Audit vs Review vs Compilation: Which Financial Report Do You Need?

Introduction

Every business, whether a startup or a well-established enterprise, needs to prepare financial reports. But here’s where most business owners get confused: Do you need an audit, a review, or just a compilation? Each of these financial reports serves a unique purpose, with varying levels of assurance and regulatory requirements.

This blog by Makwana Sweta & Associates, trusted Chartered Accountants in Mumbai, breaks down the differences between these three reporting options, helping you decide what’s appropriate for your business in 2025.

What is an Audit?

Let’s begin with the most comprehensive financial report: the audit.

Key Features:

• Provides reasonable assurance that financial statements are free from material misstatements.
• Involves independent verification, testing of transactions, and internal controls.
• Conducted as per Indian Accounting Standards (Ind AS) and auditing standards issued by ICAI.

When is it required?

• Mandatory for companies under the Companies Act, 2013 (e.g., Pvt Ltd, LLPs over turnover threshold).
• Required if turnover exceeds certain limits under Income Tax Act or GST law.
• Also needed for funding, IPO readiness, or stakeholder trust.

Example: A Private Limited company with turnover above ₹2 crore will mandatorily need a statutory audit.

Assurance Level: High

Audits are trusted by banks, investors, and regulators because they involve extensive checks and documentation.

What is a Review?

A review is a moderate level assurance engagement. It’s less detailed than an audit, but still offers stakeholders some level of confidence.

Key Features:

• Involves analytical procedures and inquiry.
• No deep verification or testing of transactions.
• The objective is to state whether anything has come to the reviewer’s attention to suggest that the financials are not accurate.

When is it required?

• Mostly used by SMEs who don’t need a full audit.
• Useful for internal decision-making, lenders with moderate exposure, or periodic investor updates.

Example: A startup seeking Series A funding might be asked to provide reviewed financials for the past 12 months.

Assurance Level: Moderate

Review engagements are a cost-effective middle path between basic compilations and detailed audits.

What is a Compilation?

A compilation offers no assurance. The accountant merely prepares financial statements based on data provided by management.

Key Features:

• No verification or analysis of data.
• Financials may or may not follow accounting standards.
• Primarily for internal use, budgeting, or informal stakeholder communication.

When is it used?

• Early-stage startups, freelancers, and sole proprietors may opt for this.
• Ideal when you just want a neat presentation of financials without additional scrutiny.

Example: A freelancer with revenue under ₹50 lakh may get a compilation done for self-use or informal investor discussions.

Assurance Level: None

Though quick and affordable, a compilation isn’t suitable for formal financial or tax scrutiny.

Side-by-Side Comparison Table

Feature	Audit	Review	Compilation
Assurance	High	Moderate	None
Verification	In-depth	Limited (inquiry-based)	None
Purpose	Statutory, financing	Funding, internal review	Basic reporting
Cost	High	Moderate	Low
Time Required	Long	Medium	Short
Mandatory?	Often, yes	No	No

Which One Do You Need?

Go for an Audit if:

• You run a Pvt Ltd or LLP above ₹2 crore turnover.
• You are applying for loans, government grants, or foreign investment.
• Your startup is approaching an IPO or VC round.

Choose a Review if:

• You want moderate investor confidence at a lower cost.
• You are a growing startup preparing for due diligence.
• Your bank or lender requires financial scrutiny, but not a full audit.

Opt for a Compilation if:

• You’re just starting out and want simple financial statements.
• You’re a consultant, freelancer, or micro business owner.
• You want to prepare for taxation, but don’t need external assurance.

What Happens if You Choose Wrong?

Choosing the wrong type of financial report can:

• Delay funding.
• Lead to regulatory non-compliance.
• Reduce investor or lender trust.
• Attract penalties or Income Tax scrutiny.

Hence, it’s wise to consult experienced CA services in Mumbai or anywhere you operate, such as Makwana Sweta & Associates, for personalised guidance.

Final Words

Whether you’re a small startup or an established company, understanding the difference between Audit vs Review vs Compilation is critical to making the right financial decisions. Each has its role, benefits, and implications.

Need Help Choosing the Right Financial Report?
Reach out to Makwana Sweta & Associates, leading Chartered Accountant Services in Mumbai, offering PAN India support. We help businesses navigate financial reporting, taxation, and compliance seamlessly.

Useful Links

• Outbound: ICAI – Auditing & Assurance Standards
• Inbound: Explore Our Financial Reporting Services