Do Small Ontario Corporations Need an Auditor? Waiving the Audit Requirement

New business owners are sometimes surprised to learn that Ontario corporate law technically expects every corporation to have an auditor — even a two-person startup with no outside investors. In practice, most small, privately held Ontario corporations never engage one, because the law also allows shareholders to waive the requirement. Understanding how that waiver actually works avoids both unnecessary audit costs and an accidental compliance gap.

The Default Rule: Corporations Are Expected to Have an Auditor

Both the Business Corporations Act (Ontario) and the Canada Business Corporations Act build in an expectation that a corporation's shareholders will appoint an auditor to review its financial statements. This default makes sense for larger companies, companies with outside shareholders, or companies raising public money — an independent auditor protects people who don't sit on the board from being misled about the company's finances.

For a small, closely held corporation where the owners are also the directors and have full visibility into the finances, a full audit is often unnecessary cost and effort.

How Small Private Corporations Waive It

Shareholders of a private corporation — one that hasn't sold shares to the public — can generally waive the requirement to appoint an auditor, but the waiver isn't automatic. It takes a deliberate step:

1. All voting shareholders must consent to the waiver — it isn't a majority decision.
2. The waiver is typically renewed at each annual meeting (or in the written resolution used in place of one), rather than being a one-time, permanent decision.
3. The resolution should be documented and kept in the minute book, alongside the corporation's other annual resolutions.

This ties directly into the corporation's annual meeting obligations: since Ontario and federal corporate law both expect an annual shareholders' meeting — or a valid written resolution signed by all voting shareholders instead — the audit waiver is naturally handled at the same time as that annual paperwork.

What Happens Without a Valid Waiver

If a corporation is required to have an auditor and never validly waives the requirement or appoints one, it's technically out of step with its governing statute. In practice, this rarely causes a problem for a dormant or simple small business day-to-day — but it becomes a real issue the moment someone outside the company (a lender, an investor, a buyer) reviews the corporation's history, asks to see the annual resolutions including the audit waivers, and finds the file incomplete.

When You Might Want an Auditor Anyway

Waiving the legal requirement doesn't mean an audit — or a lower level of review, like a review engagement — is never useful:

• A lender or landlord may require audited or reviewed financial statements as a condition of financing or a commercial lease, regardless of what corporate law technically requires.
• Bringing in an outside investor often comes with a request for more formal financial reporting.
• Planning to sell the business. Buyers and their lenders typically want a clearer financial picture than an unaudited small-business file provides.
• Multiple unrelated shareholders who aren't all involved in day-to-day management may want the added assurance an independent review provides, even where the law would allow them to waive it.

These are business and lending decisions layered on top of the legal minimum, not the legal requirement itself.

Audit, Review, or Nothing at All: Understanding the Options

Accountants generally distinguish between a few different levels of financial statement work, and it helps to know the difference before deciding what your corporation actually needs:

• An audit provides the highest level of assurance — an independent auditor tests the underlying records and expresses an opinion on whether the financial statements fairly present the corporation's financial position. This is what corporate law defaults to, and what the shareholder waiver discussed above lets a private corporation skip.
• A review engagement provides a lower, more limited level of assurance, typically at a lower cost, and is sometimes accepted by lenders or landlords as a middle ground between a full audit and nothing at all.
• Compiled or internally prepared financial statements involve no independent assurance at all — the accountant (or the business itself) simply organizes the numbers into standard financial statement form.

Waiving the audit requirement under corporate law doesn't dictate which of these your corporation should use going forward; that's a separate conversation with your accountant, informed by what your lenders, investors, or own management actually need to see.

Frequently asked questions