Financial statements for small Aldergrove corporations

Does a small corporation actually need statements?

Every incorporated business has to file a corporate return, and that return carries financial information in a standardized format known as GIFI — a balance sheet and income statement expressed in prescribed account codes. That obligation exists regardless. What is not automatic is a separately presented set of financial statements with notes and an accountant’s communication attached.

Those get prepared when someone outside the business will read them: a lender assessing a loan or a lease, a shareholder who is not involved day to day, a landlord, a franchisor, a bonding company, a prospective buyer. Where none of those exists, the sensible question is what the statements are for. Asking it is not an argument against having them — a well-presented year end is genuinely useful to an owner — but it is an argument against paying for a level of formality nobody has asked for.

GIFI, the T2 and where the numbers come from

GIFI works by mapping every account in the business’s ledger to a prescribed code, so the return presents a comparable picture across every corporation in the country. That mapping is only as good as the chart of accounts beneath it. A ledger with a single catch-all expense account maps badly, produces an uninformative return, and makes any year-over-year comparison useless.

Setting up the chart of accounts properly is a one-time exercise that pays back every year afterwards, and it is where a small corporation gets the most value for the least effort. The chart of accounts guide covers how to structure one for a small business.

The shareholder loan account on a small file

On a one- or two-shareholder corporation the shareholder loan account is where the year’s loose ends collect: personal expenses paid from the business account, business costs paid personally, cash drawn without a decision about whether it was salary, dividend or repayment. By the year-end date it is a single number that nobody can explain line by line.

The direction of the balance is what matters. Money the corporation owes the shareholder is simply a payable. Money the shareholder owes the corporation and does not repay within the required period can be included in the shareholder’s personal income. That is entirely avoidable when it is dealt with at year end and awkward to unwind two years later. See the shareholder loans guide.

Assets used for both business and personal purposes

Small owner-managed corporations routinely hold assets that serve both roles — a truck driven to jobs and to the hockey rink, a shop with a corner for personal projects, a home office. Each needs a defensible allocation, and each allocation has both a statement consequence and a tax consequence.

A vehicle owned by the corporation and available to the shareholder produces a taxable benefit calculated on prescribed rules rather than on a fair-feeling percentage, and it is one of the more commonly assessed items on a small corporate file. A home office used for the business supports a deduction under specific conditions. Both are easier to support with a mileage log and a floor-area calculation than with an estimate made a year later. See the company car benefit guide.

What a compilation engagement is

Where formal statements are prepared for a small corporation, the engagement is almost always a compilation under CSRS 4200. The accountant assembles the information the owner provides into properly presented statements and attaches a communication explaining the basis on which they were prepared and disclosing that no assurance is provided.

It is not an audit and it is not a review. Nothing is verified: the bank balance is not confirmed, the receivables are not tested, and no opinion or conclusion is expressed. That is entirely appropriate for a small owner-managed company, and it is worth understanding rather than assuming, because owners occasionally believe their accountant has checked the numbers when what has happened is that the numbers were presented. If a lender ever asks for something that has been checked, they are asking for a different engagement.

A local CPA, working remotely

Aldergrove is roughly fifteen minutes from the Abbotsford office, and EverStone is a sole practitioner CPA firm with that single office and no Aldergrove location. Every engagement runs remotely through secure document exchange, video calls and electronic signature, so nothing depends on the short drive.

This suits incorporated trades and service businesses, small retailers, owner-operated shops, professional corporations and holding companies. The statements and the corporate return are prepared together by the same person, which for a small file is the practical difference between a year end that takes one round of questions and one that takes four. Related pages: the Aldergrove small-business CPA page and the year-end hub.