Notice to Reader Report

What is a Notice To Reader Report?

A Notice to Reader (NTR) report is a specific financial report prepared by licensed accountants. It is also known as a Notice to Reader Financial Statement or Compilation Engagement.

A Notice to Reader report is primarily a compilation engagement. This means that the accountant compiles the financial information provided by the client into a set of financial statements without performing extensive verification or auditing procedures.

The reports are essentially shortened versions of the entity’s financial statements. Therefore, it makes for accessible financial data. 

Typically, large companies have the luxury of over-the-top accounting features. Yet, with Notice to Reader reports, any company, be it small or medium-sized, can ensure proper standards are met and accurate information is communicated.

Unlike other reports, NTR reports do not offer assurance or opinions. It is important to understand this difference when dealing with Notice to Reader reports, either working or preparing them.

NTR reports are the middle ground between a company’s true finances and what is reported on statements.

Key Components of a Notice to Reader (NTR) Report Cover Page

Technically speaking, there are various components of the report. The cover page is most important as it sets the background so that all parties understand the report and its purpose. The following are found on the cover page.

1. Title and type: The cover page starts with the title and the type of the report at the top of the page. Usually, one will see “Notice to Reader Report” or “Compilation Engagement.” It is important to note that the phrase ‘NTR’ should not be used on the report as it is seen as informal.
2. Entity’s name: Under the title and type of the report, the entity’s name is listed. This is the firm that prepares and compiles the NTR report. 
3. Date: The date is also vital in the compilation and review processes. The date ensures that all parties understand when the report was called. It also signifies the date when the accounting firm or accountant was brought in.
4. Introduction and Scope: This section outlines the main purpose of the report. The responsibilities of the accounting firm preparing the report are mentioned in this section. The scope addresses what the report covers and does not cover.
5. Accountant’s Statement: The accountant’s statement concerns the accountant’s role in preparing the report. They must spell out everything: What procedures were used? How did the accountant use the financial data provided by the company?
6. Accountant’s Signature: The signature makes the report authentic and allows the accountant to take responsibility for any issues.

The Essence of the Notice to Reader Report: Compilation

In terms of compilation, the process involves retrieving, cleaning, organizing, and presenting the data in such a way that relevant figures are together.

1. Compilation Process: Since the accountant does compilation, there is a need for accounting standards. Gathering raw data, reviewing the figures, cleaning the data, and organizing the figures is a lot of work. The main idea is to present the data clearly.
2. Importance of Accounting Standards: Certified public accountants (CPAs) need to work by an ethical code; otherwise, they may get their certification stripped. Following standards is not just a legal, professional practice but speaks volumes about the accountant’s and company's ethics.
3. No Opinions or Assurance: CPAs must ensure not to give any opinions or statements of assurance. Readers should understand this notion before analyzing the NTR report.
4. Client Responsibility: Keep in mind that the client has a task as well. Not everything is the accountant’s responsibility. The client must give only accurate figures and not embellish. The accountant relies on the client’s good faith to complete an accurate report.
5. Legal Implications: The party will get in legal trouble if anything is concealed or false. All transactions must be listed accurately. Nothing should be hidden. Accurate reporting gives stakeholders confidence.
6. Role of NTR Reports: The reports are useful in tax work, analysis, and making decisions.

Using NTR Reports

NTR reports pose several uses, which depend on who is using them. Let’s get into who should use these reports and how they should use them.

1. Financial Clarity:

Businesses should primarily use reports to get a clear picture of their finances. Small businesses, especially, should use the reports as obtaining the report is very low cost. Trends can be charted, which helps the business make decisions about its plans.

2. Trend Analysis:

The reports offer an insightful perspective on the entity’s financial performance. NTR is a consistent method of tracking trends. Businesses use the reports across different fiscal periods to understand revenue, profitability, and expense trends.

Learning about the trends allows management to reevaluate their strategies, forecasts, risk management, growth, resourcing, and budgeting.

3. Internal Stakeholders:

NTR reports allow viewers to come to their own conclusions. The business’s internal management teams would evaluate its performance and learn where the business can go in the future.

4. External Stakeholders:

Stakeholders and people interested in the company can use the reports to gauge the company’s operations and use the financials to understand if the company is worth investing in. 

5. Common Uses:

The reports may be used for several reasons. Some of the most common ones are: 

• Reporting financials to the business owner
• Taking out bank loans
• Startups provide information to investors since they do not have enough assets on the balance sheet
• Selling a business

NTR Report Benefits and Drawbacks

The main benefits of the report are:

• Cost-effective: Notice to Reader reports utilize less extensive procedures, making them more affordable for businesses. Costs vary with the size of the company. Hence, NTR reports are a strong option for smaller firms.
• Simplicity: It is not a complex document to set up; only important finances are needed.
• Quick turnaround: NTR reports are produced easily and offer valuable financial information without going through an extensive process.
• Trend analysis: Businesses can use the report to identify where they can improve and what the financial trends are.
• Business planning: NTR reports are useful in budgeting and other business financial planning.

Drawbacks of the report style include:

• Limited assurance: The reports do not go very in-depth. They only cover the basic financial figures.
• Lack of external credibility: Since a firm’s accountant or CPA generally prepares the reports, there is no outside set of eyes that can verify the processes used in the report. Stakeholders may doubt statements that external auditors have not checked.
• Potential for misrepresentation: The document does not apply to every party. Every Notice to Reader report says, “Readers are cautioned that these statements may not be appropriate for their purposes.”
• Not suitable for complex situations: Seen as less reliable than audits.
• Legal implications: Legal action could be taken if accounting and ethical standards are not met.

Conclusion

Notice to Reader reports are a cornerstone of financial reporting. They are mainly relevant for small and medium-sized businesses, but every business can gain from utilizing the report. These concise reports are valuable to gauge an entity’s financial status.

In addition to offering a snapshot of an entity’s finances, NTR reports are concise, inexpensive, quick to prepare, and not too complex.

The reports do have their limitations. These include the absence of an opinion, limited suitability for every purpose, and lack of reliability compared to an audit.

This article was not meant to push businesses to use this document or steer anyone away from them. NTR reports are based on entities’ needs. Weighing the benefits and cons before deciding to use them is crucial. We hope you give the report a shot!

Check out Wall Street Oasis for other articles and courses to learn more technical skills and kickstart your career in business.

Researched and authored by Omkar Iyer | LinkedIn

Reviewed and edited by Parul Gupta | LinkedIn

Free Resources

To continue learning and advancing your career, check out these additional helpful WSO resources:

• Accounts Receivable Aging Report
• Auditor's Report
• Internal vs External Financial Reporting
• Reporting Cycle
• Value Reporting Form