Reviews and Audits: Key Differences Business Owners Need to Know

Picture this scenario: You’ve just wrapped up your company’s financial year, and a lender or potential investor requests to see your financial statements. Should you provide a reviewed statement or an audited one? And what’s the real difference between the two? If you feel unsure, you’re not alone. While both Reviews and Audits involve the expertise of a Certified Public Accountant (CPA), each offers a different level of assurance, employs different procedures, and comes with a distinct cost structure.

Below, you’ll discover how Reviews differ from Audits and how to determine which service is right for your business.

Differences between Reviews and Audits?

Both Reviews and Audits are considered “attest engagements,” meaning a CPA provides an opinion or conclusion on financial statements. However, they fall at different points on the assurance spectrum:

• Review

In a Review engagement, the CPA primarily uses analytical procedures (like ratio or trend analysis) and makes inquiries (asking management targeted questions). The result is a limited assurance conclusion, often phrased as: “We are not aware of any material modifications.

• Audit

An Audit goes deeper. It involves extensive testing, verification of transactions, confirmations from external parties (such as banks and vendors), and a thorough evaluation of the company’s internal controls. This level of scrutiny provides reasonable assurance that your financials are free of material misstatement—the closest you can get to a professional “seal of approval.

Comparison Chart: Reviews vs. Audits

When it comes to financial reporting, business owners often need to choose between a Review and an Audit of their financial statements. While both involve the expertise of a CPA, they differ in terms of level of assurance, depth of analysis, cost, and regulatory requirements. Below is a detailed comparison to help you understand which option best suits your business needs.

This comparison chart can help you decide which engagement aligns with your business needs and compliance requirements.

Scope and Procedures

Understanding the scope and procedures of financial reviews and audits is essential for assessing their purpose and reliability. While both provide insights into financial statements, they differ in depth, methodology, and level of assurance.

Review

• Relies primarily on analytics and inquiries.
• Offers negative assurance (nothing came to the CPA’s attention indicating misstatements).
• Does not involve a deep dive into every transaction or the full internal control system.

Audit

• Includes transaction testing, confirmations, and sometimes on-site visits.
• Provides positive assurance (a formal opinion on the fairness of financial statements).
• May include a management letter that highlights internal control weaknesses or recommends improvements.

Cost and Resource Considerations

Reviews are cost-effective with minimal disruption, ideal for smaller entities. Audits require more time, higher fees, and deeper staff involvement due to extensive testing and documentation.

Review

• More affordable since it’s less in-depth.
• Minimal staff disruption—often completed within weeks if records are well-organized.
• Ideal for smaller entities or those needing a basic level of external credibility.

Audit

• More time-consuming, with deeper staff involvement.
• Higher fees due to the extensive testing and documentation required.
• May require specialized consultants for complex operations or transactions.

When a Review May Suffice

A review is suitable when limited assurance meets lender or investor requirements, for smaller businesses needing a basic financial check, or when management seeks an external perspective without the depth of an audit.

1. Lender/Investor Requirements: Some lenders only request limited assurance. If they specifically ask for reviewed statements, you don’t need the additional rigor of an Audit.
2. Smaller or Growing Businesses:  You want a basic integrity check for your financials but have no statutory or contractual obligations to provide an Audit.
3. Periodic Checkup:  Management may want an external CPA’s perspective on the financial health of the business, without needing exhaustive testing.

When an Audit Is Advisable

An audit is recommended for regulatory compliance, major transactions like mergers or financing, and high-risk or complex environments where deeper scrutiny is necessary.

1. Regulatory Triggers: Publicly traded companies, certain nonprofits, and businesses in regulated industries may be required to provide audited statements.
2. Major Transactions: Mergers, acquisitions, or large-scale financing deals often demand the level of assurance only an Audit can provide.
3. High-Risk or Complex Environments: If fraud risks are high or if you operate multiple entities with complex transactions, an Audit’s depth of scrutiny may be essential.

Making the Decision

Choosing between a Review and an Audit depends on stakeholder requirements, budget, internal controls, and long-term goals. If cost and time are constraints, a Review may suffice, while an Audit is beneficial for regulatory needs and future growth planning.

• Stakeholder Requirements: Does a bank covenant or investor specifically request an Audit, or will a Review satisfy them?
• Budget and Timeline: Audits cost more and take longer. If you have limited time or financial resources, a Review might be more practical.
• Internal Controls: If your recordkeeping or internal controls need improvement, a Review is easier to manage while you strengthen your processes.
• Long-Term Plans: If you’re gearing up for a public offering or substantial investor inflows, complying with Audit standards early helps build a reliable track record.

Conclusion

Deciding between a Review and an Audit comes down to balancing the level of assurance needed against cost and complexity. If you only need limited assurance, a Review is often faster and more budget-friendly—ideal for many privately held or smaller companies. However, if strict regulations, large-scale financing, or mergers and acquisitions are on your horizon, an Audit offers the depth and credibility you may require.

Still unsure which engagement fits your situation best? Contact G&S Accountancy for a quick consultation. Our experienced team will help you determine whether a Review or an Audit aligns with your budget, reporting obligations, and long-term objectives. Get in touch today and give your stakeholders confidence in your financial story.

Frequently Asked Questions (FAQs)

Are audits guaranteed to find every mistake or instance of fraud?

Audits provide reasonable—not absolute—assurance. While more rigorous than Reviews, they can’t guarantee detection of every error or fraudulent activity.

Can I do a Review this year and switch to an Audit next year without redoing everything?

Yes. Many businesses start with Reviews and upgrade to Audits as they grow. A prior Review often helps you organize records and get comfortable working with a CPA.

Is a financial statement Review always enough for lenders or investors?

Often, yes. If a lender or investor only requires a Review, it typically meets their needs and establishes a base level of credibility. Always confirm stakeholder expectations before deciding.

Do Reviews require as many supporting documents as Audits?

No. Audits generally involve more extensive documentation, testing, and verification procedures than Reviews, which focus on analytical procedures and inquiries.

Which option is more suitable if I’m planning significant growth soon?

If you anticipate major deals, investor inflows, or regulatory requirements, an Audit may be the better long-term choice. It provides deeper assurance and can help build credibility for future expansion.