Match the requirement, not the assumption
Audits, reviews, and compilations — and how to tell which one you need.
Owners are often told they need an audit when a review or compilation satisfies the requirement. The first step is reading what the bank, bonding agent, or contract actually asks for.
These are attest and related services with defined professional standards. They differ in the procedures performed and in the level of assurance reported — and therefore in cost and timeline. Clarifying the requirement before scoping the engagement usually saves both.
Start with the requirement
Bring the loan agreement, bonding request, franchise document, or investor letter to the first conversation. The language in that document determines the engagement, and it frequently permits a lower level of service than assumed.
Preparation makes the engagement cheaper
Reliable monthly accounting, closed periods, and documented reconciliations shorten every assurance engagement. Where the records are not there yet, that remediation work happens first, as a separate non-attest engagement.
Comparing the three levels
Compilation
No assurance expressed
Financial statements are prepared from information you provide, with no testing or analytical procedures.
Typically when: A lender, landlord, or partner wants CPA-prepared statements without assurance.
Review
Limited assurance
Analytical procedures and inquiries provide limited assurance that no material modifications are needed.
Typically when: Bank covenants, bonding, or investors require more than a compilation but not an audit.
Audit
Reasonable assurance — the highest level
Testing, confirmations, and evidence gathering support an opinion on the financial statements.
Typically when: Required by a contract, regulator, bonding program, franchise agreement, or transaction.
Independence rules restrict combining certain non-attest services with attest engagements for the same client. Where that applies, Michael will say so directly and, if needed, refer the attest work to another firm.
Review your assurance requirementStart the conversation
The best time to strengthen the business you may one day leave is before the transition is urgent.
Bring accounting, tax strategy, business performance, and succession planning into one forward-looking relationship with Michael C. Williams, CPA, MS.