So what are these things anyway? What is an notice to reader (NTR), and why do I care about it?
Ahhh the NTR engagement (a.k.a. the compilation). This is often the culmination of a small business’ interactions with their accountant. The journey from shoebox-full-of-receipts to completed financial statements begins with the NTR. Depending on the level of complexity of the business, and how organized the financial records are, this can be a short, or fairly long task. But why do you need an NTR in the first place? Can you not just fire up excel, throw in some revenues and expenses for the year, and call it a day?
Well the big thing is, for any small business, their financial statements, prepared by a professional accountant, are the “window” through which potential financiers or even clients can look into your business. They are the starting point for determining what has been happening in this company over the past fiscal year, and what kind of shape it’s in. This is crucial information for not only banks, who may be evaluating your credit worthiness as part of the decision to lend you money, but for any potential purchasers of your business.
A notice to reader is an engagement performed by a professional accountant. You provide your accountant with your financial data for the past fiscal year. Ideally, this comes in the form of a data file from a trusted application (i.e. QuickBooks). Alternatively, this could simply be a stack of all your invoices from your sales for the year, a shoebox full of receipts for all your expenses, and copies of your bank statements.
What happens next is that your accountant literally “compiles” the data into an organized set of financial statements for your, and others’, reading pleasure.
Now you must be asking yourself: why can’t I just do this myself, and why does anyone need these documents? Quite often, in order to obtain any sort of financing from a bank, a government grant, etc, you will need a set of financial statements prepared by an independent professional accountant. Simply preparing them yourself will leave readers skeptical. After all, it is difficult to remain independent and unbiased when you’re dealing with yourself. Financial statements prepared by an external accountant provide users of the statements some comfort over the values you’re reporting with regard to your business activity. So when the bank is considering lending you $100,000 to grow your business, they have a quality set of financial statements on which to base that decision. Finally, a compilation comes in handy at tax time. An organized set of financial statements makes filing your corporate tax return much easier, as it gives you all the necessary data to fill out your tax forms. Of course, this process is made much easier when your accountant prepares your taxes.
All in all, a notice-to-reader engagement is a very important one for small business owners, and not to be taken lightly.
Zaid Al-Mulla, MAcc, CPA, CA
zaid.almulla@almullacas.com
