A financial statement is not complete without a Notice to Reader, a document that summarizes the information in the company’s financial statements. There are many different types of financial statements, which include Non-assurance statements, Assurance financial statements, and Compilation engagement reports. If you’re thinking about getting a loan or preparing your financial statements, this guide can help you understand what to look for. Read on to learn more!
Non-assurance type of financial statement:
Notice to reader financial statement includes a disclaimer that states the financial statements are not assurances. The statement has not undergone an audit or review, and therefore, does not provide assurance. Certain users of financial statements may not find this type of financial statement to be trustworthy. For this reason, the company should include a disclaimer that notes the potential risks of using this type of financial statement.
A compilation engagement is triggered when an accountant is asked to prepare a financial statement. This type of engagement requires an attest, non-assurance report. It requires the accountant to rely on management information to prepare the financial statement but is not required to express an opinion. The accountant may also issue a single financial statement upon request. For some businesses, the level of assurance may not be as important as the other two types.
Required by lenders:
For lenders, the requirements of the reader’s financial statements are crucial to their understanding of the financial condition of the business. Using metrics that can be easily verified is essential for lenders to be assured of the accuracy of financial statements. The information in the financial statement can also support the value of the collateral. This gives lenders a good reason to closely monitor financial statements. Fortunately, the rules are becoming increasingly strict.
A Notice to Reader financial statement is prepared for a specific purpose, usually to provide information for a bank loan, to a potential buyer in a merger or acquisition, or to attract investors. This type of financial statement is not appropriate for everyone; for example, a corporation may not need to provide an annual notice to its owner, but an owner may opt to include it in the corporation’s binder. This type of financial statement also does not need to be reviewed by an external accountant.