Although you might not need formal financial statements from an accounting firm right now, it’s wise to know what your options are in case you ever do.

For example, if you're planning to apply for a bank loan or seek capital from outside investors in the near future, you're going to need a lot more than just your QuickBooks P&L.

Basically, there are three types of financial statement services offered by CPA firms, and they vary in cost and complexity based on the amount of work performed:

1. Compilation

  • Compilation financial statements are relatively straightforward and inexpensive to prepare.
  • Suitable for most small, privately held businesses.
  • Generally intended for use by owners and management only (not for outside parties).

2. Review

  • More time-consuming and expensive than a Compilation, but considerably less than an Audit.
  • A Review is often suitable for companies that have bank loans, creditors, or outside investors (in cases where audited financials are not required).
  • The CPA firm performs additional work called “inquiry and analytical procedures,” and issues a report providing limited assurance that the financial statements are presented fairly.

3. Audit

  • Provides the highest level of financial statement confidence to shareholders, third parties, and the general public.
  • An Audit is much more time-consuming and expensive than a Review due to extensive planning, testing, and verification procedures that are required.
  • Upon completion, the accounting firm issues a report providing reasonable assurance that the financial statements are presented fairly and in conformity with Generally Accepted Accounting Principles (the wonderful world of GAAP).