My bank wants audited or reviewed financial statements for a loan. What do I need?

There are three levels of CPA-issued financial statements. Each one gives your lender a different level of comfort.

• Compilation (AR-C 80). The CPA presents your financial statements in the proper format. No assurance. The CPA does not test or verify your numbers.
• Review (AR-C 90). Limited assurance. The CPA performs inquiry and analytical procedures and reports whether anything suggests the statements need material changes. The CPA must be independent.
• Audit (AU-C 700). Reasonable assurance. The CPA tests balances and transactions, gathers outside evidence and issues an opinion on whether the statements are fairly presented. The CPA must be independent.

For a side-by-side view, see audit vs review vs compilation.

Find the reporting covenant in your loan agreement. It is often titled "Financial Statements" or "Reporting Requirements." Look for these phrases:

• "Compiled" or "CPA-prepared" usually means a compilation.
• "Reviewed by an independent CPA" or "CPA-reviewed" means a review.
• "Audited by an independent certified public accountant" means an audit. Wording like "unqualified" or "unmodified opinion" also points to an audit.
• "Within 90 days (or 120 days) after the end of each fiscal year" is your due date. Mark it now.
• "By a CPA firm acceptable to Lender" means your bank may want to approve the firm first.

If the wording is unclear, email your loan officer and ask which report they need and when. Keep the reply.

A review is enough when your loan agreement asks for a review. Lenders often ask for a review on smaller loans and lines of credit, and an audit on larger or riskier ones. There is no single rule. Your agreement controls.

If your covenant says audit and you think a review should do, ask your lender for a written amendment or waiver before you start. For more on reviews, see compilation and review services.

Independence matters. Under AICPA rules, a CPA who keeps your books can also review or audit them only if your company takes on all management responsibilities and names a person with suitable skill, knowledge and experience to oversee the work. A compilation does not require independence, but the report must disclose it. Some lenders prefer a separate firm for the review or audit.

SBA loans. The lender applies SBA program rules and its own credit policy. Ask your lender which report it needs for your loan.

• Year-end trial balance and general ledger, with the books closed
• Bank and loan reconciliations for every account
• Accounts receivable and accounts payable agings
• Inventory counts and costing, if you carry inventory
• Fixed asset and depreciation schedule
• Loan agreements, leases and major contracts
• Prior year financial statements and tax returns

Timing depends on the report type, how clean your books are, how quickly you answer requests and whether it is a first-time engagement. A first audit takes more work because the auditor also has to test opening balances.

Best for: private companies and nonprofits whose bank, new lender or loan covenant now requires a compilation, review or audit.

1. Free initial consultation. Share your loan agreement or the lender’s request, your year end and your due date.
2. Fees quoted upfront, in writing. Transparent, fair fees in an engagement letter that states the report type and scope.
3. Independence check. We confirm we are independent of your company before we accept a review or audit.
4. One request list. We send a single list based on your business and your lender’s requirement.
5. Fieldwork, done remotely. We perform the procedures the standards require for your report type.
6. Report. We discuss any findings with you, then issue the report for you to send to your lender.