Audit, review or compilation: which year-end statements you actually need

Three levels of year-end statements exist, and almost every owner-managed corporation needs the cheapest one. A compilation presents figures you supplied, with no assurance attached to them. A review adds limited procedures — enquiry and analysis, mostly — and a conclusion that nothing came to the practitioner’s attention. An audit gathers evidence from outside your own books and produces an opinion. No tax rule requires any of them; the CRA wants a return. What moves you up a level is a reader outside the business who wants someone else to have looked first.

The levels differ in who checked, not in how the pages look

Set a compiled balance sheet beside an audited one and the numbers can be identical, in the same order, under the same headings. The difference is entirely in what happened before signing, and in what the cover page is willing to claim.

A compilation is preparation. Statements are assembled from information supplied by management — from you — and no audit, review or other assurance is performed on them. Nothing in the package was tested against anything outside your own records, which is what that cover page is telling you.

A review is a limited engagement performed by an independent CPA firm. The work is mainly enquiry of management and analytical procedures — ratios and trends set against what the practitioner expected, with follow-up wherever a number moved in a direction the business cannot explain. The conclusion is stated in the negative: nothing came to their attention causing them to believe the statements are materially misstated. That double negative is the product, and it is not an opinion.

An audit is evidence. Balances get confirmed directly with banks and customers, inventory is counted with the auditor in the room, samples are traced back to source documents, and the file is built so another professional could re-perform the work. What comes out is a positive opinion — that the statements present fairly, in all material respects. Independence is enforced at this level: the firm that keeps your books generally cannot be the firm that audits them.

The CRA is not the one asking

Nothing in the tax rules requires assurance. The T2 — the corporation’s income tax return — is due six months after year-end, June 30 for a December 31 year-end, and it carries the corporation’s financial figures in the CRA’s standardized financial-information format rather than as a signed statement package. Unaudited is the norm for owner-managed corporations and is not a flag. The deadline list has the filing dates themselves.

There is one requirement most owners have already dealt with without noticing. Corporate statutes generally require a corporation to appoint an auditor unless the shareholders resolve otherwise, and for a corporation that has never distributed shares to the public that resolution is generally unanimous and renewed each year. It is in your minute book, signed at the first annual meeting and re-signed since. Which makes “we have never had an audit” a decision somebody took rather than a gap somebody left.

Who actually demands what

Banks are the common trigger, and they are not uniform. Below an internal size set by the borrowing rather than by you, a lender generally takes compiled statements with the notice of assessment and the corporate return behind them. Above it, the credit agreement itself starts naming an engagement level, usually alongside a covenant tested once a year — and a covenant is a promise the lender wants measured by someone other than the person who made it. Whatever level ends up on top, lender and bonding statements are reporting work.

Bonding is stricter, for a reason that has nothing to do with accounting. A surety is underwriting your ability to finish a job with somebody else’s money on the line, so most bonding programs ask for a review or an audit as the limits rise. Contractors tend to meet this in the same week as the bid it is holding up.

Outside shareholders are the third trigger, and the most predictable, because the level is usually written down. An investor who does not run the business generally fixes it in the subscription or shareholders’ agreement when the money goes in. Nobody reads that clause again until year four, when someone asks for the reviewed statements it has quietly required since year one.

Then there is the honest fourth category: nobody. A corporation owned by the people who run it, borrowing nothing or borrowing against a personal guarantee, has no reader who needs assurance. Buying a level anyway spends real money answering a question no one asked.

Why the price steps rather than slides

Hours follow evidence. A compilation is priced mostly against the state of your bookkeeping; a review adds a professional’s time asking and analysing; an audit adds fieldwork, third-party confirmation and a documented file. Each level tends to be a multiple of the one below it rather than a markup on it.

The one input you control is the records underneath. Reconciled books make every level cheaper, and nine months of untouched bank feeds make the quote arrive with a remediation line in front of it. Whether you keep the books or someone else closes them sets that baseline long before anyone asks for a signature.

A worked example: the request that arrives in February

Illustrative, round numbers, December 31 year-end. Ravi’s mechanical contracting corporation has run on compiled statements for four years. In February 2027 he asks his surety to raise his bonding limit, and the surety asks for statements at the review level for the year ended December 31, 2026.

That is available. A review’s procedures are enquiry and analysis applied to a closed year, so a firm engaged in March can work from the closed 2026 file and the 2025 comparatives. Ravi’s own calendar runs on unchanged — the T2 is still due June 30, 2027 — with one sequencing point deciding whether this is tidy or expensive: any adjustment the review firm proposes has to reach the return before it is filed. One set of numbers, agreed once, filed once.

Now change the request. Had the surety asked for an audit of 2026 instead, part of the evidence carried a date. Inventory at December 31, 2026 is counted on or about December 31, 2026 with the auditor present; balances are confirmed as they stood on that day. In February, that date has passed and cannot be recreated. Alternative procedures sometimes exist; they cost more and conclude less. The practical answer is a review of 2026 and, if an audit is coming, an engagement letter signed before the next December so the count is scheduled rather than missed.

One cost lands in year one either way. A first review or audit has to get comfortable with opening balances nobody outside the company has examined before, which is why the first year prices higher than the second.

Before agreeing to anything, three questions go back to whoever asked:

• Which level exactly, in the words their own agreement uses. The difference between “reviewed” and “audited” is a multiple, not a preference.
• For which year-ends: the one just closed, or the one now running — which is the version you can still plan for.
• Does it renew, or was it a one-time condition on one facility? A requirement that repeats changes the shape of every year-end after it.

What Cadence does

We prepare compiled year-end statements: from information you supply, with no audit, review or other assurance performed, said on the cover page rather than left to inference. We are not a CPA firm. Where a lender, a bonding program or a shareholders’ agreement requires a review or an audit, that is assurance work — it goes to an independent licensed firm, and we prepare the underlying reporting and work alongside the firm that signs it. That boundary is published on the About page rather than explained when it becomes inconvenient. The statements supporting the corporate return sit with the annual returns, where the C$3,000 Compliance tier is annual returns only; monthly and quarterly reporting with the bookkeeping under it is the Tax + Accounting package, and lender and bonding packages are reporting and CFO support, taken selectively. For construction and trades owners, the answer worth having early is which level your bonding program asks for at the limit you are heading toward, rather than at the one you have.