Your question:

I understand company financial statements are often reviewed or compiled. We generally ask for compiled. But there are also unaudited, unqualified and audited. Please explain their hierarchy and all their subtle differences. Can one or more be used in place of compiled?


Linda says:

There are four basic choices and subsets within them.


The CPA does enough work to have an opinion as to whether the financial statements present fairly, in all material aspects, the financial position and results of operations. That is a LOT of work. Thus, the audited statements are the most costly and take the most time.

The results of an audit can be an unqualified opinion meaning the CPA says yes, in my opinion, the statements do present fairly…

A qualified opinion means there is some exception that is not a clear yes. Sometimes this is a scope problem, like a major warehouse burned down so they could not do an inventory.

An adverse opinion means the CPA cannot say yes. These tend to be rare because the company is more likely to cave in and change the presentation in their financial statements than to accept an adverse opinion.

As you might guess, there is a lot of pressure on the CPA firm not to do this if they can find any way around it as they certainly will lose the client. What is to stop a client from shopping for the opinion they want? Successor CPA firms are required to communicate with the previous CPA firm.


These statements come in three categories; prepared, compiled and reviewed.

The borrower can now provide CPA-Prepared statements that have not been compiled, reviewed or audited. CPAs have long been able to prepare financial statements in the course of normal bookkeeping or tax work for clients, but if they knew the statements were going to be used by outsiders, they had to issue a compilation and do some additional work. They now are allowed to forgo the compilation, which means the lenders will not get a compilation letter.

The compilation is putting into the form of financial statements the information provided by the client. Glaring irregularities might be noticed. But the CPA is not checking facts or tracing transactions through the system. The CPA is required to understand the accounting principles and practices of the industry, understand the client’s accounting system, read the financial statements for obvious errors, etc. But much less work than an audit. Thus, a compilation is much less expensive and takes less time.

The review is in-between a compilation and an audit; in time, fees and assurances.

Who chooses and how?

Your company guidelines probably indicate which type of statements are required. This is generally based on the size of the loan and the size of the company. You said you generally asked for compiled. That is because your bank or credit union feels that the size of the loan does not warrant the higher expense of reviewed or audited statements. And with the CPA-Prepared option, asking for CPA-prepared statements does not mean you’ll get a compilation. Is that okay with you?

Keep in mind, your financial institution is in competition with others. If you require more, or more costly, information than the bank down the street, who wins the customer? Luckily, you do not have to make this decision. Check your company’s guidelines or check in with a mentor lender.

Can you substitute?

You asked if you could substitute a different type of statement for compiled. Perhaps you can, especially if you have a reviewed or audited statement, since those others are more scrutiny with a stronger statement from the CPA than the compilation.

Our virtual meeting on CPA Statements

Lenders Online Training on Credit AnalysisOne of my favorite virtual meetings at Lenders Online Training is all about CPA-Prepared Statements. Why the kayaks? Because you can see that the riskier the conditions, the more equipment, training and skill the kayaker brings to the situation.

The same goes for bankers. The riskier the deal, the larger the credit, the more assurance you need. Get the right CPA-Prepared statement to fit the risk profile. And I promise to tell you why I once said to my lender, ‘That isn’t happening!’ Learn what were they asking for, why, and why would I not give it to them. In truth, I could not give it to them if I wanted.

You can access 8 weekly virtual meetings,  33 modules and four case studies at Lenders Online Training by clicking through to Lenders Online Training.


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Linda Keith, CPA

Linda Keith CPA is an expert in credit risk readiness and credit analysis. She trains banks and credit unions throughout the United States, both in-house and in open-enrollment sessions, on Tax Return and Financial Statement Analysis.
She is in the trenches with lenders, analysts and underwriters helping them say "yes" to good loans.
Creator of the Tax Return Analysis Virtual Classroom at, she speaks at banking associations on risk management, lending and director finance topics.