Gabrielle Adams MBA CPA CGA HB Comm
Chartered Professional Accountant - Chartered Financial Planner
Income Taxes · Financial Statements · Financial Planning · Audit Representation
(705) 817-3705
Financial Statements
Automated software generated financial statements usually require modification and adjustment to comply with accounting standards. Selecting the right software, a good initial set up and regular monitoring and modification reduce the time and cost involved making the adjustments required to meet the reporting requirements unique to your organization.
Compilation Report or Statement of Business or Professional Activities
A compilation engagement is a service performed by a professional accountant to organize financial data into formal financial statements, while a T2125 is a specific Canada Revenue Agency (CRA) form used by sole proprietors and self-employed individuals to report their business income and expenses for tax purposes. The former is a type of accounting service, and the latter is a government form.
What is a T2125 Statement of Business or Professional Activities?
The T2125 Statement of Business or Professional Activities is a mandatory form for Canadian sole proprietors and self-employed individuals to calculate their net business income or loss for a given tax year.
Purpose: To report business revenue and deduct eligible business expenses to determine the net income that flows onto the individual's personal T1 income tax return.
Assurance Level: There is no formal assurance requirement attached to the filing of this form itself, although the CRA may audit the underlying records.
Deliverable: The completed Form T2125, which is part of the overall personal tax filing package submitted to the CRA.
What is a Compilation Report?
You may be requested to provide a compilation report by a third party, in addition to tax returns. If there are no third party users, then a compilation engagement may not be required. There are a variety of factors that a financial statement user may consider when determining if a compilation report is appropriate for their needs. For many small businesses, this is sufficient for their needs.
A compilation report provides no assurance that the financial information is free from material misstatement, and it is explicit that no procedures are performed to verify the accuracy or completeness of the financial information provided by management.
The CPA preparing a compilation report relies upon their client to provide the data and numbers in the report and cannot assure their accuracy. Readers are cautioned that the financial information may not be appropriate for their purposes.
The Relationship Between the Two?
The T2125 form is often the end result or a key component of a compilation engagement for a sole proprietorship. An accountant might perform a compilation engagement to organize a sole proprietor's bookkeeping into formal financial statements. These compiled financial statements would then be used as the basis for preparing the data to be entered into the T2125 form for tax filing purposes.
When a CPA prepares the T2125 for a client, professional standards require that the process falls under the scope of CSRS 4200, meaning a formal compilation report and related procedures are mandatory, even if the primary goal is just tax compliance.
Do you need a CPA to do a compilation?
Accountants who are not CPAs can prepare financial statements that may meet your business needs. However, a compilation report cannot be attached to any financial statements prepared by a non-CPA. Nor can a non-CPA prepare a “Notice to Reader”.
What are T2 Financial Statements?
T2 financial statements" refers to the financial information that Canadian corporations must prepare and submit to the Canada Revenue Agency (CRA) as part of their annual T2 Corporation Income Tax Return. This information is reported using a standardized system called the General Index of Financial Information (GIFI).
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