The objective of an audit lies in expressing an opinion about whether the financial statements submitted present fairly, in all material respects, the financial position in accordance with the generally accepted accounting principles. For the authorities, this remains the highest form of assurance. As such, the auditor would need to perform the audit with an attitude of professional scepticism. In addition, the auditor would need to seek reasonable assurances that the financial statements submitted are free of material misstatements as well. In Canada, small private businesses seldom have to undergo audits. The Canadian Business Corporations Act prescribes a business establishment to undergo an audit if its sales exceed $10,000,000. However, even in these cases, the authorities have the power to waive off the requirement of the audit if the company is closely held.
The authorities consider the accounting equation of the balance sheet to comprise:
- Assets (or the total money invested in the company) =
- Liabilities (or the money provided by the creditors) PLUS
- Owners’ Equity (or the money provided by the owners) and retained earnings
The authorities consider any asset or liability that the owner converts into cash within one year as current. As such, the difference between a company’s current assets and current liabilities typically provides an indication of the company’s liquidity and solvency.
The balance sheet of a business typically provides a snapshot in time – usually at the end of the business year. If the information given in the balance sheet is accurate, it provides an indication of the assets available for conducting various business operations. At the same time, it serves to give a meaningful indication of the scope of these operations as well.
It is worth highlighting that a series of balance sheets can serve to reveal the soundness of the company’s structure. Therefore, officers would need to scrutinise the document for any signs of a decline in sales and an increase in inventory. The presence of these indicators typically highlights a downward trend for the business.
When officers or auditors review the balance sheet of a company, they remain mindful of the fact that the balance sheet is based on historical transactions. As a result, it discloses a book value that might not correspond to the market value of an enterprise. For instance, the accountants will record fixed assets at historical cost less an estimate for depreciation. However, this practice might not bear any resemblance to the fair market value. In many cases, this is particularly so with land, as the fair market value of land could be many times the original cost.
For entrepreneurs, this aspect refers to the management of a qualifying business. In addition, it refers to the control of a percentage of equity for a specific time frame as specified in the provisions of R88. A detailed explanation follows in the segment titled “Processing Entrepreneurs”.
Compilation engagements refer to engagements wherein a public accountant receives information from a client initially. Thereafter, the public accountant arranges the information received into the form of a financial statement. The public accountant would typically focus on concerns that the assembly of the information remains arithmetically correct at all times. However, it is worth highlighting that the public accountant does not attempt to verify the accuracy or completeness of the information provided.
The authorities define an entrepreneur as a foreign national who:
- Possesses the relevant business experience
- Has a legally obtained net worth of at least $300,000 – in accordance with the provisions specified in R88 (1) and,
- Can provide a written statement to the officers that they intend and will be able to meet the conditions referred to in subsections R98 (1) to R98 (4)
- These conditions specify that for a period of at least one year within a period of not more than three years after the day that the entrepreneur becomes a permanent resident, they intend and will be able to:
- Control a percentage of the equity of a qualifying Canadian business equal to or greater than 33 1/3 per cent
- Provide active and ongoing management of the qualifying Canadian business and,
- Create at least one incremental full-time job equivalent in that qualifying Canadian business for Canadian citizens or permanent residents, other than the entrepreneur and their family members
- These conditions specify that for a period of at least one year within a period of not more than three years after the day that the entrepreneur becomes a permanent resident, they intend and will be able to:
The authorities prescribe that a complete set of financial statements would need to typically include the following:
- A balance sheet (a detailed explanation of this comes subsequently in this document)
- An income statement (or a statement of income and retained earnings) (a detailed explanation of this comes subsequently in this document)
- A statement of changes in financial position and,
- Notes to the financial statements
This translates into 1,950 hours per year of paid employment. In addition, it could consist of either one person working on a full-time basis or of several people working the equivalent of a full-time position. This is in accordance with the provisions specified in R88. In addition, this remains consistent with the provisions specified in R98 (1) (c) as well.
Other Definitions
