One of the questions I get most often from business owners — especially ones who are thinking about selling, looking for financing, or starting to work with investors — is some version of this: Do I need an audit? A review? What’s a quality of earnings report, and is that the same thing?

These three terms come up in the same conversations and get listed on the same due diligence checklists. They sound similar enough that it’s easy to assume they’re different names for the same thing. They’re not. If you engage the wrong one — or assume one covers what another actually does — you can end up paying for work that doesn’t satisfy what your lender or buyer needs. Or worse, going into a transaction without the information that would have protected you.

So let’s clear it up.

A Financial Audit Is About Accuracy and Compliance

An audit is the most rigorous level of financial assurance available. An independent CPA examines your financial statements in detail — testing your internal controls, tracing transactions back to source documents, and confirming balances with third parties. The result is a formal opinion on whether your financials are presented fairly under Generally Accepted Accounting Principles.

Here’s the important thing to understand about what an audit is and isn’t. It’s looking backward. It confirms what happened — not whether your revenue is sustainable, not what your business would earn in someone else’s hands, not whether your margins will hold. It answers one question: are your financial statements accurate and do they follow the rules?

That makes audits the right tool when compliance and credibility are the goal. You’ll typically need one if you’re publicly traded, if you spend more than $1,000,000 in federal funds in a fiscal year (updated in October 2024), or if your lender requires it as a condition of a credit facility. Investors and boards often demand one as a matter of oversight too. Some state regulations create their own requirements — in Florida, nonprofits with annual revenues above $1,000,000 are required to have an independent audit.

What does it cost? Small businesses and nonprofits generally pay between $5,000 and $15,000. Mid-sized private companies — think $10M to $50M in revenue — typically land in the $20,000 to $60,000 range. Hourly rates run $100 to $300 depending on firm and location. Larger or more well-known firms can charge 100% to 500% more than a smaller regional practice. The most practical way to keep costs manageable? Show up with clean, organized books. Auditors charge for their time, and messy records mean more of it.

A Review Is a Lighter Level of Assurance — and That’s Often Enough

A review sits one step below an audit in depth, but it’s not nothing. An independent CPA performs analytical procedures and compares your financials to prior periods and industry benchmarks. They’ll ask management about significant transactions and accounting policies. What they don’t do is test your internal controls, verify individual transactions against source documents, or confirm balances with outside parties.

The result is what’s called limited assurance — a credible, absence-of-problems conclusion rather than a positive confirmation. An audit says “we examined this and it holds up.” A review says “based on our procedures, we’re not aware of anything that needs to change.” That distinction sounds subtle. But it matters when a lender or investor is deciding whether it satisfies their requirements.

A review is often the right fit when independent credibility matters but a full audit isn’t required. Many mid-market lenders will accept reviewed financials for smaller credit facilities. Some states allow a review in place of an audit at certain revenue thresholds — Florida gives nonprofits between $500,000 and $1,000,000 in revenue that option. Growing businesses often use reviews as a stepping stone before they reach the size where audits become expected.

Cost-wise, reviews for small businesses typically run $5,000 to $10,000, with mid-sized companies landing in the $10,000 to $20,000 range. The savings over a full audit come from skipping the transaction testing and third-party confirmations — the most time-intensive parts of the process.

One thing I always tell business owners before they engage anyone: ask your lender, investor, or counterparty exactly what level of assurance they require. Getting that wrong — ordering a review when they needed an audit — means paying for the work twice.

A Quality of Earnings Report Is Something Different Entirely

This is where a lot of confusion lives, and it’s worth spending a moment on because the purpose here is genuinely different.

A Quality of Earnings (QoE) report isn’t an assurance engagement. It doesn’t confirm that your books follow GAAP. It doesn’t produce an opinion letter. It’s a consulting engagement, and the question it’s designed to answer is this: What does this business actually earn, on a sustainable, recurring basis — and will those earnings hold up after a transaction?

Audits focus on net income and GAAP compliance. A QoE focuses on adjusted EBITDA — the number most buyers use to value a business. Those two things can tell very different stories about the same set of financials. You can have a fully audited set of books and still need a QoE, because the audit answered “did you follow the rules?” — not “what will this business actually earn for the next owner?”

Here’s what that looks like in practice. If you’ve been running your personal car, your family’s cell phones, and an above-market salary through the business — all of that shows up in your GAAP financials. A QoE normalizes those items out of the picture. It strips out one-time revenues, unusual expenses, and anything else that distorts the recurring earnings story. It also examines your customer concentration, contract terms, working capital needs, and month-by-month trends across multiple years. As Baker Tilly notes, the materiality threshold in a QoE is far lower than in an audit. If it could affect a buyer’s understanding of what they’re buying, it’s worth examining.

When You Need a QoE

You need one whenever a real transaction is on the table. Selling? A sell-side QoE lets you get ahead of the process — on your timeline, not a buyer’s. Buying? An independent QoE protects you from overpaying for earnings that won’t survive the transition. Private equity investors require them as standard practice. And having audited financials doesn’t replace the need — they’re doing different jobs.

What does it cost? Small businesses under $10M in revenue typically pay $25,000 to $35,000. Mid-market businesses generally land between $40,000 and $80,000. Larger or more complex situations run higher from there. In a transaction context, that cost is almost always justified. A lower offer, a renegotiated deal, or a missed problem that surfaces after close — those outcomes routinely cost more than the report itself.

So Which One Do You Need?

If compliance is the goal — a lender requires it, regulations demand it, investors insist on it — you need an audit. If you need credibility for a stakeholder who hasn’t specified an audit, a review is often the right and more cost-effective choice. And if a transaction is anywhere in your future, a QoE is the tool that answers the questions a buyer or investor is going to ask.

What I see trip business owners up most often: assuming audited financials cover the transaction conversation. They don’t — not completely. An audit tells a buyer your books are accurate. A QoE tells them what those books mean for the deal. Both matter, and they’re doing different work.

The other thing worth saying: the time to understand which path you’re on is not when the deal is already in front of you. QoE reports take four to eight weeks. Audits often take longer. And the clean, consistent financial records both depend on take years to build. If a transaction, a financing round, or a meaningful outside relationship is anywhere on your horizon, that work starts now.

Not sure where you stand or which of these makes sense for your business? That’s a conversation worth having before it becomes urgent. Book an intro call — we’re happy to help you think it through.