Financial statements for Oakville companies

Filings include T4 slips, Schedule 1 and Schedule 50.

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

Who reads an Oakville company’s statements

The Town of Oakville’s economic development office names advanced manufacturing, health and life sciences, technology and digital media, and professional services as the town’s key sectors. Small companies in those sectors produce statements for different readers. A machine shop or fabricator hands them to the bank behind its operating line and equipment loans. A life-sciences supplier or distributor may send them to a larger customer that vets its vendors. A software firm shares them with an investor or a prospective buyer. A consultancy may only need them for the T2 and the owner’s own mortgage application. The first question we ask is always who the reader is, because that decides what the statements have to show.

Inventory: where the profit actually gets decided

For a manufacturer, distributor or any business holding stock, the closing inventory figure moves profit dollar for dollar. Count it high and the year looks better than it was; count it low and the reverse. A count at or near the year-end date, priced at the lower of cost and net realizable value, is the starting point. Obsolete or slow-moving stock needs to be written down rather than carried at cost indefinitely. Where a manufacturer has raw materials, work in process and finished goods, each needs its own basis, and labour and overhead absorbed into finished goods have to be applied consistently from year to year. Year-end inventory counts covers what the count should record.

Jobs and projects that straddle the year-end

Contractors, custom fabricators and project-based consultancies all have work that is partly done at year-end. If revenue is recognized only when invoiced, the costs sit in one year and the revenue in the next, and neither year shows the margin the work actually earned. Recognizing revenue as the work is performed requires an estimate of progress and the cost to complete, supported by job-cost or time records. Where a contract is expected to lose money, the loss belongs in the year it becomes apparent. Lenders reading a contractor’s statements look closely at this, and at holdbacks receivable, because they explain a cash position that would otherwise look inconsistent with profit.

Retainers and deferred revenue

Service businesses that bill in advance — annual software subscriptions, quarterly retainers, maintenance contracts — hold that money as an obligation until the service is delivered. It belongs on the balance sheet as deferred revenue and is released as the period or scope is served. Releasing it on the invoice date produces a profit pattern unrelated to how the business operated, and a buyer or investor normalizing the numbers will unwind it anyway.

Equipment, depreciation and the CCA difference

Statements depreciate equipment over its useful life; the T2 claims capital cost allowance (CCA) by class at prescribed rates. The two rarely match, and for a company that has bought machinery or vehicles they can differ by a large amount in the year of purchase. The statements should show depreciation on a sensible basis rather than simply copying the tax claim, because a lender reading them wants to know what the equipment is worth to the business. The reconciliation between the two sits in Schedule 1 and, for a company that has to, a future income tax note. Equipment on finance or lease belongs on the balance sheet with its obligation, split between the portion due within a year and the rest.

Related parties: the owner, the holding company, the building

Owner-managed companies are full of related-party balances: a shareholder loan, amounts owed to or from a holding company, rent paid to a related company that owns the building, management fees between companies in a group. None of these is a problem in itself, but each should be presented and described clearly, with the terms disclosed. A lender wants to know whether money owed to the owner will be left in the company or withdrawn, and some will ask for a postponement agreement. The shareholder loan also has a tax side: an amount owed by the owner left unpaid past the following year-end can become personal income.

Customer concentration and what a reader does with it

Many small Oakville suppliers sell most of their output to a handful of large customers. That is a business fact, not an error, but a lender or buyer wants to see it, not discover it. Where one customer is a substantial share of revenue or receivables, disclose it. Receivable aging matters too: large customers often pay on extended terms, so a profitable supplier can carry a receivable balance that dwarfs its cash.

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 count, confirm receivables or express any opinion or conclusion. It is neither an audit nor a review, and the statements carry a notice saying so.

For most owner-managed Oakville companies that is the right and enough product. The point at which it stops being enough is usually a transaction or a covenant: a larger credit facility, a customer contract that requires reviewed statements, admitting a partner, or selling. Each brings a counterparty wanting assurance a compilation does not give. Deciding the level before year-end beats revisiting closed periods. See compilation versus review.

Working with a remote Canadian CPA

EverStone is one CPA working online. There is no Oakville office. Oakville engagements run remotely by secure document exchange, video and e-signature, and the statements and the T2 are prepared from the same closed set of books, so the two always agree.

This suits incorporated manufacturers and machine shops, distributors and suppliers, contractors, software and digital-media companies, and professional practices operating through a corporation. Related pages: the Oakville small-business CPA page, Oakville trades accounting, and our Toronto practice.

The year-end this all feeds into is our Oakville corporate tax page.

None of this works on records that are behind, which is what bookkeeping in Oakville 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 flow and forecasting rather than presentation, see fractional CFO support for Oakville companies.