Financial statements for Markham corporations

Filings include T4 slips, Schedule 1, Schedule 50 and the CCA schedule on the T2.

Financial statement preparation for Markham companies follows CSRS 4200 and is quoted before the work starts.

Who reads a Markham company’s statements

The City of Markham’s economic development office lists technology, semiconductors, advanced manufacturing, life sciences, professional services, and finance and insurance among its key sectors. The owner-managed companies in and around those sectors produce statements for a handful of readers: the bank that holds the operating line or equipment loan, a landlord or major customer checking financial strength, investors in a growing technology company, family shareholders, and the CRA through the T2. Each reader looks for different things, and the first question we ask is who the statements are for.

A bank usually wants the balance sheet to support its covenants and the receivables and inventory behind a margined line. An investor wants revenue recognized consistently and deferred revenue shown honestly. A buyer will normalize everything anyway, so presentation chosen to flatter achieves nothing. Knowing the reader up front decides how much detail the notes need.

Inventory: the number that moves profit most

For a Markham distributor, electronics firm or food producer, inventory is often the largest asset and the year-end adjustment the largest single entry. A compilation does not involve us attending or testing a count, but the statements are only as reliable as the count management provides. We ask for a dated count at the year-end date, agree it to the ledger, and look at how cost is built: purchase price plus freight, duty and brokerage, and for manufactured goods the materials, labour and overhead that went into them. Slow-moving or obsolete stock, common with electronic components that are superseded quickly, is written down to what it will realistically fetch. Getting those steps right is what makes gross margin comparable from year to year.

Revenue on contracts, subscriptions and support

Technology and engineering companies rarely invoice exactly as they earn. Annual software licences and support contracts are billed up front and earned over the term, so most of the cash received sits as deferred revenue at year-end. Fixed-fee development or engineering projects are earned as the work progresses, which may be well ahead of or behind the invoices. Hardware sold with installation or a service period may contain more than one deliverable, each recognized on its own timing.

The practical hazard is the company that recognizes everything on the invoice date. Profit then follows the billing calendar rather than the work, a strong renewal month looks like a great year, and the following year looks like a collapse. A lender or investor reading the trend cannot make sense of it. Measuring progress on fixed-fee work needs time records against projects, the same records that support an SR&ED claim.

Foreign currency, warranties and other estimates

Many Markham companies buy or sell in U.S. dollars. Balances in foreign currency are translated at the year-end rate, with the difference running through the income statement, and that can move profit noticeably in a year when the exchange rate swings. Companies that sell hardware may carry warranty obligations, estimated from experience and recorded when the sale is made rather than when a claim arrives. Accrued but unused vacation for employees is a liability at the year-end date and is often missed. Each of these is a judgement, documented in the working papers so next year’s figures are prepared the same way.

Contractors, employees and what sits behind the cost line

Technology and engineering firms often use a mix of employees and long-term contractors, and both land in the same part of the income statement. Behind it sits a classification question: a contributor working set hours under direction may be an employee in substance, whatever the invoice says. The liability for unremitted payroll deductions then appears nowhere until it is assessed. See the worker classification guide for how the tests are applied.

What a compilation covers, and what it does not

A CSRS 4200 compilation engagement assembles and presents information management supplies. The accountant does not test the inventory, confirm the receivables or express any opinion or conclusion. It is neither an audit nor a review, and the statements carry a report saying so.

For most owner-managed Markham companies that is the right product. It stops being enough at a transaction or a threshold: a bank facility large enough to require a review, an investor or acquirer asking for assurance, or a government program that requires reviewed statements. Each brings a reader who wants comfort over the judgements a compilation does not test. Deciding the level before the year-end beats revisiting closed periods. Compilation versus review sets out the difference.

Statements and the T2 come from one set of numbers

The T2 is built from the financial statements: Schedule 100 is the balance sheet, Schedule 125 the income statement, and Schedule 141 records the type of engagement. Book-to-tax differences such as CCA in place of amortization and the non-deductible half of meals run through Schedule 1. Preparing the statements and the return together, from one closed ledger, is the simplest way to make them agree. The corporate side is covered on corporate tax in Markham.

Working with a CPA online

EverStone is a fully virtual CPA firm with no office in Markham. Engagements run by secure document exchange, video and e-signature, and the statements are delivered as signed PDFs your bank can accept. This suits incorporated technology and engineering firms, distributors and manufacturers, professional corporations and family holding companies. The nearest large-city page is our Toronto accountant page.

None of this works on records that are behind, which is what bookkeeping in Markham keeps current.

Where a lender or an agreement calls for assurance rather than a compilation, the next question is what readiness for that engagement involves.

Where the questions are about margins, cash and growth rather than presentation, see fractional CFO support for Markham firms.