Understanding Your Financial Reporting Options: Notice to Reader vs. Review Engagement
As a small business owner, you’ve likely heard terms like “Notice to Reader” and “Review Engagement” thrown around when discussing your financial statements with an accountant. But what do they actually mean, and how do you know which one your business needs? Don’t worry—I’m here to break it down for you in plain language so you can make an informed decision.
Both a Notice to Reader (NTR) and a Review Engagement are types of financial reporting services provided by accountants, but they differ significantly in purpose, process, and level of assurance. Let’s dive into the details and figure out which one might be the right fit for your business.
What is a Notice to Reader (NTR)?
A Notice to Reader is the most basic level of financial reporting. Think of it as a “barebones” option. Your accountant takes the financial data you provide—think sales records, expense receipts, bank statements—and compiles it into a set of financial statements (like a balance sheet and income statement). That’s it. There’s no deep dive or verification involved.
Here’s the key: with an NTR, the accountant doesn’t check if your numbers are accurate or follow accounting standards. They essentially trust what you give them and organize it into a professional-looking format. The final report comes with a disclaimer (the “notice” part) that says, “Hey, we didn’t audit or review this, so we’re not guaranteeing it’s correct.”
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Who’s it for? Small businesses that don’t need to prove their financials to anyone—like banks, investors, or regulators—often use NTRs. It’s perfect if you just need clean financials for your own records or basic tax filing.
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Cost: Low. Since it’s quick and simple, it’s the most affordable option.
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Assurance Level: None. It’s just a compilation, not a stamp of approval.
What is a Review Engagement?
A Review Engagement steps things up a notch. Here, your accountant doesn’t just compile your numbers—they actually take a closer look. They’ll ask questions, analyze trends, and perform procedures (like checking your bank reconciliations or confirming big transactions) to see if your financial statements make sense. It’s not as intense as an audit (no one’s digging through every receipt), but it’s more thorough than an NTR.
The result? A report that says, “Based on our review, nothing jumped out as obviously wrong.” This gives a moderate level of assurance—enough to give some confidence to outside parties like lenders or potential buyers, but not a full guarantee.
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Who’s it for? Businesses that need to show their financials to someone external—like a bank for a loan, a partner, or a buyer—might need a Review Engagement. It’s also common if your business is growing and you want more insight into your numbers.
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Cost: Moderate. It takes more time and effort than an NTR, so it costs more—but it’s still cheaper than a full audit.
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Assurance Level: Limited. It’s not a promise everything’s perfect, but it’s a step above “we just typed what you gave us.”
How Do You Choose?
So, how do you decide which one your small business needs? It boils down to three questions:
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Who’s going to see your financial statements?
If it’s just you and your tax preparer, an NTR is probably fine. But if a bank, investor, or regulator is involved, they might require a Review Engagement (or even an audit—though that’s a whole other beast). -
What’s your budget?
NTRs are the wallet-friendly choice. If cash is tight and there’s no external pressure, start there. A Review Engagement costs more but could save you headaches if you need credibility. -
How much confidence do you want in your numbers?
If you’re not sure your books are solid and want some peace of mind, a Review Engagement’s extra scrutiny might be worth it. An NTR won’t catch mistakes or fraud—because it’s not designed to.
A Quick Example
Let’s say you run a small bakery. If you’re just tracking profit for yourself and filing taxes, an NTR keeps it simple and cheap. But if you’re applying for a loan to buy a second oven, the bank might want a Review Engagement to feel confident your revenue and expenses are legit.
The Bottom Line
Neither option is “better” in an absolute sense—it’s about what your business needs right now. An NTR is like a quick snapshot: fast, affordable, no frills. A Review Engagement is more like a health check-up: it takes longer and costs more, but you get some reassurance your finances aren’t hiding big problems.
Still unsure? Call us today at 416-856-8897 to discuss what is best for your business.