WHAT’S THE DIFFERENCE BETWEEN AN AUDIT, A REVIEW, & A COMPILATION?

 

When it comes to financial reporting, not all services are created equal. If you’re a business owner, nonprofit leader, or financial officer, you’ve likely heard the terms audit, review, and compilation tossed around, especially when applying for a loan, preparing for a board meeting, or meeting regulatory requirements. But what exactly do these terms mean, and which one is right for your situation?

At Draffin Tucker, we often help clients navigate this very question with a full range of resources. Understanding the differences between these assurance services isn’t just helpful but essential for making the right financial decisions and staying compliant. In this blog, our Charleston accounting and tax team will explore each service so you can feel confident about what your business needs.

WHAT IS AN AUDIT?

An audit is the highest level of assurance a CPA can provide. It’s a thorough examination of your financial statements, conducted in accordance with generally accepted auditing standards (GAAS). The goal of an audit is to provide reasonable assurance that your financial statements are free of material misstatement, whether caused by error or fraud.

WHAT’S INVOLVED?

  • We gather and evaluate evidence.

  • We test internal controls and accounting procedures.

  • We confirm account balances with third parties (like banks or vendors).

  • We assess fraud risk and test transactions.

At the end of the process, we issue an auditor’s opinion, which tells users whether the financial statements present a fair and accurate picture of your financial position in accordance with U.S. GAAP (Generally Accepted Accounting Principles).

WHEN DO YOU NEED AN AUDIT?

  • If you’re seeking significant financing or investment.

  • If you’re a nonprofit required by a grantor or the state to have one.

  • If you have shareholders, members, or a board requiring high-level oversight.

  • If you’re preparing for a merger or acquisition.

An audit offers peace of mind to investors, lenders, and stakeholders who rely on the accuracy of your financial data.

WHAT IS A REVIEW?

A review provides limited assurance—less than an audit, but still more than a compilation. It’s designed to detect material misstatements using inquiry and analytical procedures, but we don’t dig as deeply as we do in an audit.

WHAT’S INVOLVED?

  • We interview your management team about key areas of the business.

  • We perform ratio analysis and other analytical reviews.

  • We look for any red flags or anomalies that need explanation.

We don’t test your internal controls or verify balances with third parties. However, we still follow rigorous standards (specifically SSARS—Statements on Standards for Accounting and Review Services) and issue a formal review report.

WHEN DO YOU NEED A REVIEW?

  • When a lender or investor requests assurance, but not at the audit level.

  • If your organization wants to show accountability and transparency, but doesn’t have the budget or need for an audit.

  • If you’re a privately held company or nonprofit wanting more than just financial preparation.

A review strikes a balance—it’s more cost-effective than an audit but still provides some assurance to outside parties.

WHAT IS A COMPILATION?

A compilation is the most basic level of service. In this engagement, we assist in preparing your financial statements using data you provide, but we do not offer any assurance about their accuracy.

Think of a compilation as formatting and organizing your numbers into standard financial statements. We don’t verify the data, perform any testing, or evaluate internal controls.

WHAT’S INVOLVED?


  • We gather financial data from you.

  • We present it in the format required by U.S. GAAP or another framework.

  • We issue a compilation report stating that no assurance is provided.

WHEN DO YOU NEED A COMPILATION?

  • If you simply need professionally prepared financial statements for internal use.

  • When management, ownership, or a tax preparer needs financials for tax return preparation.

  • When no third party is requesting assurance, but presentation matters.

Compilations are often used by smaller businesses that don’t need assurance services but want help presenting their financials accurately.

SO, WHICH ONE DO YOU NEED?

Choosing between an audit, a review, or a compilation depends on three key things:

  1. Who’s requesting the financials? (e.g., lenders, board members, grantors)

  2. How much assurance do they require?

  3. What’s your budget?

At Draffin Tucker, we don’t believe in a one-size-fits-all approach. We’ll take the time to understand your specific needs and guide you toward the right level of service—one that protects your business, satisfies requirements, and respects your resources.

Trust the Team at Draffin Tucker for Thorough, Reliable Assurance and Advisory Services in Charleston, SC

Whether you’re running a fast-growing business, leading a nonprofit, or trying to meet lender requirements, it’s important to know the difference between an audit, a review, and a compilation.

Each service serves a purpose, and the Draffin Tucker team is here to help you choose wisely. If you’re unsure what level of assurance makes sense for your organization, Reach Out now. From tax planning and accounting services to litigation support, bookkeeping, and IRS representation, our CPA firm is proud to serve clients throughout Charleston, South Carolina, and beyond with clarity, care, and decades of experience.

Visit us: https://baldwincpa.com/

Contact us: https://baldwincpa.com/contact-us/


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