If you’ve ever been told you need an audit, or your lender is asking for “reviewed” financial statements, you’re not alone in wondering what these terms mean. For many business owners, understanding the different types of financial statement engagements can be confusing, but it’s an important part of managing your financial obligations.

Audit, Review, and Compilation: A Quick Overview

These three services each result in financial statements, but the level of assurance — or confidence — they provide varies significantly:

  • Compilation: The most basic level. A compilation involves putting together financial information provided by the client into standard financial statements. There’s no testing, verification, or assurance provided.
  • Review Engagement: This involves limited analysis and inquiry. The accountant performs procedures to determine if the financials are “plausible” — but doesn’t verify every number. The result is limited assurance.
  • Audit: The highest level of assurance. Audits require in-depth testing, verification, and analysis of financial information. Auditors assess internal controls and gather evidence to ensure the financials are free of material misstatement.

When Do You Need Each One?

  • Compilation: Suitable for internal use or where there are no external reporting requirements. Often used by small businesses for year-end tax filing.
  • Review Engagement: Often requested by banks or lenders for financing purposes. It’s less costly than an audit but still gives some level of comfort.
  • Audit: Typically required by larger organizations, not-for-profits, or regulatory bodies. It’s also common when external stakeholders — like investors or grantors — demand high confidence in financial results.

Key Considerations

  • Cost and Time: Audits are the most time-consuming and expensive, followed by reviews. Compilations are generally more affordable and quicker to produce.
  • Stakeholder Expectations: Understand what your lenders, partners, or regulators are expecting. Don’t pay for an audit when a review or compilation will do.
  • Future Needs: If you’re planning to grow, raise capital, or attract investors, it might be worth considering an audit — even if not yet required.

Still Not Sure What You Need?

We help clients assess the right level of assurance for their goals and obligations. Whether it’s an audit, a review, or a simple year-end compilation, we’ll guide you every step of the way.

Let’s Talk About What Fits Best Book a consultation to discuss the right financial reporting solution for your business.