Anonymised, illustrative composite. The buyer's lawyer pulled a standard-form representation off the shelf: financial statements prepared in accordance with ASPE, presented fairly. The seller's own accountant refused to let the seller sign it.
At a glance
A Manitoba HVAC service and installation business, family-owned for eighteen years, agreed to sell its shares to a regional consolidator for $1,400,000. Like most Canadian small businesses of this size, it had never engaged its accountant for anything beyond year-end statement preparation and a corporate tax return — no audit, no review engagement, just an annual compilation.
The buyer's lawyer, drafting from a standard-form share purchase agreement template built for larger deals, included the representation almost every buyer's counsel reaches for by default: that the financial statements delivered to the buyer had been “prepared in accordance with ASPE and present fairly, in all material respects, the financial position and results of operations of the Corporation.”
When the seller's accountant reviewed the draft purchase agreement at the seller's request, she flagged the representation immediately. Her firm had never performed an audit or a review engagement on the company's financial statements — only a compilation engagement, the current name for what most small-business owners still call a Notice to Reader. Under Canada's current professional standard, Canadian Standard on Related Services (CSRS) 4200, which replaced the old Section 9200 Notice to Reader communication for periods ending on or after December 14, 2021, a compilation engagement report describes some basis of accounting management chose to use — often a cash or modified-cash basis for a business this size — and states expressly what the accountant did not do. As a practitioner explainer of the new standard puts it, describing what the old Notice to Reader always said and the new report continues to convey: “Previously, under the Notice to Reader, a note was attached to financial statements stating that you have not conducted an audit on the enclosed information.”
None of that supports a representation that the statements comply with ASPE. ASPE is a full financial reporting framework with its own recognition, measurement and disclosure requirements; a compilation engagement tests none of them, and the basis of accounting a compilation actually describes is frequently not ASPE at all. Asking the seller to warrant ASPE compliance was, in substance, asking the seller to warrant something its own accountant had never been engaged to check.
No statute defines what a business-sale representation about financial statements must say; the engagement standard that governs what the seller's accountant actually did — CSRS 4200 — is a CPA Canada professional standard, not legislation, and it regulates the accountant's conduct of the engagement, not the wording of a purchase agreement between buyer and seller.
What CSRS 4200 does settle is the factual ceiling on what the seller could honestly represent. “CSRS 4200 is effective for periods ending on or after December 14, 2021. This new standard replaces the Notice to Reader communications under Section 9200 Compilations Engagements,” and its report format requires only a description of the basis of accounting used and the respective responsibilities of management and the accountant — not an opinion, and not confirmation of compliance with any particular financial reporting framework. A seller cannot truthfully represent ASPE compliance on statements its accountant compiled without ever forming a view on ASPE compliance at all; the representation would be false the moment it was signed, whatever the underlying numbers turned out to be.
The buyer's lawyer redrafted the representation to match what the seller could actually stand behind: that the financial statements had been prepared from the company's books and records, that those books and records had been maintained in the ordinary course of business, and that, to the seller's knowledge, the statements did not contain any material misstatement — with a separate, factual representation identifying the basis of accounting the statements had actually used, rather than asserting compliance with a framework nobody had tested against them.
That narrower representation shifted real risk back onto the buyer's own diligence. With no framework compliance to rely on as a contractual backstop, the buyer's accountant ran an independent quality-of-earnings review over the trailing two years — reconciling the compiled statements against bank records, accounts receivable aging, and the general ledger directly — rather than treating the seller's financial statements as a verified starting point the representation would police after the fact.
Had the ASPE representation gone into the signed agreement unchanged, it would have been false from the day of signing, regardless of whether the underlying numbers were accurate — a compilation engagement simply cannot support that representation, on any set of facts. That kind of breach is the easiest a buyer's counsel can plead and the hardest a seller can defend, since the defect isn't in the business, it's baked into what the accountant was ever asked to do. A buyer that later needed to make an indemnity claim on unrelated grounds might have found the ASPE representation an easy add-on breach to assert — and a seller who signed it without understanding the gap would have had no real answer.
The tell is on the accountant's own letterhead, not in the numbers: a compilation engagement report or a Notice to Reader carries no opinion at all, and a lawyer who has never asked to see the engagement letter before drafting the financial-statement representation is drafting a promise the seller's own accountant was never asked to back up. Ask what kind of engagement produced the statements before drafting what the seller has to say about them.
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