Are you paying for the right financial statements for your farming company?
Are you paying for the right financial statements for your farming company?
What type of financial statement meets the needs of your farming company? Each type provides different levels of assurance for your stakeholders and insight into your profitability. It is important to understand the pros and cons of a:
- General Index of Financial Information (GIFI)
- Compilation
- Review engagement
- Audit
Understanding the differences can help ensure your farming company is paying for the right type of financial statement.
No two farming companies are the same — and it is crucial to pay for the financial statements that best fit your unique situation. Your farming company may be planning to request a loan from the bank to support more growth, or you may want to gain new insights about your profitability and financial position. Which financial statement is right for your farming company?
General Index of Financial Information (GIFI)
A GIFI compiles your numbers into a tax return that your accountant files to the CRA. This type of financial statement requires little extra work from your accountant and costs the least in comparison to other types of financial statements.
A GIFI is helpful if the CRA is the only user of your financial statements, and your farming company has no debt. However, a GIFI offers no assurance that the numbers you provided to your accountant are accurate. Additionally, a GIFI provides little insight into your farm’s profitability, financial position, assets, and liabilities.
Pros of a GIFI
- Low cost
- Simplified reporting
Cons of a GIFI
- No assurance
- No insight
Compilation
A compilation is most useful for farming entities that have no debt to several million dollars of debt. An accountant will review your numbers to make sure they are documented accurately and are not false or misleading. However, a compilation does not require compliance with generally accepted accounting principles ().
This type of financial statement provides you and your stakeholders with more insight into your farm’s profitability, assets, and liabilities than a GIFI. However, it does not include the disclosures, financial statement notes, cash flow statement, and other information typically provided by a higher level of assurance. A compilation is more costly than a GIFI but less expensive than other types of financial statements.
Pros of a compilation
- Cost effective
- Quick preparation
- Limited insights
Cons of a compilation
- Limited use
Review engagement
A review engagement is often required if you need to borrow a significant amount of money — typically several million dollars — to support the growth of your farming company. An accountant tests the plausibility of your numbers through inquiry and analysis to ensure that stakeholders such as your bank can rely on their accuracy.
A review engagement includes financial disclosures, notes, cash flow statement, and other information that gives stakeholders a better understanding and clearer picture of your farming company’s financial position and profitability.
A review engagement is provided at a moderate cost as the accountant does not need to do all the procedures required by an audit. However, it still provides the information the bank needs to loan more money to your farm based on the plausibility of your numbers.
Pros of a review engagement
- Moderate assurance
- Fewer resources required
Cons of a review engagement
- Higher cost
Audit
An audit costs the most of all financial statements because it requires the most involvement from your accountant. It provides a higher level of assurance than all other financial statements and is typically necessary in the case of very large farms with a significant amount of debt.
An accountant will perform reasonability testing as well as other in-depth audit tests to ensure your numbers are accurate. This helps provide detailed insight into your farm’s profitability and financial position to both you and stakeholders such as the bank or creditors.
Pros of an audit
- Highest level of assurance
- Credibility
- Detailed insights
Cons of an audit
- Highest cost
- Time consuming
Serving the agriculture industry
Take the next steps
Every farming company is different, and so are the insights and assurance you gain from different types of financial statements. It is important to remember that the type of financial statement you need typically depends on the size of your operation and amount of debt.
Additionally, the needs of your stakeholders — including the bank or shareholders not involved in day-to-day operations — will significantly impact which type of financial statement best suits your needs. It is important to keep each of these factors in mind to ensure you are paying for the right financial statements for your farming company.
For more information, contact a member of MNP’s Agriculture team. We have a range of experience regarding all aspects of agricultural business — from primary producers through to food and beverage processors.
Insights
-
Progress
November 28, 2024
Building career paths for dealership employees: The key to retention and succession planning
Building career paths for dealership employees is the key to tackling two critical workforce challenges: high turnover and looming retirements.
-
Performance
November 28, 2024
How will the CRA’s significant GST/HST update impact your dental and orthodontic practice?
How will the recent GST/HST update impact your dental practice? Understand the new requirements for claiming ITCs and opportunities for GST/HST refund claims.
-
November 28, 2024
Cyber Security 101: Vendor and third-party security
You’ve done your due diligence and implemented a cyber security plan using all the best new tools for your business. But your business isn’t the only one putting your security at risk. It’s time to take a hard look at the cyber security of your vendors and other third-party collaborators.
