Audit vs. Review vs. Compilation: Important Facts to Know

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When a lender or other party requests a business’s financial statements, they may ask for statements that have been audited, reviewed, or compiled by a certified public accountant (CPA). These requests are usually made in order to gain some assurance that the company’s financial statements are accurate. However, it is important to note that there are significant differences between an audit, a review, and a compilation. The following information will highlight the major differences between these three types of financial statement services, as well as other important facts to keep in mind.

Audit vs. Review vs. Compilation: Important Facts to Know

An Audit:

An audit is the highest level of financial statement service provided by CPAs and will be required by many lenders. An audit involves the CPA examining the client’s financial statements and procedures and issuing an opinion as to whether or not the statements are free of material misstatement. An audit is an intensive process and will take significantly more time than a review or compilation.

When Is an Audit Needed?

There are several circumstances in which an audit may be required:

Shareholders, owners, or partners of a business may require an audit to be performed.

Banks and other creditors may require an audit to be performed before issuing a loan.

Some states require certain businesses to have an audit performed, such as public companies, investment companies, and charities.

Some businesses are required to have an audit performed by the IRS or other governmental agencies.

A Review:

A review is a less intensive examination of a company’s financial statements than an audit. A review involves the CPA conducting limited procedures to form an opinion as to whether or not the financial statements are free of any material modifications. A review is usually requested for businesses who are looking for a higher level of assurance than a compilation but who don’t need the high level of assurance provided by an audit.

When Is a Review Needed?

If your business is borrowing money from a bank or another lender or is applying for a loan, the lender may require you to have a CPA conduct a review of your financial statements. You may also be required to have a review if you are selling or merging with another business. The other party will want to confirm that your financial statements are accurate.

A Compilation:

A compilation is the lowest level of financial statement service provided by CPAs. A compilation involves the CPA putting together a client’s financial statements from information provided by the client. A compilation does not involve any procedures to verify or test the client’s financial data. A compilation is usually appropriate for businesses that are just starting out or who don’t need a high level of assurance that their financial statements are accurate.

When Is a Compilation Needed?

A compilation is often needed when a business is just starting up or if a business doesn’t need a high level of assurance that its financial statements are accurate. A compilation may also be needed if the business is not required to have an audit (e.g., a privately-held company that does not have outside investors).


Because there are many different types of financial statements, the type of service you need depends on your situation. If you are just starting up, a compilation may be all you need. If you have a well-established business, or if you need a higher level of assurance, you may need to get an audit or a review done. If you are planning to get financing, you will likely need a certified audit or review. Not sure what you need? Contact an accounting firm to help make the decision.

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