Assurance

An audit gives reasonable assurance that your financial statements are free of material misstatement. Getting there means testing the underlying records, confirming balances directly with banks and customers, examining how you account for the harder items, and reporting on the statements as a whole.

The work is independent by design, and that independence is the reason a lender treats an audited statement differently from one your bookkeeper produced.

An audit takes longer and costs more than a review or a compilation. If the request you received does not actually call for an audit, Blackforest Advisors will say so before the engagement starts.

In a review, a CPA applies analytical procedures and asks management about the numbers, then reports whether anything came to their attention that would require a material change to the statements. The result is limited assurance, one step below an audit.

A review fits an organization whose lender or board wants outside eyes on the numbers without paying for full audit testing. Nonprofits sitting under a state filing threshold often land here too.

Send the exact wording of the request you received. Blackforest Advisors will read it and confirm whether a review satisfies it.

A compilation presents your records as financial statements that follow the reporting framework you use, together with a CPA's report. The CPA performs no testing and expresses no assurance, and the report states that plainly.

Compilations fit the client who wants statements on a CPA's letterhead rather than an opinion. That covers a lot of ordinary business situations, from a lease application to a bonding renewal.

Compilation is the AR-C 80 engagement and preparation is AR-C 70, and the difference matters to whoever is asking. Bring the request itself to the first conversation.

In a preparation engagement, a CPA takes your trial balance and produces financial statements in the format your reporting framework requires. No report is attached and no assurance is given, and each page carries a statement saying so.

This is the engagement for statements you need for your own management, a partner, or an internal budget process rather than for a bank.

Preparation and compilation look alike from the outside and answer to different standards, AR-C 70 and AR-C 80. Blackforest Advisors confirms which one your situation calls for before any work starts.

You and the party who will rely on the report agree in advance on exactly what the CPA will do. The CPA performs those steps, reports the findings, and leaves the conclusion to the reader.

Common uses include testing a sample of grant expenses for a funder, verifying a royalty or commission calculation, checking a debt covenant, and confirming a closing balance in a purchase agreement.

The scope is narrow on purpose, which keeps the work smaller than an audit of the whole set of statements. Write down what has to be tested and bring that list to the first call.

Nonprofit statements follow rules that statements for a for-profit company do not. Net assets split between those with donor restrictions and those without, contributions and grants carry their own recognition rules, and expenses are presented by function as well as by nature.

The request usually comes from a board, a state charity office, or a foundation making a grant conditional on an audit. Each of them words it differently, and the wording determines whether you need an audit or a review.