Do You Need an Audit (or Review)? – A Complete Guide by a Montreal CPA Firm Near You

Introduction

Whether you are a small business owner, a fast-growing startup, a non-profit, or the director of a corporation, you may eventually hear the terms audit, review engagement, or compilation. Each level of financial statement assurance serves a different purpose, carries different costs, and has different requirements under law, banking agreements, and governance standards. Choosing the wrong level of assurance—or not understanding what lenders or partners expect—can lead to financing delays, compliance issues, or CRA concerns. This guide explains the differences between audits, reviews, and compilations, and when each one is necessary.

Legal and Regulatory Framework

Financial statement assurance engagements in Canada are governed by CPA Canada standards: CSAE 3000 for audits, CSRE 2400 for review engagements, and Section 9200 / CSRS 4200 for compilation (formerly known as “Notice to Reader”). Corporate statutes such as the Canada Business Corporations Act (CBCA) and Quebec Business Corporations Act (QBCA) specify when corporations must prepare audited or reviewed financial statements. Banks, lenders, investors, government grants, and non-profits may impose additional financial reporting requirements. CRA does not require audits but may request audited statements when financial irregularities exist.

Key Court Decisions

In Livent Inc. v. Deloitte, the Supreme Court clarified auditors’ responsibilities and highlighted the importance of proper assurance in financial reporting. In Canderel Ltd. v. Canada, accurate financial representation was emphasized, showing why higher assurance may be needed when statements affect tax outcomes. In Brooks v. Canada, CRA reconstructed income where financial statements lacked reliability—a risk reduced when proper assurance is used. These cases demonstrate why reliable financial statements are essential for both compliance and credibility.

The Three Levels of Financial Statement Engagements

1. Compilation (Notice to Reader / CSRS 4200)

A compilation is the lowest level of service. The CPA compiles financial information provided by management into financial statements without providing any assurance. It is useful for small businesses that only need statements for basic reporting or tax filings. However, a compilation does not verify accuracy and may not satisfy lenders or investors.

2. Review Engagement (CSRE 2400)

A review provides limited assurance, meaning the CPA performs analytical procedures and inquiries to assess whether the financial statements are plausible. It is more robust than a compilation but less comprehensive than an audit. Many banks require review-level statements for loans between $100,000 and $1M. Non-profits often require reviews depending on bylaws or funding levels.

3. Audit (CSAE 3000)

An audit provides reasonable assurance—the highest level available. The CPA conducts detailed testing of transactions, internal controls, and evidence to verify that the financial statements are free of material misstatement. Audits are required by law for certain corporations, government-funded entities, and organizations with public accountability. They are also common for businesses seeking major financing or preparing for sale.

When Do You Need an Audit?

An audit may be required when: corporate bylaws mandate it, shareholders request it, lenders require high assurance, government grants demand it, the organization manages public funds, internal fraud is suspected, or the business plans for sale, merger, or IPO. Audits offer confidence to stakeholders and reduce financial risk.

When Do You Need a Review Engagement?

A review is appropriate when: lenders require limited assurance, non-profits must meet funding requirements, owners want more credibility than a compilation, or financial statements support medium-sized loans or partnerships. Reviews are faster and less costly than audits but still offer comfort that statements are reasonable.

When Is a Compilation Sufficient?

A compilation works well for: small businesses filing taxes, owner-managed corporations with simple structures, internal budgeting, simple lender needs, or businesses with few stakeholders and low financial risk. It is not suitable when external parties require assurance.

Costs and Time Differences

• Compilation: lowest cost, quickest turnaround.

• Review: moderate cost, more procedures required.

• Audit: highest cost, most detailed testing and verification.
  The right choice depends on your business size, complexity, financing needs, and regulatory requirements.

Common CRA and Lender Issues

CRA may question businesses that rely on poor-quality compilations with inconsistent financial statements. Lenders may reject statements without adequate assurance. Missing reconciliations, inaccurate COGS, unexplained revenue fluctuations, and unverified assets or liabilities create audit risk. Proper assurance strengthens financial credibility.

Mackisen Strategy

At Mackisen CPA Montreal, we assess your reporting needs and help you choose the correct engagement level. We prepare compilations, perform review engagements, conduct full audits, assist with lender negotiations, build financial reporting systems, and help non-profits meet regulatory requirements. Our assurance services add credibility, clarity, and confidence to your financial statements.

Real Client Experience

A Montreal manufacturer secured a major line of credit after switching from compilation to review statements. A growing non-profit met grant requirements through our review engagement. A technology startup preparing for acquisition obtained clean audited statements that increased buyer confidence. A corporation facing CRA scrutiny avoided reassessment after we strengthened financial reporting controls through a formal audit.

Common Questions

Do all corporations need audits? No—only those required by law or bylaws. Do banks accept compilations? Rarely for larger loans. Is a review enough for most SMEs? Yes—unless major financing or public accountability is involved. Are audits tax-related? Not directly—audits verify financial statements, not tax filings.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal delivers accurate, reliable assurance services tailored to each client’s needs. Whether you require a compilation, a review, or a full audit, we ensure your financial statements inspire trust and meet all regulatory standards.