By: Bethany Alessi, CPA, Audit Manager
Clear, reliable financial information is essential for making informed business decisions and for meeting the expectations of lenders, investors, bonding agents and regulatory bodies.
CPA firms offer three primary levels of financial statement services: audits, reviews, and compilations. Each provides a different degree of assurance and involves a different depth of work.
Let’s break down these services in a practical, business‑friendly way so you can determine which option best fits your organization’s needs.
Audit: The Highest Level of Assurance
An audit provides the strongest level of confidence in your financial statements. It offers reasonable assurance that the statements are free from material misstatement, whether caused by error or fraud. Because of the depth of procedures involved, audits are the most comprehensive – and typically the most costly – of the three services.
What an audit involves:
Evaluating internal controls
Testing transactions and account balances
Confirming information with third parties (banks, customers, vendors)
Reviewing accounting estimates and policies
Assessing fraud risk and overall financial reporting integrity
Who typically needs an audit:
Businesses seeking significant financing
Organizations required by law or contract
Companies preparing for sale, merger, or acquisition
Nonprofits exceeding certain revenue thresholds
Contractors whose bonding agents require audited financials for larger projects
Audits provide credibility and transparency, making them the gold standard for external stakeholders.
Review: Limited Assurance at a Lower Cost
A review offers limited assurance – less than an audit but more than a compilation. It focuses on whether the financial statements appear reasonable and free of obvious errors. Reviews are often a cost‑effective option for businesses that need some level of external validation but do not require a full audit.
What a review involves:
Analytical procedures such as ratio and trend analysis
Inquiries of management
Identification of unusual or inconsistent items
What a review does not include:
No testing of transactions
No third‑party confirmations
No evaluation of internal controls
Who typically needs a review:
Small to mid‑sized businesses seeking moderate assurance
Companies with lenders who require reviewed statements
Contractors whose bonding agents accept reviewed statements for mid‑sized projects
Reviews strike a balance between assurance and efficiency.
Compilation: Professional Presentation Without Assurance
A compilation provides no assurance. The CPA’s role is to take financial information supplied by management and present it in the form of financial statements. Compilations are ideal for internal use or low‑stake reporting situations.
What a compilation involves:
Formatting financial data into financial statement form
Applying accounting expertise to ensure statements are clear and organized
What a compilation does not include:
No verification of the underlying data
No analytical procedures
No assurance of accuracy
Who typically needs a compilation:
Small businesses for internal planning
Companies that need financial statements but not external assurance
Contractors whose bonding agents only require basic financial presentation for smaller jobs
Organizations preparing for tax filings or internal budgeting
Choosing the Right Service
Selecting the appropriate level of service depends on your goals, reporting requirements, and the expectations of third parties. If you’re unsure which option fits your situation, a brief conversation can clarify your needs and help you make a confident decision.
A Note for Contractors and Bonded Projects
Bonding agents rely heavily on the quality of your financial statements when determining bonding capacity. The level of assurance you choose – audit, review, or compilation – can directly affect the size of projects you qualify for. If your business regularly bids on bonded work, selecting the right service is an important strategic decision. Osborne Rincon CPAs can help you determine which level of financial reporting is right for you and your business.
Bethany Alessi is a CPA with over 30 years of experience and an extensive background providing accounting and auditing services to privately held entities in various industries. Prior to joining Osborne Rincon, she worked for several small and regional CPA firms in Orange County, and was an out-sourced Chief Financial Officer for companies in the construction and hospitality industries.