Compilation vs. Review vs. Audit: What Your Bank Is Really Asking For

5 days ago

3 min read

"We'll need reviewed financials."

Maybe it came from your bank when you asked for a bigger credit line. Maybe your bonding company needs it before you can bid on larger projects. Maybe a new investor, a major grant, or your board wants an annual audit.

However the request arrives, it usually comes with a deadline and a question: what exactly are they asking for, and are my books ready for it?

Here's what separates the three levels of CPA-prepared financial statements, who typically asks for each, and how to get ready.

Comparison of a compilation, a review, and an audit: the level of assurance, what the CPA does, and the relative effort and cost of each.

Compilation: your numbers, in proper form

In a compilation, a CPA takes the financial information your business provides and puts it into proper financial statement form. The CPA doesn't verify the numbers or test anything, so a compilation provides no assurance that the statements are accurate.

Who usually asks for it: some lenders for smaller loans, and owners who want professionally formatted statements for internal use.

Effort and cost: the lowest of the three.

Review: questions and analysis

In a review, the CPA goes a step further. They ask management questions and run analytical procedures, like comparing this year's numbers with last year's and looking at key ratios, to see whether anything looks materially off. A review provides limited assurance.

A review doesn't include detailed testing of transactions or confirming balances with outside parties. But the CPA will ask about anything that looks unusual, so you need to be able to explain your numbers.

Who usually asks for it: banks for mid-size credit lines, and many bonding companies.

Effort and cost: moderate.

Audit: tested and verified

An audit is the highest level. The CPA samples and tests transactions, confirms balances with banks and customers, observes or tests inventory if you carry it, and evaluates your internal controls. An audit provides reasonable assurance that the statements are free of material errors.

Who usually asks for it: lenders on larger loans, bonding companies for bigger projects, investors, and many nonprofits. Nonprofits may need an audit because of their board, their grantors, state rules, or federal awards. If a nonprofit spends $1,000,000 or more in federal awards in a fiscal year, a Single Audit is generally required.

Effort and cost: the highest of the three.

Who does the work (and who doesn't)

Reviews and audits must be performed by an independent CPA firm. That independence is the whole point: the people checking your books can't be the people keeping them.

That's why it helps to have two separate roles:

Your accounting team keeps the books, closes each month, and prepares the schedules and documents the CPA firm will ask for.
Your CPA firm performs the review or audit and issues its report.

At Biz AccountPros, we're the first role. We don't perform audits or reviews. We get your books ready and work alongside your auditors so the process goes smoothly.

How to get ready

The single biggest thing you can control is how ready your books are before the CPA firm starts. Reviews and audits go faster, cost less, and cause far less stress when the books are clean.

A 90-day audit and review readiness timeline: get organized 90 days out, close and clean up at 60 days, prepare the package at 30 days, then respond fast during fieldwork.

90 or more days out: get organized. Confirm exactly what's required, by whom, and by when. Engage your CPA firm early and ask for their document request list. Catch up and reconcile every account.

60 days out: close and clean up. Close the year properly: accruals, cutoff, fixed assets, debt, and inventory. Fix old problems now, like unexplained balances and stale receivables.

30 days out: prepare the package. Build the supporting schedules and tie each one to your general ledger. Review the statements yourself. Can you explain every big change from last year?

During fieldwork: respond fast. Name one point person, answer requests quickly and completely, and keep a running log of what's been asked and answered.

What slows audits down most

In our experience, the same problems cause most of the delays: unreconciled accounts, missing receipts and invoices, bills from last year that weren't recorded until this year, revenue booked in the wrong period, and no detail behind fixed assets or loans.

Every one of those is fixable, and most of them are prevented by a solid monthly close.

What to do next

Get the checklist. Our free Audit & Review Readiness Checklist walks you through the full timeline, the documents your auditor will ask for, the internal controls they'll look at, and a section just for nonprofits.

If you'd like help getting your books audit-ready, schedule a no-pressure call. No obligation, just clarity.

This article is for general information only. It isn't tax, legal, or audit advice for your specific situation, so talk with your CPA firm about what your lender, bonding company, or grantor requires.