The decision framework
Start with the report user. A lender, investor, board, grantor, or regulator may specify exactly what they need. If they require an audit, a review or compilation will usually not satisfy the requirement.
If no one has mandated a report, the decision should weigh risk, cost, assurance level, timeline, and how the financial statements will be used.
How the services compare
- Audit: highest level of assurance in this group, with testing, risk assessment, and an auditor opinion.
- Review: limited assurance using inquiry and analytical procedures.
- Compilation: financial statements prepared or presented by a CPA without assurance.
- Agreed-upon procedures: specific procedures and findings for users who agree on the scope.
What to gather before scoping
- The lender, investor, board, or regulator request.
- Prior financial statements and prior CPA reports.
- Trial balance, general ledger, bank reconciliations, debt schedules, and supporting records.
- Deadlines, intended users, and whether comparative periods are required.