You may have been requested for Notice to Reader financial statements if you have ever applied for a loan from the bank or sought investors for your business.
Financial statements marked “Notice to Reader” (NTR) are required for a variety of transactions that may have implications on a company’s bottom line. A Notice to Reader financial statement may be required when reporting annual financials to shareholders, seeking new investors, or applying for a bank loan.
If you’re a business owner, how can you make the most of the information provided in a Notice to Reader? A Chartered Public Accountant (CPA) can advise you on the financial report format that is most appropriate for your business.
You may be wondering, what is a Notice to Reader? Notice to Reader Report is a sort of business financial statement that may also be referred to as a Compilation Engagement or a Compilation Report. It is an accounting team’s compilation of financial statements provided by management.
To emphasize, a Notice to Reader financial statement does not guarantee the accuracy of the financial accounts. For those who is a stakeholder of the business, such as shareholders, investors, directors, and the general public, this practice can help establish the company’s credibility. Review Engagement or Audited Review financial statements are the best option for a company looking for in-depth financial reporting.
A business financial statement generated in-house by an uncertified bookkeeper using accounting software is unlikely to be as accurate as one generated from a Notice to Reader report. It is expected that a Chartered Accountant will adhere to the highest standards while writing a Notice to Reader report.
Why Should Financial Statements Include a Notice to the Reader?
In a variety of contexts, the financial statements from NTR can provide credibility or satisfy requirements.
Ownership information is reported annually
An NTR may be written voluntarily by a company’s owners or shareholders for their personal records or to include in the corporate minutes binder, even if doing so is not mandated by law.
Borrowing from banks and other creditors
When a lender is deciding whether or not to extend credit to a business, financial institutions frequently request a statement of net tangible assets (NTR).
Investors While most corporate investors would need reviewed or audited financial statements, investors in startups and smaller enterprises may be satisfied with a Notice to Reader.
Buyers conducting due diligence on a business purchase will want to review NTR financial statements going back at least three to five years. Financial statements may be required to be reviewed or audited for larger business deals over $5 million.
Declaration of Income Tax
To avoid overpaying taxes because of underreported income, an accountant can draft a Notice to Reader financial statement in time for your year-end income tax return.
The Process of Preparing a Notice to Reader Financial Statement
In most cases, chartered accountants issue Notice to Reader statements on the last day of a company’s fiscal year (i.e., December 31).
The CPA’s NTR report preparation procedure typically involves the following processes and documents:
Getting the trial balance, which is a compilation of all the transactions in the accounting system
Examination of the business’s financial records for signs of discrepancy or omission
Getting ready to revise journal entries in order to rectify omissions or mistakes in previously recorded financial transactions; this may include accruing expenses, taxes, or depreciation of fixed assets.
Allocating completed journal entries to related account groups
Prepare company tax returns using the Notice to Reader statements
Last minute tax return adjustment recorded in NTR. By distributing the Reader’s Notice, you can alert the proper authorities.