The Role of CPAs in Cannabis AFS Reporting

Navigating the financial reporting requirements in the cannabis industry can be complex. One critical component is the Annual Financial Statement (AFS) reporting mandated by the Cannabis Regulatory Authority (CRA). As a cannabis business owner, understanding how Certified Public Accountants (CPAs) play a crucial role in this process can help you stay compliant, avoid costly mistakes, and strengthen your business’s credibility.

Why Working with a CPA Matters

Cannabis AFS reporting is not just about preparing numbers — it’s about ensuring those numbers withstand regulatory scrutiny. CPAs bring specialized knowledge and expertise to this process, helping you meet the CRA’s strict requirements and avoid common pitfalls. Their role is more than a formality; it’s a vital partnership that supports your business’s financial integrity and regulatory compliance. Retaining a CPA to assist with accounting and bookkeeping is an excellent way to ensure accurate data and can make your AFS process much less painful.

What Type of Engagement are CPAs Performing?

The reporting process for cannabis AFS involves what’s known as an “agreed-upon procedures” engagement. Unlike a full audit or review, CPAs perform only the specific procedures the CRA requires. This means the CPA focuses on checking and verifying particular areas without offering an overall opinion on your financial statements. The procedures are strictly defined and designed to ensure accuracy and transparency in your reporting.

How Do CPAs Verify Your Data?

During the engagement, CPAs request information directly from you as the licensee and compare various data sources. This includes:

• The general ledger
• The point of sale (POS) system
• METRC (the state’s cannabis tracking system)
• Underlying documentation to support transactions and activities

The licensee must explain any discrepancies or deviations found during these comparisons. This step is crucial because the CRA relies on these reports to confirm that cannabis products are appropriately tracked and that their financial records are truthful.

Behind the Scenes: Internal Controls and Standards

CPA firms don’t just check your numbers; they follow strict attestation standards set by the American Institute of Certified Public Accountants (AICPA). These standards require multiple levels of internal control and quality checks within the CPA firm itself. Much of this effort happens behind the scenes to ensure the integrity and reliability of the report you submit. This means that while the AFS report may seem straightforward, significant expertise and process rigor go into producing it.

Why Organized Records and a Trusted CPA Are Essential

The key takeaway for cannabis business owners is that keeping organized, accurate, and easily accessible records isn’t just good practice — it’s essential. However, it is equally important to partner with a CPA firm experienced in the cannabis industry. CPAs guide you through the complexities of AFS reporting, help interpret regulatory requirements, and ensure your financial data is correctly reconciled and reported.

When CPAs request documentation or explanations for any irregularities, having your records in order speeds up the process, reduces the risk of errors, and helps maintain good standing with regulatory authorities. A knowledgeable CPA partner can identify potential issues early, offering proactive advice that can save time and money in the long run.

Disorganized records or working without an experienced CPA can cause delays, increase scrutiny, and potentially lead to fines or other penalties. Investing in organized recordkeeping and a trusted CPA relationship sets your business up for smoother compliance and less stress during AFS reporting.

Additional Considerations for Cannabis Business Owners

• Understand the Specific Requirements: Each jurisdiction may have nuances in how cannabis financial reporting is conducted. Stay informed and rely on your CPA’s expertise to navigate these complexities.
• Leverage Technology: Tools that integrate your sales, inventory, and accounting can reduce manual errors and help maintain consistency across records.
• Choose a CPA Firm That Knows Cannabis: Not all CPAs understand the unique challenges of this industry. Working with a CPA who specializes in cannabis accounting ensures that your reporting is accurate and compliant, and that you benefit from tailored advice.

The role of CPAs in cannabis AFS reporting is more than just crunching numbers — it’s about applying rigorous, standardized procedures to ensure your financial data is accurate and trustworthy. For cannabis business owners, working with a knowledgeable CPA and maintaining organized records are critical steps to protect your business’s reputation and position it for future success.

If you need assistance navigating these requirements or want to ensure your records and reporting are audit-ready, Yeo & Yeo’s team is here to help. Contact us to learn how we can support your cannabis business with tailored accounting and compliance solutions.