Do You Actually Need an Audit, a Review, or a Compilation?
Someone has asked for financial statements and used a word you are not sure about. Work out which engagement level your situation genuinely calls for, whether an audit can be waived, what each costs, and what the books need before any of it can start.
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What Decides the Level
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The Three Levels Side by Side
| Level | What the Accountant Does | Cost | Turnaround |
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What It Adds Up To
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Points That Decide This
What to Do Next
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Disclaimer: A compilation engagement is performed under CSRS 4200 and produces a compilation engagement report; the practitioner does not perform an audit or a review and expresses no assurance on the financial information. A review engagement is performed under CSRE 2400 and provides limited assurance, based principally on enquiry and analytical procedures. An audit is performed under Canadian Auditing Standards and provides reasonable assurance, involving substantially more work including testing and external confirmation. Under the Business Corporations Act (Ontario) and the Canada Business Corporations Act, a corporation that is not an offering corporation may, in defined circumstances, dispense with the appointment of an auditor by a resolution consented to by all of the shareholders, including shareholders not otherwise entitled to vote, and such a resolution is generally valid only until the next annual meeting, so it must be renewed. Not-for-profit corporations and registered charities are subject to separate requirements under the Not-for-Profit Corporations Act (Ontario), the Canada Not-for-profit Corporations Act and, where applicable, funder or regulator conditions, which commonly set the required level by reference to annual revenue thresholds and are not modelled here. A corporation’s articles, by-laws, shareholder agreements, loan covenants, franchise agreements and funding agreements may each require a particular level of engagement regardless of what the governing statute permits. Gondaliya CPA Professional Corporation provides compilation engagements and does not perform review or audit engagements; where this page indicates that a review or audit is required, that work would need to be instructed from a firm that performs it. The costs shown are editable inputs intended for comparison rather than quotations, and actual fees depend on the condition of the records, the complexity of the entity and the time of year. This page is general information, not accounting or legal advice.
Three Different Products, Often Confused
The words get used loosely, including by the people demanding them. A bank officer asking for audited statements from a corporation with two million in revenue may well accept something far less, because they have used the word as a general term for proper financial statements.
The three levels differ in how much work sits behind the numbers, and the cost gap between them is large.
| Level | Assurance Given | What It Involves |
|---|---|---|
| Compilation | None | Statements assembled from information you provide |
| Review | Limited | Enquiry and analysis, plausibility of the figures |
| Audit | Reasonable | Testing, confirmation, evidence gathered independently |
A compilation is not a lesser audit. It is a different service: the practitioner puts the statements together from your records and says so plainly, without expressing any assurance. That is entirely appropriate for a great many small corporations, and it is what most of them actually need.
The Audit Most Small Corporations Can Waive
This is the single most useful thing on this page. A private corporation that is not offering its securities to the public can generally dispense with appointing an auditor if all the shareholders consent, including any who do not normally get a vote.
A very large number of owner-managed corporations have never done this, either because nobody mentioned it or because they assume the requirement is fixed. It is not, and the resolution is a short document.
It has to be renewed. The resolution is generally valid only until the next annual meeting, so it is an annual item rather than a one-off. Putting it alongside the annual return in the calendar is the practical way to handle it.
Ask What They Will Actually Accept
Before commissioning anything, ask the person requesting it, in writing, what level they require. The difference between a compilation and an audit can be fifteen thousand dollars or more, and the answer is frequently softer than the initial request sounded.
Banks in particular vary enormously. Some accept compiled statements with the corporate tax return attached for lending well into seven figures; others want a review at a few hundred thousand. There is no general rule, only that particular lender’s credit policy, and the person who can tell you is the one asking.
Where the requirement is contractual, it is not negotiable by argument. A loan covenant, franchise agreement or funding agreement that specifies audited statements has to be met or formally varied. Check the document rather than the conversation, because the covenant is what gets enforced.
Nothing Starts Until the Books Are Current
Whichever level applies, the work begins from your records. Months of unreconciled bank statements and uncategorised transactions have to be dealt with first, and that cleanup is a separate cost from the engagement itself.
It is also the most common reason these jobs run late. A corporation that needs statements for a financing deadline and is six months behind on bookkeeping has two pieces of work to fit in, not one, and the first cannot be compressed much.
Not-for-Profits Follow Their Own Rules
Not-for-profit corporations and registered charities are governed by different statutes, which commonly set the required level by reference to annual revenue thresholds, and funders often impose their own conditions on top.
If that is your situation, the governing statute and the funding agreements both need checking, and the answer is frequently that a review or audit is required regardless of what the members would prefer.
Where We Fit
We perform compilation engagements. We do not perform review or audit engagements, so where one of those is genuinely required, that work has to be instructed from a firm that does them.
That is worth saying plainly, because it means this page has no reason to talk you into the cheaper answer. If your bank needs a review, you need a review, and the useful thing we can do is tell you that clearly and early rather than after you have paid for statements that will not satisfy them.
Most of the time the answer really is a compilation. Our compilation engagement service covers the statements and the report, and the compilation cost calculator prices it for your situation.
Frequently Asked Questions
Common questions on engagement levels.
Related Calculators and Guides
More on financial statements and year ends.
Find Out What They Will Accept Before You Pay for Anything
Send us the request you received and your loan or franchise agreement. We will tell you what level is genuinely required, whether the audit can be waived, and what the books need first. If it turns out you need a review or an audit we will say so, since we prepare compilations only.