Audit, Review, or Compilation: Which Assurance Service Does Your Business Need?

For many small business owners, the need for assurance services is clear, but choosing the right option often feels like navigating a maze. Assurance services are independent professional services that enhance the reliability and credibility of information for decision-makers. These services, often provided by CPAs, assess the accuracy and effectiveness of financial information, internal controls, and other aspects of an organization, ultimately reducing information risk. 

But which type is right for your situation—should you go with a compilation, review, or full audit? The answer isn’t always straightforward, but understanding the differences between these three services can help you make the right choice for your business. 

It’s Often About Compliance Requirements

“Typically, the businesses we work with—their banking relationship determines what they need,” explains CJG partner Steve Burns. Whether you need an audit, review, or compilation, it often comes down to debt covenant requirements. “A bank could say, ‘Hey, that’s great that you’re providing us your internal financial statements. But we’d like an independent CPA to come and validate the numbers.”

It’s not just banks either. Sometimes, it’s a governmental body, a supplier’s credit department, or an insurance or bonding company that requires these services as a compliance requirement.

Building Credibility for the Future with Assurance Service

Beyond compliance, there’s another compelling reason to invest in these services. “The other reason for assurance services is to build a track record of credible financial information that a buyer can look at and save time and money on due diligence,” Burns explains.

When potential buyers or investors evaluate your business, having years of professionally prepared financial statements demonstrates transparency and financial discipline. It demonstrates that your business has consistently maintained proper financial practices, giving stakeholders confidence in the numbers they’re reviewing.

Compilation: The Basic Option 

A compilation provides the least amount of verification. “Compilation has no assurance effectively,” says Hank. “That is, taking the financial records of the company and putting them into financial statement form.” While compilations don’t provide assurance or verification of the information, having statements compiled by a CPA demonstrates your commitment to professional financial practices and provides a cost-effective solution for basic reporting needs.

Review: The Middle Ground

A review provides financial clarity and confidence by independently examining your financial processes and controls. Your CPA will analyze year-over-year changes, investigate areas of concern, and provide valuable insights into your business performance while concluding with a formal report that can be shared with lenders and investors.

Reviews offer greater assurance than compilations, but they also come at a higher cost. Ken points out, “It’s not the highest level of assurance, but it’s also going to be more expensive than a compilation. So if you don’t need a review, then you might prefer a compilation.”

Audit: The Gold Standard

If you want to prove to a potential buyer that your numbers are accurate and reliable, an audit is what you need. With a reviewed statement, buyers might think the numbers look good, but still feel the need to conduct additional verification. An audit, however, provides additional verification that buyers can have reasonable confidence in what they’re seeing, often eliminating the need for extensive financial due diligence.

While audits are the most expensive option, Ken emphasizes their value: “It gives outside financial statement users the most confidence in the financial statements.” Audits provide the highest level of assurance, meeting the requirements of banks, investors, and other stakeholders through rigorous examination of your financial records, internal controls, and significant business areas.

Making the Right Choice for Assurance Service

The key is understanding what level of verification and credibility your business needs. Whether it’s satisfying a lender’s requirements or building a track record for future opportunities, choosing the right financial statement service is an investment in your business’s credibility and future success.

CJG is here to help. Reach out to us today to learn more about the ideal assurance service for your business.

Related Blogs