What Your Bookkeeper Should Give Your CPA at Year-End

A year-end that goes badly almost never fails on the numbers. It fails because the evidence behind the numbers arrives in pieces over six weeks, and every gap turns into an email exchange billed at professional rates. Here is what should be in the file on day one, what only your board can supply, and where the bookkeeping ends and the accountant's work begins.

What is your CPA actually asking for?

A trial balance you can defend, plus the evidence sitting behind each material line. Not a folder of bank statements, and not a set of finished statements. Expect your accountant to propose adjustments to what you hand over; the file is the starting point for their work rather than the finished product.

The trial balance is the starting point. Every account on it should be supported by something: a reconciliation, a schedule, an agreement or a calculation. Where a balance is supported by nothing, that is the first question you will be asked, and it is better to answer it before it is asked.

The reason this matters commercially is straightforward. Professional time spent assembling your records is billed at professional rates. Time your bookkeeper spends assembling them is billed at bookkeeping rates. The same work, done at the wrong end, costs multiples.

What goes in the year-end file?

Ten items, and a complete file is one where none of them generates a follow-up question.

‍

‍

The contribution recognition schedule is a common gap in small charity files and a common source of year-end adjustment. Canadian accounting standards for not-for-profit organizations permit either the deferral method or the restricted fund method, and the two treat a restricted contribution for a future period differently. Under the deferral method it is deferred and recognized when the related expenses are incurred. Under the restricted fund method, a restricted contribution reported in a corresponding restricted fund is recognized as revenue of that fund when received or receivable. State which method you use and apply it consistently.

What does your CPA need that only you can supply?

Five things your bookkeeper cannot produce from the ledger, because they are not in it.

Board and member meeting minutes for the year. Your accountant needs to see what was approved, particularly anything affecting compensation, borrowing or major commitments.

Signed grant and funder agreements, including any amendments. The agreement is what determines whether revenue was earned and whether a cost was eligible.

Contracts and commitments: leases, service agreements, loan documents, anything creating an obligation beyond the year end.

Related party information. Transactions with directors, officers or organizations they control need to be identified, and only you know who is connected to whom.

Subsequent events. Anything significant that happened after year end but before the statements were finalized, such as a large grant lost, a major commitment entered, or litigation begun.

Gathering these takes a week of chasing if you start when the accountant asks. It takes an afternoon if you collect them as they arise.

Why does the restricted fund schedule matter more than anything else?

Because it is one of the hardest schedules to reconstruct after the fact.

Cash is verifiable against a bank statement. Fund balances are verifiable only against your own tracking, and if that tracking was not maintained monthly, the year-end schedule is a reconstruction rather than a record.

How much this gets tested depends on the engagement, and the three levels differ in the assurance they provide. A compilation provides no assurance. A review provides limited assurance through inquiry and analytical procedures, which can and does surface inconsistencies. An audit provides reasonable assurance through substantive testing, and is where restricted amounts are most likely to be examined against eligible purposes and periods. A weak fund schedule is a problem at every level; how likely you are to hear about it depends on which engagement you have bought.

The schedule should show, for each restriction separately: opening balance, amounts received, eligible expenditures, and closing balance, with the funder agreement attached. Our guide to fund accounting for charities covers the structure that makes this possible.

Do this monthly and year-end is a print job. Do it annually and it is the longest task in the close.

Where does your bookkeeper stop and your CPA start?

Your bookkeeper produces the records and draft statements. Your accountant performs the applicable year-end engagement, and the level of assurance depends on whether that is a compilation, a review or an audit. They are different jobs and often different firms.

In Ontario, performing an audit or review engagement requires the lead engagement person to hold a public accounting licence, which is not the same as holding a CPA designation. Many charity bookkeeping firms, including this one, are not licensed to perform assurance work. The working arrangement is that your bookkeeper prepares audit-ready financials and liaises directly with your auditor, supplying documentation and answering questions, while an appropriately licensed practitioner performs the engagement itself. Our FAQ page sets out that division.

There are three levels of engagement, and knowing which one you need prevents buying more than you require:

A compilation engagement, formerly called a Notice to Reader and now governed by CSRS 4200, assembles financial information into statement form and provides no assurance on it. A review engagement provides limited assurance through inquiry and analytical procedures. An audit provides reasonable assurance through substantive testing.

The three are not interchangeable, and the words matter when describing what somebody did. An accountant who performed a compilation has not audited anything.

Which one you need is set by your incorporating statute, your bylaws or a funder agreement. CRA does not require registered charities to have audited financial statements. A charity that has been buying an audit for years without checking whether one is required is not unusual, and the difference in cost is significant.

What makes a year-end go badly?

Four things, all of them preventable in advance.

Reconciliations that were never done monthly, so the year-end reconciliation is the first one of the year. Fund balances that were computed once, at year end, from twelve months of untracked transactions. Missing source documents, which turn into adjusting entries you cannot support. And an unreconciled donation revenue figure, which is the item most likely to move after the accountant looks at it.

All four are month-end problems that surfaced at year-end. Our guide to keeping proper books and records covers the underlying obligation, and our scope of service page sets out what a bookkeeping engagement covers.

If you want the year-end file prepared to this standard, our charity bookkeeping service page sets out the annual cycle.

Frequently Asked Questions

Does our charity need an audit?

Not necessarily. CRA does not require registered charities to have audited financial statements. Whether you need an audit, a review or neither is determined by your incorporating statute, your bylaws or a funder agreement. Check those before commissioning an engagement.

What is a compilation engagement?

A compilation engagement, formerly known as a Notice to Reader and now governed by CSRS 4200, assembles financial information into statement format and provides no assurance on it. It is the lightest of the three engagement types and is often sufficient for a small charity with no statutory or funder requirement for assurance.

Can our bookkeeper prepare our financial statements?

A bookkeeper can prepare draft financial statements from the ledger. Whether those statements carry a compilation, review or audit report depends on a practitioner with the appropriate authorization performing that engagement. In Ontario, audit and review engagements require a public accounting licence. The two pieces of work are separate and are often done by separate firms.

How long before year-end should we start preparing?

Start the file three to four weeks before your fiscal year end by gathering the items only you can supply: minutes, agreements, contracts and related party information. The ledger-side work happens after year end, but the documentation gathering does not have to wait.

What is a common year-end adjustment for a charity?

Inconsistent recognition of restricted and future-period contributions. Canadian standards allow either the deferral method or the restricted fund method, and applying them inconsistently between years overstates one period and understates the next. Documenting your method and preparing a contribution recognition schedule prevents it.

This article provides general information about bookkeeping practice and Canadian charity compliance. It is not accounting, tax or legal advice. Speak with a qualified adviser about your organization's circumstances.

‍