When should you seek advice from an accountant? Accountants can provide a range of advice, from structuring your business to maximizing tax credits to preparing assurance or non-assurance reports. Aside from the times that you will require assistance with accounting matters, there will also be times when it is a good idea to voluntarily consult your accountant.
Business structures, tax credits, assurance/non-assurance reports: Your accountant will have advice
Structuring the ownership of your business
One common area where an accountant can help is in structuring the ownership of your business. If you have investors, chances are good that they will suggest a structure that is suitable for the business. However, it is also important to consider the implications of that structure and how you own the company personally. Setting up the right structure for your business initially can be extremely beneficial in terms of tax savings when you later sell the business (including your ability to save hundreds of thousands of dollars in taxes if you qualify for the lifetime capital gains exemption). Additionally, trying to change the structure once your business is set up and running can be quite difficult and costly. It is worthwhile discussing it early and getting it right.
Identifying tax credits or savings
Your accountant can also advise about tax credits or tax savings for which your business might be eligible. This can often be a valuable discussion even before you begin earning revenues.
Analyzing or preparing assurance and non-assurance reports
Accountants can also be engaged to analyze or report on any number of specific situations. These could range from the standard types of annual financial statement reports discussed below to reports to third parties about some of the financial details of your business. (For example, situations where third parties need a certain amount of information, but you do not want to give them full access to your business records). Such reports can both be assurance or non-assurance reports.
Types of assurance reports: Audits and reviews
For an assurance report, the accountant is expressing an opinion on whether the information is materially correct. Materiality is a concept used to assess the cumulative errors and their impact on the readers of the report. For example, a mistake of $1,000 affecting income would not be material to a banker analyzing the report as to the company’s ability to repay their loans if the company is earning $1,000,000 in revenues. However, it might be considered material if the same company was only earning $50,000 in revenues. For assurance reports, the financial statements must explicitly say under which type of Generally Accepted Accounting Principles (GAAP) they are reporting. It is unlikely that you will want to have a higher level of assurance than what is required, as there is an increased cost and time commitment needed for each level of report. One exception to this is if you plan to sell shares in your business, or request new loans, and it is likely that the investors or lenders will ask for assurance on the financial statements. In this case, it may be valuable to show a track record.
Independent audit reports
Audit reports are the most commonly known type of report an accountant can issue. They are also the highest level of assurance an accountant can express. An audit report is attached to a set of audited financial statements and tells the reader that the accounting records used to produce the financial statements have been analyzed by the auditor and the financial statements are correct in all material respects. Public companies are required to file annual audited financial statements and many investors or lenders will ask for an audit as terms of their involvement with a company.
The next level of report is a review. In this type of report, the accountant is saying that in reviewing the financial statements and supporting material, nothing has come to their attention that suggests the financial statements are not materially correct. As with an audit, this type of report will often be asked for by investors or lenders, so that they have some independent assurance that the financial statements are correct.
The final type of report is called a compilation or notice to reader. Here the accountant notifies the reader of the financial statements that they are not expressing any assurance that the financial statements are correct. The report will state that the accountant has simply collated and adjusted the financial statements based on the information that was provided by the company, usually for tax purposes.