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Insight

Does your lender want a review or an audit?

Businesses often buy audits against covenants that only asked for a review. Nobody refunds the difference.

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Last reviewed

Unlike a nonprofit audit threshold or an HOA review requirement, a lender's reporting requirement is not statutory. It is contractual, which means it says exactly what the loan agreement says, and you can go and read it.

It also means, unlike a statute, it is negotiable.

Four steps, about half an hour

  1. Find the reporting covenant

    Usually under affirmative covenants, headed "Financial Reporting" or "Financial Statements". Rarely more than a paragraph.

  2. Read the exact word

    "Audited", "reviewed" and "compiled" are terms of art with precise meanings. A covenant requiring reviewed statements is satisfied by a review. Supplying an audit is not safer, it is more expensive for the identical outcome.

  3. Note the deadline and work backwards

    Commonly 90 to 120 days after year end. An audit takes four to eight weeks of elapsed time, so a 90-day covenant means closing the books and engaging an audit firm in month one.

  4. If it is ambiguous, ask in writing

    "Prepared by an independent accountant" without one of those three words is genuinely unclear. Your relationship manager will confirm, usually within a day. Keep the answer 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. The worst outcome is that they say no.

Who keeps the books, and who does the review

Reviews and audits are both performed by an independent accountant, and the firm that keeps your books cannot also review or audit them. This surprises people regularly, usually at the point when the deadline is close.

Wago Pop does not perform reviews or audits, so there is no conflict in us keeping your books and preparing you for the firm that does: closed accounts, supporting schedules and management's draft statements, ready in month one rather than month three.

Keep reading

Audit Preparation

Lender-required statements

 Audit Preparation

Compilation vs review vs audit

 Service

Audit Preparation

Common questions

Not answered here? Ask us directly: we would rather explain it than have you guess.

What if we miss the covenant deadline?

It is typically a technical default, which sounds worse than it usually is. Most lenders will waive a late reporting covenant if you tell them in advance and explain. What damages the relationship is silence. Call before the deadline, not after.

We are refinancing soon. Does that change what we should do?

Possibly, and it is worth asking before commissioning anything. A new lender may require a different level, or want more years of statements than your current covenant does. If a refinance is likely within the year, tell whoever is preparing your statements, it can change what is worth doing now.

How do we start?

Book a scoping call using the form on this page, or call us. We will ask what your covenant requires, when it is due, and what condition your records are in, then tell you what the preparation work involves and what it will cost before anything begins.

Book a scoping call

Twenty minutes, no charge. Tell us what you need and we will tell you what it involves, what it will take, and whether we are the right fit for it.

  • A short call with the person who would actually do the work.
  • A clear scope and a fixed quote before anything begins.
  • We reply to every enquiry within one business day.

Prefer to talk now? Call (310) 220-0248
Monday to Friday, 9am to 6pm PT

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Free resource

The audit readiness checklist

The list we work through before fieldwork starts. Most of the cost and most of the delay in a first audit comes from items on this page not being ready, so it is worth having early.

  • What the auditor asks for, in the order it is asked for
  • The reconciliations that have to be finished before fieldwork can begin
  • Which schedules you prepare and which we prepare
  • The governance documents an audit committee is expected to produce

There is no instant download. A person sends it, usually the same working day.

We email you this one document and nothing else unless you ask. We do not share your details, we do not add you to a sequence, and one reply saying stop ends it.