Important Changes Coming for Financial Statements
For the first time in more than 30 years, the Chartered Professional Accountants of Canada (CPA) have updated its accounting standards for financial statements. The new rules help define what an accountant needs to do when compiling financial information for companies and the responsibilities for that company’s management team.
The new requirements are outlined in the Canadian Standard on Related Services (CSRS) 4200 Compilation Engagements, which replaced Section 9200 Compilation Engagements.
There are five key items about the new compilation standard that you need to know and we encourage business leaders and owners to review the changes. We’ve included a helpful video above to help walk you through the updates.
What does this have to do with Insurance?
The first key point in the video revolves around the question: Is compiled financial information required for your business? Also, are you required to provide financial statements to a third party? This includes banks, leasing companies, landlords, government agencies, insurance brokers and companies, and more. Or, will you need to give your statement to a third party in the future?
For insurance purposes, it can be common practice to provide financial records when obtaining a quote for certain types of insurance policies. For example, it’s common to disclose financial records when obtaining a Directors & Officers quote. In addition to D&O, it’s also becoming much more common to need to provide financial records when quoting other specialty coverage lines, such as: Cyber Liability, Environmental Impairment, and Professional Liability (Errors & Omissions).
Given the widening types of insurance coverages that involve financial disclosures, business leaders should keep in mind their insurance needs when considering the likelihood of financial disclosures to third parties. In which case, the CSRS must be followed.
When does the Canadian Standard on Related Services (CSRS) change take place? December 14, 2021. The CSRS will have an effect on financial years ending in December 2021 and beyond. It is important that you and your accountant are aware of these changes and are ready for them as you prepare your compiled financial information.
The additional components of the new standard includes (opens as PDF):
• The financial statement is required to describe the Common Basis of Accounting used
• There will likely be more communication between you and your CPA
• You will now be required to acknowledge that you have taken responsibility for the financial information included in the statement
• The compilation engagement report will look different
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