The short version
A review engagement may be enough for some not-for-profits, but not always. The right level of reporting depends on the organization's legislation, bylaws, funder agreements, bank requirements, donor expectations, and risk profile. Sometimes an audit is legally required. Sometimes it is not legally required but still practically necessary.
The three common levels
A compilation is the lowest level of external financial reporting. It organizes financial information but does not provide assurance. A review engagement provides limited assurance, mainly through inquiry, analysis, and review procedures. An audit provides reasonable assurance and involves more extensive procedures, including testing and evidence gathering.
The difference matters because each level serves a different audience. A small internal organization may not need the same level of assurance as a charity with major government funding, restricted grants, debt, or complex programs.
Why the answer is not always simple
Not-for-profits may be incorporated federally, provincially, or structured in other ways. They may also be registered charities. The governing legislation may set thresholds, but funders can impose their own requirements. A grant agreement may require audited financial statements even when the corporation's statute would allow a review engagement. The funder wins that fight. Usually by email. Often at the worst possible time.
What to check
Before deciding, review the statute, articles, bylaws, member resolutions, funder agreements, loan agreements, lease agreements, and any sector-specific reporting requirements. Also consider the board's risk tolerance and the organization's complexity.
A review may be appropriate where the organization is smaller, lower-risk, and does not have an audit requirement. An audit may be needed where there is significant public funding, restricted funds, complex programs, debt, weak controls, or a funder requirement.
Cost versus credibility
An audit usually costs more and takes more time. That does not automatically make it better for every organization. But where stakeholders need more assurance, the additional work may be worth it. The question is not 'What is the cheapest report?' The better question is 'What level of assurance do our stakeholders actually need?'
Avoid the annual scramble
The decision should be made before year-end, not after the books are closed. If an audit is required, management may need stronger supporting documentation, board minutes, contracts, grant files, internal controls, and reconciliations. Leaving that until after year-end creates avoidable stress and, occasionally, a magnificent pile of regret.
Practical takeaway
A review engagement can be enough when it satisfies the law, bylaws, funders, and risk profile. But the organization should confirm that early. The wrong level of assurance can delay funding, frustrate boards, and create unnecessary rework.
How Seeds can help
Seeds helps not-for-profits determine the right reporting level and prepare for compilation, review, or audit engagements without the last-minute scramble.
General information disclaimer: This article is general information only. It should not be relied on as tax, legal, assurance, or investment advice for a specific situation.
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