Compilations, Reviews, and Audits: Understanding the Levels of Assurance

Updated October 2025 - When your business needs financial statements for lenders, investors, or stakeholders, choosing the right Certified Public Accounting (CPA) service can be confusing. 

Every business needs financial statements, but not every business needs the same level of CPA involvement. This can be basic financial statement preparation, moderate assurance for a lender, or comprehensive verification for investors.

Knowing the difference between compilations, reviews, and audits can help you select the service that matches your specific requirements and budget. 

What Each Service Provides

Compilation: Financial Statement Preparation

Your CPA uses their expertise to organize your financial data into properly formatted financial statements that comply with accounting standards. The CPA relies on information you provide without performing verification procedures.

What it provides: 

• Professional presentation of your financial information 
• Properly formatted statements following accounting standards 
• CPA expertise in organizing complex financial data 
• Cost-effective financial statement preparation

What it does not include: 

• Testing or verification of your numbers 
• Assurance about accuracy 
• Analysis of unusual items 
• Internal control evaluation

Best suited for: 

• Internal management use 
• Tax return preparation 
• Small loans with basic requirements 
• Businesses with strong internal financial controls 
• Companies needing professional statements without external assurance

Review: Analytical Procedures with Limited Assurance

A review provides limited assurance through analytical procedures and inquiries. Your CPA analyzes financial relationships and ratios, compares your results to industry benchmarks, and asks management about unusual fluctuations or concerns.

What it provides: 

• Limited assurance on your financial statements 
• Analytical review of financial trends and ratios 
• Industry-specific expertise applied to your numbers 
• Identification of obvious issues or inconsistencies 
• Professional skepticism without extensive testing

What it does not include: 

• Detailed transaction testing 
• Third-party confirmations 
• Internal control assessment 
• Physical inventory observations 
• Fraud detection procedures

Best suited for: 

• Bank financing requirements 
• Minority investor reporting 
• Grant applications 
• Businesses with moderate complexity 
• Companies needing external credibility without audit costs

Audit: Comprehensive Testing with Reasonable Assurance

An audit provides the highest level of assurance through comprehensive testing procedures. Your CPA examines evidence, tests transactions, confirms balances with third parties, and evaluates internal controls to form an opinion on your financial statements.

What it provides:

• Reasonable assurance about financial statement accuracy 
• Systematic examination of supporting documentation 
• Independent confirmation of key balances
• Internal control evaluation and recommendations
• Specific fraud risk assessment procedures 
• Detailed testing of significant transactions 
• Management letter with improvement suggestions

Best suited for: 

• Public companies (required) 
• Major financing or refinancing 
• Sophisticated investors or venture capital 
• Regulatory compliance requirements 
• Complex organizations with multiple stakeholders 
• Companies planning to go public 
• Businesses with fiduciary responsibilities

Fraud Detection Matters

Each service type approaches fraud risk differently based on its scope and purpose. Compilations do not include fraud detection procedures since the CPA organizes your information without testing it. 

Reviews use analytical procedures that may identify unusual patterns worth investigating, though fraud detection is not the primary purpose. 

Audits include specific fraud risk assessment and testing procedures designed to detect material misstatements from fraud or error.

Quick Decision Guide

The chart below provides a quick overview of each assurance service type:

Making Your Choice

Start by identifying your specific requirements:

• Lender requirements: Banks specify service levels based on loan size and type
• Investor expectations: Angel investors may accept reviews; institutional investors typically require audits
• Regulatory compliance: Some industries mandate specific assurance levels
• Grant stipulations: Many grants accept reviewed statements
• Internal needs: Consider your risk factors and internal control strength

Also consider your future plans. If you expect to seek financing or investors soon, know their requirements now. Some businesses use the same service level for years, while others adjust as needs change.

The right choice meets your requirements without unnecessary cost. A family business might only need compilations. A company seeking bank financing often finds reviews ideal. Businesses with multiple stakeholders or acquisition plans typically require audits. Choose what fits your specific situation.