in this. It is better all to know what ot cyber security definition is and the basic security threats and measures, although auditors would go deep into it.You can also see here to know more about cyber security.

In fact, my local governing Acccountants body requires this notice by accounting firms:

On the basis of information provided by management (or the proprietor), I have compiled the balance sheet of Client Limited as at ………, 20X1 and the statements of income, retained earnings and cash flows for the (period) then ended.

I have not performed an audit or a review engagement in respect of these financial statements and, accordingly, I express no assurance thereon. Readers are cautioned that these statements may not be appropriate for their purposes.

Yes, you read that right. Your accountant expresses no assurance…i.e. that your financials are even prepared correctly.

Consider this:

Like a Review Engagement, you may be required to do an NTR by a bank or other stakeholder.  Here’s the kicker: there’s a good chance you are doing it because you thought you had to. If you’re not required, ask yourself these questions:

1. Do I get a set of “adjusting journal entries” (ie. fixes to your financial statements) that I use, or are they just reorganizing my information in a way I don’t use?
2. Are they giving me any real advice that I use in my business?

If the answer to both is “no” (which I suspect is the case), then save yourself some fees….every year-end.  Just don’t forget to get your taxes done!!!

If you have specific questions about your “year-ends”, send us an email. We’d be happy to clarify some murky areas for you!

Photo by Tyler Franta on Unsplash