Financial Statement
requirements for financing
Creditors such as
banks will want 3rd party company financial statements
The process of issuing 3rd party financial
statements is generally required for financing.
Banks will look for financial statements provided by a public accounting
firm as they will want to see professional statements to facility the lending
approval process.
Most banks want
notice to reader at a minimum for financing below $1 million
Most banks at a minimum, will want to see a company’s
financial statements with a notice to reader from an accounting firm. This means that the financials have been
compiled by an accounting firm and adjustments have been made for tax
purposes. With a notice to reader the accounting
firm does not issue an assurance opinion on whether the financials materially free
from misstatements, however they do have the responsibility to ensure that the
financials are not false or misleading. There
is a standard process for compiling the financial statements. It is for this reason that most bankers will
want to see 3rd party notice to reader financial statements. Reviewing the financials is the first step in
the process of assessing whether the company can make principal and interest payments
on the financing in question.
Review & Audit
opinions are generally required for borrowing capacities above $1 million
Banks will require your company financials to be issued by a
3rd party accounting firm with a high level of assurance. Either a review or audit opinion, please see
below for the differences:
Review Engagement:
This offers a moderate degree of assurance that the
financial statements are not materially misstated and are in accordance with
accounting standards ( ASPE, IFRS, or NPOs).
Review engagement fees are generally less costly the audits, since the
degree of work and level of assurance is lower, however still higher than notice
to reader financial statements.
Audit Engagement:
This offers the highest degree of assurance that the
financial statements are presented in all material respects and are in accordance
with accounting standards (ASPE, IFRS, or NPOs). Audit engagement fees are more costly then
reviews, since the degree of work and level of assurance is higher.
Which financial statements
are best for your business?
Be sure to speak with your accountant, business advisor and banker to get an understanding of what type of financial statements your business requires.
Should you have any
questions, please contact a MP Group Partner below.