What is a Review or Compilation?

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What is a review?


During a review, the auditor examines the financial statements but does not conduct an examination of the nonprofit’s internal controls (which is normally included in the scope of an independent audit). Instead the review provides a limited level of assurance that the financial statements are free of misrepresentations. The auditor’s report after a review will note whether the auditor is aware of any “material modifications” that should be made to the financial statements. The report after a review is not considered to provide a professional opinion about the nonprofit’s financial statements as a whole.

The key difference between an audit and a review is that conducting an audit requires the auditor to obtain independent confirmation or verification of the financial information examined. Here is how the accounting professionals at Jitasa describe the distinction between a financial review and an audit: "The CPA doesn't perform in-depth 'testing' as they do in an audit. They review for material issues and obvious deviations from GAAP. But they won't go in and test unique individual transactions in the same way as in an audit. A review provides some assurance, but does not independently validate transactions."

What is a compilation?




Why conduct a compilation?

A compilation offers the advantage of engaging a set of trained eyes to review the financial records of the nonprofit. The scope of a compilation can be a month, a quarter, or an entire year's financial records. This can be useful because the auditor organizes the nonprofit’s financial information into the format for financial statements required by GAAP (the same as that used for audits) and may also provide explanatory notes that can clarify financial statements. So, if a nonprofit does not have the internal capacity to put its financial records into a “professional” format, a compilation can accomplish that. Also, the CPA conducting the compilation may raise questions about certain records that can be helpful to spot irregularities. Another outcome from a compilation is that afterwards the nonprofit’s financial records are formatted in a standard manner that can easily be reviewed by third parties, such as a bank that might be considering making a loan to the nonprofit. And last but not least, a compilation can be conducted by a CPA at a substantially lower cost than either a review or an independent audit.

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