Audit Preparation
Compilation, review or audit, which one do you actually need?
Three levels of service, three standards, three very different workloads. People over-buy here more often than they under-buy.
If somebody has asked you for "financial statements", that phrase covers three quite different pieces of work, which one you need is determined by whoever is asking (a lender's covenant, a statute, a grant agreement, your own bylaws) and not by preference.
The single most useful thing you can do before speaking to any audit firm is find the document that created the requirement and read what word it actually uses.
All three engagements are performed by an independent accountant. Wago Pop does not perform them or issue the report; we prepare your books, schedules and statements so the engagement runs on time, and we support you while it does.
The comparison
| Compilation | Review | Audit | |
|---|---|---|---|
| Standard | SSARS | SSARS | GAAS |
| Assurance given | None | Limited | Reasonable |
| What the independent accountant does | Presents your figures in proper financial statement format | Inquiry and analytical procedures: asks questions and tests whether the numbers behave sensibly | Testing, sampling, third-party confirmation, evaluation of internal controls |
| Independence required | Not necessarily (must disclose if impaired) | Yes | Yes |
| The report says | No opinion or assurance is expressed | Nothing came to our attention indicating material misstatement | In our opinion, the statements are fairly presented in all material respects |
| Relative workload | Lowest | Substantially less than an audit | Highest |
| Typical timeline | Days | 2 to 4 weeks | 4 to 8 weeks |
Workload and timelines are typical ranges, not a quote. Actual effort turns on size, complexity, number of funding sources and the condition of the records, which is the part good preparation controls.
How to work out which one applies to you
Find the document that created the requirement
A loan agreement, a grant contract, your CC&Rs, your bylaws, a statute, or a letter from an agency. The requirement always comes from somewhere specific.
Read the actual word it uses
"Audited", "reviewed" and "compiled" are terms of art with precise meanings. A covenant that says *reviewed financial statements* is satisfied by a review. Providing an audit instead is not safer, it is more expensive for the same outcome.
Check whether a threshold is involved
California nonprofits cross into a mandatory audit at $2 million of gross revenue. HOAs cross into a mandatory review at $75,000 of gross income. Retirement plans turn on participant counts. Thresholds are checkable facts.
Ask whether the requirement can be renegotiated
Lenders will sometimes accept a review in place of an audit, particularly where the facility is well collateralised or the relationship is long-standing. It costs one phone call to ask.
Where the requirement usually comes from
Statutory and contractual triggers
California nonprofits: an audit is required above $2 million of gross revenue under Gov. Code §12586(e), with government grants excluded from the count where the organisation must account for how funds were used.
California HOAs: a review is required for any fiscal year in which gross income exceeds $75,000, under Civ. Code §5305. Governing documents frequently impose a higher standard.
Retirement plans: large plans require an audit filed with Form 5500. The counting rule changed for plan years beginning in 2023.
Escrow agents: audited statements are required within 105 days of fiscal year end under Fin. Code §17406.
Lenders: entirely contractual. Most small and mid-market covenants call for a review; audits tend to appear at larger facility sizes.
A common expensive mistake
An organisation is told it needs "an audit", commissions one, and discovers afterwards that the covenant said *reviewed*. Nobody refunds the difference.
Read the requirement first. If it is ambiguous, ask the party that wrote it to confirm in writing which level they require, they will, and it takes a day.