Audit, review, or compilation: which service does your business need?

Compilation: presenting information without assurance

In a compilation engagement, the CPA assists with presenting financial information in the form of financial statements. A compilation does not provide assurance that the statements are free from material misstatement.

This service may fit an owner-managed business that needs professionally presented statements when a third party does not require assurance.

Review: limited assurance

A review provides limited assurance, principally through inquiry and analytical procedures. It is more involved than a compilation but substantially less extensive than an audit.

Reviews are often requested when a lender or other user wants some independent assurance but does not require an audit.

Audit: reasonable assurance

An audit provides reasonable—not absolute—assurance about whether the financial statements are free from material misstatement. The CPA performs risk assessment and testing and obtains an understanding of relevant internal controls in designing the audit approach.

Audits may be required by financing arrangements, owners, regulators, grantors, or contracts, or selected because stakeholders need a higher level of confidence.

Questions to answer before deciding

• Who will use the financial statements?
• Does a bank, contract, regulator, or investor specify the required service?
• How much assurance does the user need?
• What is the reporting deadline?
• Are the books and supporting records ready for the engagement?

Start with the requirement

Before selecting a service, obtain the exact language from the party requesting the financial statements. A short conversation with your CPA can prevent paying for a level of service that is not required—or completing a service that does not satisfy the intended user.