When it comes to financial reporting, nonprofits and for-profit businesses often face a range of requirements and expectations depending on their size, activities and the specific regulations they are subject to.
When running a nonprofit or business, it’s important to have accurate financial statements that reflect the true state of your organization. The three primary types of financial reporting include audits, reviews and compilations, and each provides a different level of assurance to meet varying levels of scrutiny.
Let’s walk through the differences between each level of assurance and how to determine which service your organization needs.
Audit
An audit offers the highest level of assurance, providing the most comprehensive and thorough examination of an organization’s financial health. This involves examining a wide range of documentation and testing procedures while also applying various analytical procedures to verify accurate reporting.
The result of an audit is an opinion by an independent CPA firm that your financial statements are accurate and free from material misstatement, which gives your stakeholders and board members confidence in the integrity of the financial information.
Review
A financial statement review includes less extensive procedures than an audit but provides a higher level of assurance than a compilation. Reviews involve performing analytical procedures and inquiries to provide limited assurance that your CPA is not aware of any material modifications that should be made to the financial statements.
Reviews are a good option for for-profit businesses looking for more credibility than a compilation, but without the higher cost of an audit.
Compilation
A compilation offers the lowest level of assurance. Compiled financial statements can be prepared without footnotes, unlike reviews and audits. In a compilation, the accountant gives no assurance that the financial statements are materially correct (i.e., in accordance with generally accepted accounting principles or any other accounting basis, such as the income tax basis).
This does not mean the financial statements are wrong or that the accountant can prepare a financial statement with obvious errors. It only means that certain analytical or independent third-party verifications, which you see in reviews and audit opinions, were not performed. Compilations are typically used by smaller organizations or entities that do not need a high level of assurance.
State & Federal Threshold for Financial Reporting
Different states and federal agencies have varying thresholds that determine whether an organization needs an audit.
- Federal threshold: The Uniform Guidance recently increased the Single Audit threshold from $750,000 to $1,000,000 for nonprofits and for-profits with fiscal years beginning on or after October 1, 2024. This means the Single Audit threshold increase is not available until audits performed for the 2025 calendar year and June 2026 fiscal year. These requirements come into play for organizations that receive federal funds.
- Maryland threshold: Maryland requires an audit for nonprofits that receive at least $750,000 in gross income from charitable contributions. Organizations with at least $300,000 but less than $750,000 in gross income require a financial statement audit or review.
- Virginia threshold: Virginia requires an audit for nonprofits that receive at least $1,500,000 in gross income from charitable contributions. Organizations with at least $750,000 but less than $1,000,000 in gross income require a financial statement review.
- Combined Federal Campaign threshold: Nonprofits wishing to participate in the CFC must meet certain eligibility requirements, including the requirement for audited financial statements for those with revenue greater than $1,000,000 annually.
How to Determine If Your Organization Needs an Audit
As mentioned, audits offer a more in-depth, objective and comprehensive approach. They provide detailed insights, identify areas of improvement and offer actionable recommendations — making them more valuable for long-term growth.
The decision of whether your organization needs an audit is driven by the following factors, some of which are more applicable to nonprofits than for-profits:
- Size of the organization
- Sources of funding
- Lender or investment requirements
- Donor requirements
- Board or organizational policies
- Applicable regulatory requirements (as described above)
For smaller businesses, a review or compilation might be more appropriate if the goal is to provide some level of assurance without incurring the cost of a full audit.
For nonprofits wondering whether an audit is necessary, organizational needs are an important piece of the puzzle. Even if your organization doesn’t require an audit or a review, conducting one may help with governance and build your nonprofit’s credibility with donors and other stakeholders.
For for-profit entities, it’s important to consider who requests your financial statements. If no third party is asking for them, but you still want to provide some level of assurance, it might make more sense to conduct a review or compilation rather than spending more for an audit. If a third party, such as a bank, requests an independent report, an audit or a review will likely be needed.
Conclusion
Choosing the right level of financial reporting for your nonprofit or business is important. These reports provide essential insights into your organization’s financial health and help stakeholders and board members make informed decisions.
Need Help?
Need help determining which financial reporting option is best for your organization? Contact us online or call 800.899.4623.
Editor's note: this article was originally published in 2014. It was updated with new information in 2025.
