Compiled Financial Statements: A Complete Guide for Businesses

Financial statements are an essential part of running any business. They provide a clear picture of a company’s financial health, performance, and future potential. While many companies are familiar with audited or reviewed statements, not everyone understands compiled financial statements. For small and medium-sized businesses, compiled statements can be an affordable and practical way to present financial information without the cost or complexity of a full audit.

In this article, we will explain what compiled financial statements are, how they work, their benefits, and why businesses often choose them.

What Are Compiled Financial Statements?

Compiled financial statements are financial reports that are prepared by a certified public accountant (CPA) based on the information provided by a company’s management. Unlike audited or reviewed statements, compiled financial statements do not involve verification, testing, or assurance from the accountant.

In simple terms, the CPA takes the data given by the business—such as income, expenses, assets, and liabilities—and organizes it into standard financial reports like:

• Balance Sheet

• Income Statement

• Statement of Cash Flows
  

These reports follow generally accepted accounting principles (GAAP) or another applicable framework, but the CPA does not express an opinion on their accuracy.

How Compiled Financial Statements Differ From Audited or Reviewed Statements

To understand compiled financial statements better, it helps to compare them with other types of financial statements:

1. Audited Financial Statements

   • Highest level of assurance.

   • CPA verifies transactions, tests internal controls, and ensures compliance.

   • Required by lenders, investors, or regulators for larger businesses.
     

2. Reviewed Financial Statements

   • Moderate level of assurance.

   • CPA performs limited procedures, such as inquiries and analytical reviews.

   • Less expensive than an audit but still provides some credibility.
     

3. Compiled Financial Statements

   • No assurance provided.

   • CPA simply compiles the information into proper financial statements.

   • Most affordable and fastest option.
     

So, if a business only needs financial statements for internal use or to satisfy a lender with minimal requirements, compiled statements are often enough.

When Do Businesses Use Compiled Financial Statements?

Many small businesses and startups prefer compiled financial statements because they are cost-effective and simple. Some common scenarios include:

• Internal Management: Business owners may need clear financial reports to track performance, plan budgets, or make strategic decisions.
  

• Small Loans or Credit Applications: Some lenders accept compiled statements for smaller loans where a full audit is unnecessary.
  

• Investor Updates: Startups or small firms may use compiled financial statements to share financial information with investors informally.
  

• Regulatory Compliance: In certain industries, regulators may accept compiled statements when audits are not required.
  

Benefits of Compiled Financial Statements

Even though they do not provide assurance, compiled financial statements offer several important advantages for businesses:

1. Cost-Effective: Compiled statements are the most affordable option among financial reporting services, making them ideal for small businesses with limited budgets.

2. Time-Saving: Since there is no need for detailed testing or verification, compiled financial statements can be prepared quickly.

3. Professional Presentation: A CPA organizes financial data into a standard format, which makes it easier for stakeholders to understand and use.

4. Improved Decision-Making: Well-structured reports give business owners a better overview of financial performance, enabling smarter business decisions.

5. Flexibility: Unlike audits, which are highly formal, compiled financial statements can be tailored to meet specific business needs.
   

Limitations of Compiled Financial Statements

While compiled financial statements have many benefits, businesses must also understand their limitations:

• No Verification of Data: The CPA relies entirely on information provided by management. If the data is wrong, the statements will also be inaccurate.

• No Assurance: Lenders and investors may not fully trust compiled statements since they do not confirm the accuracy of financial information.

• Limited Usefulness for Large Companies: Bigger businesses usually require reviewed or audited statements to meet regulatory and investor expectations.
  

Should Your Business Choose Compiled Financial Statements?

The decision depends on your company’s size, financial needs, and compliance requirements. Here’s a quick guide:

• Choose Compiled Statements if you are a small business that mainly needs financial reports for internal purposes, small lenders, or informal investors.

• Choose Reviewed Statements if you need moderate assurance without the expense of a full audit.

• Choose Audited Statements if your company is large, publicly traded, or requires high-level verification for lenders, investors, or regulators.
  

Conclusion

Compiled financial statements are a practical and affordable option for many small and medium-sized businesses. They provide professionally prepared financial reports without the heavy costs of an audit or review. While they don’t offer assurance, compiled statements can still play a valuable role in financial management, decision-making, and limited external reporting.

If your business is looking for a cost-effective way to present financial data, compiled financial statements may be the right solution. However, always consult with a qualified CPA to determine whether compiled, reviewed, or audited statements best fit your company’s needs.