Posted by: LYF | March 19, 2009

Q&A – NTRs

DK emailed me with a bunch of great questions.

How do you normally approach a compilation engagement?

  1. Enter the trial balance
  2. Make sure the financial statements balance.  If they don’t it’s usually because the opening retained earnings doesn’t match the prior year’s closing balance.  This often happens when a client doesn’t post last year’s adjusting journal entries, or a dividend had been previsouly recorded that hasn’t been closed to retained earnings.
  3. Scan the financial statements.  Highlight areas that have changed significantly from year to year.  Even though it’s not an assurance engagement, notice to readers can’t be “false or misleading.”  So it’s good to check the statements to see if they make sense.
  4. Look at last year’s file/journal entries.  This will show you the “typical” entries that are usually made for the client.  Normally, you’ll be booking things like depreciation, an accounting accrual and maybe some other stuff, depending on how messy the client’s info is.
  5. Once your file is pretty together – i.e. most of your numbers won’t change – start the tax return.
  6. Enter the info – or import it if you’re good at the computers – into the G100 (balance sheet) and G125 (income statement) of the tax return.
  7. If you have investment income you’ll need to include it on schedule 7 – even if you’ve already included it in the G125.  Investment income is taxed at the high tax rate, so that’s why you need to put it there.
  8. You may also have dividends.  If you do, don’t forget to fill out schedule 3.
  9. Do other tax stuff – make sure the add backs and deductions on schedule 1 are right, update schedule 9 if you have related/associated companies, update schedule 8 if the company purchased capital assets during the year, update schedule 4 if you’re going to use a loss carryback etc.
  10. Book the tax provision from the corporate taxpayer summary.
  11. Review the financial statements again for things that look odd.  If the shareholder loan is in a debit position, make note of this in the file.  If it’s in a debit position, it means the shareholder took out money during the year.  Normally, you’ll end up booking a dividend to clear the account, sometimes you may not, but that’s a partner’s call.  If you do book a dividend, It’s important to note it somewhere, because it’s highly likely that the owner of the company will also be a personal tax client.  And if that’s the case, someone will need to prepare a T5 before March 1st of the following year.
  12. Proof the financial statements.  Make sure all the numbers tie in, add up all the schedules (foot and cross-foot).
  13. Hand it in to the partner.  In your package its good to include (it you’re not paperless) a copy of the client’s trial balance, your trial balance by leadsheet and adjusting journal entries.  Behind all that you can print out each individual leadsheet and put the support behind each one.

That’s a pretty rough outline.  If that doesn’t help, or you need me to expand on something, don’t hesitate to post a question in the comments below.

How would you approach a file that’s a complete mess?

Do the same thing as above.  If the client doesn’t have a trial balance and just gives you receipts, then do the bookkeeping in excel.  Take out the bank statements and canceled cheques for each month and add everything up by category and make one journal entry.  I included a very rough schedule as an illustration.  Hopefully that’s a bit helpful.


Also did you learn a lot from NTRs?

NTR’s really helped with my bookkeeping skills and corporate tax knowledge.  And since a lot of our NTR clients are also personal tax clients it gave me a better “big picture” understanding of how a bunch of different things pull together.  For Instance, the financials from the compliation feed the G100 and G125, which generate the corporate tax, which goes into the analysis of deciding whether to pay a wage or dividend to the owner during personal tax season.  It helped me visualize that cycle better.

How do I ensure that I’m learning something?

Make sure you understand what you’re doing.  It’s important to know why you’re doing stuff.



  1. Interesting blog, I’ll try and spread the word.

  2. Thanks!

  3. I’m still trying to learn the big picture, and reasoning behind:

    1. Incorporating. I’m guessing being able to split your income between different individuals, to take advantage of lower tax brackets? I think corporations also have a lower tax rate for the most part, although it depends?

    2. Paying div vs salary. Is it the tax credit vs expensing? I guess you have to look at the shareholder’s total income position? Do they save more on the personal side or the corporate side?

    3. Setting up a trust, other than testamentary. Another mechanism to split income? Isn’t this bordering on GAR though?

    4. If a company is above the small business limit, and he wants to declare a bonus…why do this? is it to avoid the income above the limit being taxed at a higher rate (i.e. b/c it doesn’t qualify for sbd?)

    Some of this is probably basic stuff, but I’ve come across these questions while preparing files and I haven’t really received a satisfying answer b/c people are so busy. HOpefully you can help me out here.

    How long did you do NTRs before you thought you had learned all you could? I keep thinking that NTRs will only provide so much knowledge before I”ll be craving for something more challenging.

    Thanks again.

  4. Dammit DK you have such great questions. I just got back from the bar…I’ll write a post tomorrow answering everything.

    You have fantastic questions.

    And FYI if you’re talking to girls at a bar and they ask what you do. Tell them you’re in “finance” telling them you’re an “accountant” is a bit of a mood killer.

  5. Great site this and I am really pleased to see you have what I am actually looking for here and this this post is exactly what I am interested in. I shall be pleased to become a regular visitor 🙂

  6. NeingesainciC – are you a real person?

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