Tax season is in full swing and your accountants are working overtime trying to complete your corporation\u2019s financial statements.<\/p>\n
Although most entrepreneurs already know that their businesses must prepare these financial statements on a yearly basis, very few know that the Law (whether it be at the Quebec or at the federal level) requires that such statements be audited<\/u>.<\/p>\n
So, what does this entail and how exactly can you reduce your fees?<\/p>\n
First, note that there are basically three types of financial statements:<\/p>\n
1-\u00a0Compilation or Notice to Reader Statement<\/strong><\/p>\n 2-\u00a0Review Engagement; and<\/strong><\/p>\n 3-\u00a0Audit Opinion<\/strong><\/p>\n In a nutshell, the difference between these three types of financial statements is the level of assurance that will be provided by your accountant when providing these statements. In other words, how confident can one be that your business\u2019s activities are accurately and completely reflected in your financial statements? This level of assurance varies from practically no assurance at all (compilation) to a very high level of assurance (audit opinion).<\/p>\n Obviously, the higher the assurance, the higher the accounting fees involved. Which is why many small to mid-sized businesses prefer to avoid the high professional fees associated with the audited financial statements. But, as mentioned above, the Law does require that the shareholders appoint an auditor at each annual shareholder meeting.<\/p>\n So how to avoid this costly obligation? Simple, both the Quebec and federal law include a useful exception to the general rule: most private corporations may avoid audited statements if all, and no less than all, the shareholders say so. In other words, the shareholders may pass\u00a0unanimous resolutions<\/strong> (including those only shareholders who have\u00a0non-voting shares<\/a>) reflecting their decision not to appoint an auditor. This decision is only valid until the next annual shareholders <\/a>meeting.<\/p>\n So, if for whatever reason your business does not really need audited statements (ex: if your financial statements are only used to prepare your yearly corporate tax return, no bank requirements, single shareholder, no plans to sell your business<\/a>, etc.), you may want to consider preparing and passing such unanimous shareholders resolutions<\/a>. By doing so, you will be legally allowed to prepare a compilation or a review engagement instead of an audit opinion, thus significantly reducing your accounting fees each year.<\/p>\n As for those who have been opting for compilations or review engagements without first passing these unanimous resolutions, you may want to reconsider your way of doing things. Remember that a shareholder (any shareholder) has a legal right to audited financial statements, regardless of its costs and the corporation\u2019s past practices. As such, this may lead to unhappy shareholders with valid legal arguments to raise, whether at a shareholder meeting or in court\u2026<\/p>\n