The cost of reviewed financial statements is often an important consideration when a lender, investor, buyer, regulator, or other stakeholder requests financial statements accompanied by a CPA’s report. While a review generally costs less than a full audit, the price difference reflects the level of assurance and the extent of work the CPA performs.
Understanding those differences can help companies choose an engagement that meets stakeholder requirements without paying for more assurance than they need.
Key Takeaways
- Reviewed financial statements typically cost less than an audit because the CPA performs more limited procedures.
- Reviews provide limited assurance, while audits provide a higher level of assurance supported by more extensive testing and evidence.
- The condition of your accounting records, business complexity, reporting requirements, and timeline can all affect engagement pricing.
- Before choosing a review based on cost, confirm what level of assurance your lender, investor, board, regulator, or other stakeholder requires.
Why Does the Cost of Reviewed Financial Statements Differ from an Audit?
Review engagement procedures primarily consist of analytical procedures and management inquiries. An audit goes further, requiring the CPA to obtain sufficient appropriate audit evidence through procedures that may include detailed testing, external confirmations, observation, and other substantive work.
Because an audit requires more extensive procedures, it generally requires more time and carries a higher cost. As Bennie Lewis, CPA, President and Partner at Assurance Dimensions, explains, “The cost difference between a review and an audit usually comes down to the level of work required. Reviews involve less extensive procedures, while audits require more testing and evidence. The right choice depends on what the financial statement users need to rely on.”
What Affects the Cost of Reviewed Financial Statements?
Even within a review engagement, pricing can vary significantly. One of the biggest factors is the condition of the company’s accounting records. Clean, reconciled books and organized supporting schedules can make the process more efficient, while unreconciled accounts or missing documentation may require additional time.
Multiple entities, complex transactions, specialized reporting requirements, or significant financial statement preparation needs can also increase the scope of the engagement. A compressed timeline may also affect pricing if additional resources are needed to meet a deadline.
When Is a Financial Statement Review Enough?
A review may be appropriate when stakeholders want CPA involvement and limited assurance but do not require the higher level of assurance provided by an audit.
For example, some lenders, boards, investors, or other financial statement users may accept reviewed statements. However, companies should confirm the requirement before engaging a CPA. Choosing a review because it costs less will not create savings if the stakeholder ultimately requires audited financial statements.
When Does a Company Need an Audit Instead of a Review?
An audit may be necessary when a lender, investor, buyer, regulator, grantor, or other stakeholder requires a higher level of assurance.
Because an audit involves more extensive procedures and evidence gathering, it provides reasonable assurance about whether the financial statements are free from material misstatement. That additional assurance is also why audits typically require a larger investment than reviews.
How Can Companies Avoid Pricing Surprises?
Good preparation can make either engagement more efficient. Before work begins, companies should reconcile key accounts, organize supporting schedules and documentation, and clarify who will prepare the financial statements.
It also helps to discuss deadlines and stakeholder requirements with the CPA upfront. The earlier the engagement team understands what is needed, the easier it is to establish a realistic scope, timeline, and fee.
How Should Companies Choose Between a Review, Compilation, or Audit?
A compilation provides no assurance, a review provides limited assurance, and an audit provides the highest level of assurance. Cost should not determine the engagement on its own. The right option depends on stakeholder requirements, the company’s reporting needs, timeline, and accounting readiness.
Assurance Dimensions provides compilation and review engagements, along with financial statement audits, supported by practical communication and senior-level involvement throughout the process. Contact Assurance Dimensions to discuss what level of financial statement service fits your company’s requirements.