{
  "question_id": "CG-MCE-114",
  "slug": "what-reviewed-or-audited-financial-statements-are-and-when-a-lender-needs-them",
  "display_title": "My lender asked for reviewed or audited financial statements — what's the difference from the statements I already produce, and what do I actually need?",
  "format": "article-v2",
  "applies_to": {
    "countries": [
      "US"
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  "summary": "Your lender wants an outside accountant's report attached to your statements, and the work behind it, not better-presented statements. The levels run from statements you prepare yourself, to a compilation (no assurance), to a review (the accountant says only that they are not aware of material changes needed), to an audit (an opinion based on reasonable assurance). Confirm in writing which level, accounting basis and periods the requester needs, and where the requirement comes from, before engaging anyone.",
  "body": "## What is the lender actually asking for?\n\nA request for reviewed or audited statements asks for a named engagement by an outside accountant and the report that comes out of it. The AICPA's auditing standards, in AU-C section 200, state that the purpose of an audit is to provide users with an opinion by the auditor on whether the financial statements are presented fairly, in all material respects, in accordance with an applicable financial reporting framework. With no engagement there is no report, so a cleaner layout, extra notes or new software cannot meet the request.\n\nThe report speaks about the financial statements, not about your business. AU-C section 200 says an audit opinion does not assure, for example, the future viability of the entity or the efficiency or effectiveness with which management has run it, and AU-C section 700 says the auditor's report does not constitute a guarantee. A clean report will not tell you or the lender whether the loan is affordable. AU-C section 200 adds that law or regulation may require the auditor to give opinions on other specific matters, such as the effectiveness of internal control, which takes further work, so check whether a programme's requirement asks for more than an opinion on the statements.\n\n## What are the levels of service, and what separates them?\n\nThe AICPA's page for its Statements on Standards for Accounting and Review Services (SSARSs) says they apply to engagements to prepare financial statements and to compilation and review reports on the unaudited statements of nonpublic entities. Ordered by how much the outside accountant does, the levels are these:\n\n| Level | What the outside accountant does | What accompanies the statements |\n|---|---|---|\n| Statements you prepare yourself | Nothing; there is no engagement | No accountant's report |\n| Compilation | The SSARSs set the procedures; ask the accountant to describe them in writing before you sign | A report stating the accountant did not audit or review them and expresses no opinion or other form of assurance |\n| Review | The SSARSs set the procedures; ask the accountant to describe them in writing before you sign | A report stating the accountant is not aware of any material modifications needed for the statements to conform with the stated framework |\n| Audit | Gathers sufficient appropriate evidence for reasonable assurance, which AU-C section 200 calls high but not absolute | An opinion on whether the statements are presented fairly, in all material respects |\n\nThe report wording follows the examples in AU-C section 700, which also says a review does not provide a basis for an opinion on the statements as a whole. An accountant can also be engaged under the SSARSs only to prepare your statements, which is not the compilation, review or audit a request names.\n\n## What does each level ask of your business?\n\nAn audit asks the most, and the AU-C sections set its demands out:\n\n- **Responsibility and access.** AU-C section 200 makes management's agreement a precondition for accepting an audit: responsibility for preparing the statements under the framework and for the related internal control, and access to all relevant information, any additional information requested and the people the auditor needs evidence from.\n- **Draft statements on time.** AU-C section 210 lists, among possible audit engagement letter terms, management's agreement to provide draft statements and all relevant information, from within or outside the general and subsidiary ledgers, in time for the proposed timetable.\n- **Written representations.** AU-C section 580 has the auditor request written representations, including that all transactions have been recorded and are reflected in the statements, in a representation letter addressed to the auditor. AU-C section 210 says that if management will not provide them, the auditor will be unable to obtain sufficient appropriate audit evidence.\n- **Inventory.** AU-C section 501 calls for evidence of the existence and condition of material inventory, by attending the physical count unless that is impracticable and by testing the final inventory records against the count.\n- **Earlier periods.** AU-C section 510 treats an audit as an initial audit when the prior period was not audited, and calls for evidence about whether the opening balances contain misstatements that materially affect the current period. Where an earlier auditor exists, AU-C section 210 has the new auditor ask management to authorize that auditor to answer its inquiries.\n\nFor a compilation or review, the SSARSs set the terms. Before you sign, ask the accountant for a written list of what you must provide, including any written representations.\n\n### What should you have ready before each engagement?\n\nThe lists build on each other, so each level includes everything above it. The lists for self-prepared statements, a compilation and a review are practical suggestions; for what a compilation or review actually requires of you, rely on the accountant's written list. For statements you prepare yourself, have these ready:\n\n- Books closed for every period requested, with each bank, card and loan account reconciled to its statement\n- A balance sheet and income statement on the accounting basis the requester accepts\n- One person who can explain every material balance\n\nFor a compilation, add these:\n\n- A trial balance and the records behind it, available to the accountant\n- The requester's written answer on the accounting basis, and (compilation only) on whether a report disclosing that the accountant is not independent is acceptable\n\nFor a review, add these:\n\n- A schedule behind each material balance, such as receivables, payables, inventory, accrued expenses and debt, that agrees to the ledger\n- An explanation for each large change from the prior period\n- The accountant's written confirmation that it is independent of your business for the review\n- An owner or officer able to sign any written representations the accountant requires\n\nFor an audit, add these:\n\n- Management's signed agreement to the responsibilities and access described above\n- A physical inventory count the auditor can attend, if inventory is material\n- Records supporting the opening balances, if the prior period was not audited\n- Your authorization for any earlier auditor to answer the new auditor's inquiries\n\nDuring the audit, you will need these:\n\n- Draft statements and all supporting information on the agreed timetable\n- A signed representation letter when the audit ends\n\n## Who may perform each level, and can the person who keeps your books do it?\n\nWho may issue a compilation, review or audit report is set by law and professional rules, not by the requester. AU-C section 200 says the ethical requirements for an audit consist of the AICPA Code of Professional Conduct together with rules of state boards of accountancy and regulatory agencies that are more restrictive.\n\nState laws differ, so read your own. Florida's statute, for example, includes in the practice of public accounting services involving the expression of an opinion on financial statements, the use of any form of opinion or financial statements that provide a level of assurance, and the use of any form of disclaimer of opinion that conveys an assurance of reliability as to matters not specifically disclaimed (section 473.302(8)(a)). Section 473.322(1)(c) bars anyone from performing those services, or services involving attestation engagements under the Statements on Standards for Attestation Engagements (section 473.302(8)(d)), unless they hold an active Florida license and are a licensed firm, provide the services through a licensed firm, or comply with sections 473.3101 and 473.3141; paragraph (1)(c) does not stop people other than CPAs from preparing financial statements without expressing an opinion. Check with your own state board of accountancy before assuming anyone can issue the report you need.\n\nAU-C section 200 says an auditor must be independent of the business unless GAAS provides otherwise or the auditor is required by law or regulation to accept the engagement and report on the statements, and that otherwise a non-independent auditor is precluded from issuing a report under GAAS. The AICPA Code's Independence Rule requires members in public practice to be independent as the standards of designated bodies require. The Code's definition of a financial statement attest client covers businesses whose statements are audited or reviewed, but compiled businesses only when the compilation report does not disclose a lack of independence. The Code thus contemplates a compilation issued with that disclosure. Whether a review may be issued without independence is set by the review standard, the SSARSs; ask the accountant to confirm in writing, before you sign, that it is independent of your business for the review.\n\nKeeping the books is a separate service. AU-C section 200 notes that preparing financial statements is a nonattest service subject to the Code's nonattest-services rules. Under the AICPA Code, a firm that keeps the books of a business it also reviews or audits must meet all of these conditions:\n\n- The business agrees to assume all management responsibilities.\n- The business agrees to oversee the service through a designated individual, preferably in senior management, with suitable skill, knowledge and/or experience, whom the firm is satisfied understands the services sufficiently to oversee them. That person does not need the expertise to perform or re-perform the services.\n- The business agrees to evaluate the adequacy and results of the services and to accept responsibility for the results.\n- The firm does not assume management responsibilities, and is satisfied that the business can meet these conditions, make an informed judgment on the results and accept responsibility for the significant judgments and decisions.\n- Before starting, the firm documents in writing its understanding with the business of the objectives, the services, each side's responsibilities and any limitations.\n\nIf the business cannot oversee the work or is unwilling to, for example for lack of time, the AICPA Code says the firm's nonattest services would impair independence. The Code also lists management responsibilities that impair independence because no safeguard can reduce the threat, among them authorizing or executing transactions or having the authority to do so, having custody of your assets, preparing source documents and accepting responsibility for preparing and presenting the financial statements; its bookkeeping interpretation adds others, such as approving vendor invoices for payment. For the person who keeps your books, that means:\n\n| If the person who keeps your books is | What it means for the report |\n|---|---|\n| A bookkeeper who is not a licensed CPA | Whether they may issue a compilation or any other accountant's report depends on your state; ask your state board before engaging one |\n| A CPA firm, and someone in your business meets every oversight condition | The firm may be able to review or audit as well; only the firm can conclude that its independence holds |\n| A CPA firm, and no one in your business can oversee its work | Its independence for a review or audit is impaired under the Code; it could still compile with a report disclosing that, if the requester accepts it, or another firm reports |\n| A CPA firm that authorizes, executes or approves your transactions or vendor invoices, or has authority to; signs or cosigns your checks, even only in emergencies; authorizes your payments (apart from some electronic payroll tax payments); holds your bank account or funds; prepares source documents or changes them without your approval; or takes responsibility for your statements | Its independence for a review or audit is impaired under the Code |\n\nChoosing and vetting an accountant is covered in a separate answer.\n\n## How do you tell which level the request calls for?\n\nRead the exact words in the request, the loan agreement or the programme document, then map them:\n\n| Wording you see | Level it names | What to confirm |\n|---|---|---|\n| \"Audited\" | Audit | Periods covered, accounting basis, delivery date |\n| \"Reviewed\" | Review | Periods, basis, and whether a review suffices every year |\n| \"Reviewed or audited\" | Either may be meant; the words alone do not settle it | That a review will be accepted |\n| \"Compiled\" or \"compilation\" | Compilation | Whether a report disclosing a lack of independence is acceptable |\n| \"CPA-prepared\" or \"prepared by an accountant\" | Unclear; it may mean an accountant's engagement to prepare the statements under the SSARSs | Whether statements an accountant prepares will do, or which of compilation, review or audit is meant |\n\nThen put these questions to the requester in writing:\n\n- Which level do you require: compilation, review or audit?\n- Must the statements follow U.S. GAAP, or will you accept a special purpose framework such as the cash or tax basis?\n- Which periods, and by what date?\n- Is this your policy, a term of our existing agreement, or a programme rule, and where is it written?\n- What would you need from us to accept a lower level?\n\nAU-C section 200 describes a special purpose framework as one other than generally accepted accounting principles, such as a cash, tax, regulatory, contractual or other basis of accounting. Do not commission the most extensive level mentioned until the requester confirms it is required, because AU-C section 700 describes a review as substantially less in scope than an audit.\n\n## Where does the requirement come from, and can it be discussed?\n\nA policy preference and a binding term can read the same in an email. Find which one you face:\n\n| Where it comes from | How to recognise it | Room to discuss |\n|---|---|---|\n| The requester's own policy or preference | A request letter, email or term sheet, with no matching clause in anything you have signed | Only the requester can grant an exception; ask directly and get the answer in writing |\n| A term in an agreement you already signed | A financial reporting clause in the loan agreement, or in a bond or insurance contract | Read that clause and the agreement's amendment and waiver clause, and ask the lender how a change would be made |\n| A programme rule | A regulation, programme guide or grant or award terms | Treat the level as fixed unless the programme's own documents provide a waiver or alternative |\n\nFor a government-backed loan or a grant, read the level from the programme's written requirement rather than from a lender's summary of it, and ask the programme administrator whether any waiver or alternative applies.\n\n## What should you put in order before engaging anyone?\n\nEngaging before the books are ready leaves the cleanup to be done during the engagement, adding to the work each level already requires. AU-C section 210 says an independent audit does not act as a substitute for the internal control management needs to prepare fair statements. Work in this order:\n\n1. Get the requester's written answers on level, basis, periods, deadline and source.\n2. Complete the checklist above for the level the requester confirms.\n3. Decide who keeps the books and who reports, and test that split against the independence conditions.\n4. Set the timetable back from the requester's deadline.\n5. Gather prior statements, earlier accountants' reports and tax returns.\n\n## What happens if your records cannot support the level requested?\n\n| Where your records stand | What follows | Your path |\n|---|---|---|\n| The engagement can start from them | The accountant can plan and perform the work | Engage, with the terms agreed in writing |\n| They need cleanup first | Problems surface during the engagement and the work expands | Fix them first, using someone other than the reporting firm where independence would suffer |\n| They cannot support the level in the time available | In an audit, missing evidence leads to a modified opinion | Tell the requester early and propose a later date, a different period or a lower level |\n\nRebuilding records that are missing is covered in a separate answer.\n\nAU-C section 705 has the auditor disclaim an opinion when sufficient appropriate evidence cannot be obtained and the possible effects could be both material and pervasive, and the disclaimer states that the auditor does not express an opinion. AU-C section 510 calls for a qualified opinion or a disclaimer when the auditor cannot obtain enough evidence about opening balances. Ask the requester, before the engagement starts, whether a modified opinion would be accepted.\n\nSwitching an audit to a review partway through is not automatic. AU-C section 210 requires the auditor to determine whether reasonable justification exists: a change in circumstances affecting your requirements, or a misunderstanding about the nature of the service originally requested, may be a reasonable basis, but a change may not be reasonable if it relates to information that is incorrect, incomplete or otherwise unsatisfactory, such as asking for a review to avoid a qualified opinion or disclaimer when receivables cannot be supported. Settle the level before the audit begins.\n\n## How do the levels compare in cost and time?\n\nThe ordering and cost drivers below are inferred from the scope of work each standard describes, not taken from a published comparison of cost or time. Cost and elapsed time follow the work each level requires, so they rise in the ladder's order, from self-prepared statements to an audit. Within a level, these move the cost:\n\n- **Your records.** Every unreconciled account or missing schedule is work that has to be done before or during the engagement; if the reporting firm does it, the independence conditions above apply.\n- **Timing.** Engaging after year end can leave no count for the auditor to attend, so ask early what that would mean for the opinion.\n\nAU-C section 210 lists the basis on which fees are computed and any billing arrangements among matters an audit engagement letter may include; ask for that basis in writing at any level.\n\n## When can you ask for a lower level, and what supports the request?\n\nAsk when the requirement is the requester's own policy or its wording is loose. For a term you signed, read the agreement's amendment and waiver clause and ask the lender how a change would be made; a programme rule changes only as the programme provides. You can offer this material, but whether any of it is enough is the requester's decision:\n\n- **The wording.** Quote the requester's words back when they do not name the level you were about to buy, as when the request names more than one level.\n- **The difference in scope.** Say plainly what the requester gives up and why the lower level still serves its purpose.\n- **Your track record.** Offer prior years' statements, filed tax returns, current interim statements and bank statements that agree to your books.\n- **A plan.** Propose a review now and an audit later, once records or timing allow.\n\nGet any agreed change in writing before you engage an accountant.",
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      "title": "U.S. Auditing Standards — AICPA (Clarified) [AU-C sections], including AU-C 230 Audit Documentation and AU-C 320 Materiality in Planning and Performing an Audit",
      "publisher": "American Institute of Certified Public Accountants",
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      "url": "https://pub.aicpa.org/codeofconduct/ethicsresources/et-cod.pdf",
      "title": "Code of Professional Conduct",
      "publisher": "American Institute of Certified Public Accountants",
      "published": "Effective December 15, 2014; updated for all official releases through September 2026 (Copyright © 2026 American Institute of CPAs)",
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      "title": "473.322 Prohibitions; penalties",
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  "related": [
    {
      "question_id": "CG-MCE-106",
      "slug": "how-a-statement-of-cash-flows-is-produced-and-what-it-shows",
      "display_title": "How is a statement of cash flows produced from my books, and what does it show that the profit and loss doesn't?"
    },
    {
      "question_id": "CG-MCE-109",
      "slug": "what-your-cpa-or-tax-preparer-needs-from-your-books-at-year-end",
      "display_title": "What does my CPA or tax preparer need from my books at year end, and how do I hand the books over cleanly?"
    }
  ],
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    "review_verdict": "ACCEPT",
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    "editorial_disposition": "ACCEPT",
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  "datePublished": "2026-09-28T18:39:45Z",
  "reviewed_at": "2026-09-28T18:39:45Z",
  "content_sha": "f4f66144c37a50b29aa785799c5281ccba04ee7d8d7f328669c72b7d8f1d3632",
  "release": "2.12.0",
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  "question_text": "My lender asked for reviewed or audited financial statements — what's the difference from the statements I already produce, and what do I actually need?",
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  "related_question_ids": [
    "CG-MCE-134",
    "CG-MCE-106",
    "CG-MCE-109",
    "CG-MCE-137",
    "CG-MCE-111"
  ],
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  "notice": "This guide is general information, not tax or legal advice. Confirm with a qualified professional before acting."
}