Audit Preparation
Financial statements your lender requires
Most small and mid-market loan covenants ask for a review. A surprising number of borrowers buy an audit anyway.
Unlike a nonprofit audit or an HOA review, there is no statute here. A lender's requirement is entirely contractual, it says whatever the loan agreement says.
Which means two useful things follow. First, you can read the covenant and know the answer definitively. Second, unlike a statutory threshold, it is negotiable.
Wago Pop does not perform compilations, reviews or audits. We prepare the books, schedules and management's financial statements that the independent accountant works from, and support you through the engagement so the covenant deadline is met.
Roughly how lenders decide
Generalisations, not rules: every institution sets its own policy and collateral matters as much as size.
| Situation | Commonly required |
|---|---|
| Small facility, strong collateral, established relationship | Internally prepared statements, or a compilation |
| Small to mid-market facility, typical community bank or credit union | Review |
| Larger facility, multiple lenders, or a syndicated arrangement | Audit |
| SBA lending | Varies by programme and size: check the specific loan authorisation |
| Construction or draw-based facilities | Often interim statements plus an annual review or audit |
How to read your covenant
Find the reporting covenant
Usually in an affirmative covenants section headed "Financial Reporting" or "Financial Statements". It is rarely more than a paragraph.
Note the exact word
"Audited", "reviewed" and "compiled" are terms of art. "Prepared by an independent accountant" without one of those words is genuinely ambiguous, and worth clarifying.
Note the deadline
Commonly 90 to 120 days after fiscal year end. Work backwards: an audit takes four to eight weeks of elapsed time, so a 90-day covenant means engaging an audit firm, and closing the books, in month one, not month three.
Note any other required reporting
Interim statements, covenant compliance certificates, borrowing base certificates, personal guarantor statements. These often have their own, shorter deadlines.
If it is ambiguous, ask in writing
Your relationship manager will confirm which level is required, usually within a day. Get it in writing and keep it on file.
You can ask for a lower level
Lenders will sometimes accept a review in place of an audit, particularly where the facility is well collateralised, the borrower has a clean history, or the loan is being renewed rather than originated.
It costs one phone call and the worst outcome is that they say no. We are happy to help you frame that conversation: including explaining to the lender what a review does and does not provide, which is sometimes the actual sticking point.