An audit, review, and compilation are different services. The right one depends on your organization’s needs, applicable rules, and the specific funder’s requirements. They are not interchangeable labels for the same document. Before you pay for a service, find out exactly what the funder or regulator requires and discuss the options with a qualified CPA.
What an audit does
An audit is an independent examination of financial statements under applicable professional standards. The CPA gathers evidence and issues a report expressing an opinion on whether the statements are fairly presented in accordance with the stated accounting framework. An audit involves more work and provides a higher level of assurance than a review or compilation, but it does not guarantee that every error or fraud will be found. The National Council of Nonprofits explains the distinctions between an independent audit and alternative services in its guide to audits, reviews, and compilations.
Nonprofit boards have responsibility for financial oversight. The National Council of Nonprofits explains that the board oversees the nonprofit’s accounting functions and, when an independent auditor is engaged, the auditor’s performance. A board may delegate tasks to an audit committee while retaining its oversight role (National Council of Nonprofits: board and audit committees).
An audit may be required by a grant, lender, state law, or other applicable rule. Requirements depend on facts such as funding source, expenditure levels, location, and grant terms. Do not assume that every nonprofit needs the same service. Ask the funder for its written requirement and confirm the relevant state rules with an appropriate adviser.
What a review does
A review provides limited assurance. The CPA performs inquiry and analytical procedures and reports whether they are aware of material modifications needed for the financial statements to conform with the applicable framework. It is narrower in scope than an audit. A review is not a substitute when a rule or funder specifically requires an audit, as the National Council of Nonprofits’ audit guidance explains.
Funders sometimes specify that they will accept reviewed statements, but their instructions control. If a request says “audited financial statements,” ask whether a review is acceptable before proceeding. Get the answer in writing and keep it with the grant file. A funder may also accept other materials, such as internal statements, depending on its process.
What a compilation does
A compilation is a CPA’s assistance in presenting financial information in the form of financial statements. The CPA does not provide audit assurance or review assurance. A compilation report describes the service and makes clear that the accountant has not audited or reviewed the statements. This distinction matters: a document prepared by a CPA is not automatically an audit or a review. The National Council’s guide to reviews and compilations describes the differences in the work performed.
The National Council of Nonprofits’ audit preparation checklist suggests organizing materials such as bank records, financial management policies, board or committee minutes, and grant agreements when preparing for an audit (National Council of Nonprofits: nonprofit audit guide). Many of those records also help an organization maintain good internal financial practices, whether or not an audit is currently required.
Compare the services without guessing at cost
The cost depends on the organization’s size and complexity, record quality, accounting framework, location, and provider. We do not provide a universal price range because no single figure would reliably describe every nonprofit. Ask providers for a written scope and fee proposal. Confirm what is included, what records they need, the expected schedule, and whether additional work could change the fee.
Before engaging a CPA, make a short list of questions:
- What exact service does the funder or rule require?
- Which accounting period must the report cover?
- What records will the CPA need, and who will prepare them?
- What is the expected timeline and written deliverable?
- What circumstances could lead to extra fees or a delay?
These questions help you compare proposals based on the work, not just the service name. If your accounting records need cleanup, ask whether that work is included or separate. The CPA providing assurance services should retain independence; discuss any bookkeeping or consulting relationship that could affect independence.
Choose based on the requirement and readiness
Start by reading the grant agreement, application guidance, and applicable regulations. If the language is unclear, ask the funder to explain its requirement. Check state requirements through a qualified professional familiar with your jurisdiction. Then talk with a CPA who works with nonprofit financial statements and share the written requirement.
Prepare your records before the engagement starts. Reconcile bank accounts, organize receipts and contracts, document restricted grants, and make board minutes available when requested. The National Council of Nonprofits lists bank statements, financial policies, board minutes, and grant agreements among useful audit preparation records (audit preparation checklist). Clear records can help the process move smoothly, although the CPA may request other information.
Do not choose a service only because it sounds more impressive or because another organization uses it. An audit can be appropriate when required or when the organization and its stakeholders need that level of assurance. A review or compilation may fit a different requirement. Make the choice from the written obligation, your financial situation, and professional advice.
Understand the report before you share it
When the CPA finishes, read the report and ask questions about language you do not understand. Make sure the reporting period and organization name are correct. Notice whether the report includes a qualification, emphasis, or other matter that your board should discuss. Keep the report with the related financial statements and board minutes. If a grant application asks for a particular report, send the complete document requested instead of selecting pages that may omit necessary context.
Talk through the results with the board or the people assigned to financial oversight. Identify any recommendations, assign a person to follow up, and record progress. The purpose of a report is not only to satisfy an external request. It can also help your organization understand its financial practices, ask better questions, and address weaknesses in a timely way.
If your organization receives restricted funds, preserve the grant agreement and track the related spending so the board can see whether use followed the donor’s terms. Strong recordkeeping helps your CPA understand the transactions and helps your team prepare accurate grant reports. If the statements reveal a concern you do not understand, ask the CPA to explain it and seek additional professional advice as needed.
If you are not sure which records or next steps your organization needs, take the free Peaklamen funding readiness assessment. It can help you identify what to clarify before you approach a funder.