Reviewed Financial Statements: What They Are and When Your Bank Will Ask

TLDR: A reviewed financial statement is a set of financials that an independent CPA has checked using analytical procedures and questions, which gives readers limited assurance. That is less than an audit and more than a compilation. Most owners find out they need one when a lender writes it into a loan agreement. In a review, the CPA reads your numbers critically and asks questions. You provide the books, the access, and a signed representation letter.

A common version of this story goes like this. You are close to signing on a bigger loan or line of credit. Then the loan agreement shows up, and buried in the covenants is a line saying you will deliver annual financial statements reviewed by an independent CPA. Nobody mentioned that at the first meeting.

This post explains what reviewed financial statements are, how a review differs from an audit and a compilation, when banks and other lenders ask for one, and who does what during a review engagement. It's written for business owners in Idaho Falls and across Southeast Idaho. Read it before you sign, not after.

What Is A Reviewed Financial Statement?

A reviewed financial statement is a set of financial statements, usually a balance sheet, an income statement, a cash flow statement, and notes, that comes with a CPA's written review report. The CPA reviewed the numbers and is not aware of anything that needs to change for the statements to follow the reporting framework you use, such as GAAP.

Reviews follow the AICPA's Statements on Standards for Accounting and Review Services (SSARS). The review standard is AR-C Section 90, which was recodified in SSARS No. 21 and later updated by SSARS No. 25. Under AR-C 90, the goal is limited assurance, mostly through analytical procedures and inquiries (AR-C 90 text).

In plain English: the CPA compares your numbers to prior periods and to what they would expect, asks management pointed questions about anything unusual, and follows up when something doesn't add up. The standard calls for professional skepticism throughout.

What A Review Is Not

A review is not an audit. AR-C 90 spells out the gap: a review does not involve understanding your internal controls, assessing fraud risk, or testing your records by inspecting documents, observing processes, or confirming balances with outside parties. Because of that, a review does not give the CPA assurance that they will become aware of everything an audit would uncover.

The CPA also must be independent of your business to issue a review report. If their independence is impaired, they have to withdraw from the review, though AR-C 90 notes they may still be able to do a compilation instead.

Review Vs. Audit Vs. Compilation

The 3 services differ in how much the CPA does and how much assurance you get. Here is the short version. Our audit vs. review vs. compilation guide covers the full comparison.

	Compilation	Review	Audit
Assurance	None	Limited	Reasonable (high, but not absolute)
What the CPA does	Presents your numbers as financial statements	Analytical procedures and inquiries, plus follow-up on anything unusual	Risk assessment, internal control work, and testing of records
Independence required	No, but a lack of independence is disclosed	Yes	Yes
What the report says	The CPA provides no assurance	The CPA is not aware of any material modifications needed	The CPA gives an opinion

Sources: AR-C 90 for reviews and audits, and Prepito's SSARS comparison for compilations.

The practical takeaway on review vs. audit: a review takes the CPA less work than an audit, so it gives readers less comfort. Lenders choose the level they want based on how much risk they are taking on.

When Will Your Bank Ask For Reviewed Financial Statements?

When your loan agreement says so. For most private businesses, the requirement comes from a contract, not a law, and the lender decides which level of CPA service it wants. That decision depends on the lender and the loan, and the thresholds are not published anywhere.

Here are the common triggers:

• A reporting covenant in a loan agreement. Affirmative covenants often require annual financial statements and name the level of CPA service. 1 CPA firm's overview says banks generally require year-end statements that an outside CPA firm has audited, reviewed, or compiled, and may ask for quarterly statements too.
• A larger loan or line of credit. AllBusiness notes that on large loans, a bank may require a reviewed or audited annual statement.
• Financial covenants. Lenders test ratios such as debt service coverage. Withum says these covenants can be tested monthly, quarterly, or annually, and that banks and sureties often set the debt service coverage ratio at 1.20x or higher in its construction examples.
• Bonding. Surety companies look at financials too. AR-C 90 even notes that documents submitted to bonding companies can carry a "reviewed" label.

What Happens If You Miss It

If a covenant requires financial statements and you don't deliver them, that can be a technical default, as Abrigo's loan covenant refresher puts it. A lender can waive a covenant, but that is the lender's call. Withum notes that failing a covenant can technically result in default, and the consequences vary by agreement.

Before You Sign, Check 5 Things

1. Which level of CPA service is required: compilation, review, or audit.
2. The deadline: how long after year-end the statements are due.
3. How often: annual only, or quarterly and monthly reporting too.
4. Any financial ratios you have to meet, and who tests them.
5. Who the statements go to: your CPA needs to know before the engagement starts.

What Does A CPA Do In A Review, And What Do You Provide?

A review is a team effort, but the responsibilities are not equal. Management owns the financial statements. The CPA reviews them. Here is the split, based on AR-C 90.

The CPA	You (management)
Stays independent of your business	Prepares the financial statements and presents them fairly, with all appropriate disclosures
Agrees the terms of the engagement in a signed engagement letter	Signs the engagement letter
Learns your industry and your business	Keeps the books and internal controls the statements rely on
Runs analytical procedures, such as comparing to the prior period and to expectations	Gives the CPA all relevant information and access
Asks management questions about related parties, unusual transactions, changes to debt terms or covenants, going concern, litigation, and subsequent events	Answers those questions fully and truthfully
Reads the financial statements and reconciles them to your accounting records	Discloses related parties, known or suspected fraud, noncompliance, and litigation
Digs deeper if something suggests a material misstatement	Signs a representation letter dated as of the report date
Issues a written review report and documents the work	Includes the review report in any document that says the statements were reviewed

Source: AR-C Section 90, paragraphs .10, .13, .16 through .17, .21 through .31, .41, .42, and .60.

2 details trip people up. First, the representation letter is part of the review evidence, so a CPA who can't get it has to withdraw. Second, a CPA can help prepare your statements, but AR-C 90 treats that as a nonattest service subject to independence rules, so ask your CPA how they handle it.

How A Review Engagement Works, Step By Step

Every review engagement follows the same basic arc.

1. Agree on terms. The engagement letter covers the objectives, each side's responsibilities, the limits of a review (including that it is substantially less in scope than an audit and the CPA gives no opinion), the reporting framework, and the expected report.
2. Share your records. You give the CPA your books and the supporting information they ask for.
3. The CPA learns your business. They need to understand your industry and your accounting practices to know where errors are most likely.
4. Analytical procedures and questions. The CPA compares your numbers to prior periods and expectations, then asks management about anything unusual.
5. Follow-up. If something suggests the statements may be materially misstated, the CPA does more work until they can conclude.
6. Representation letter. You confirm in writing that you've met your responsibilities.
7. Report. The CPA issues the written review report with your statements.

How To Make It Go Smoothly

• Keep your books current, with bank and loan accounts reconciled.
• Know your loan documents. Tell your CPA about any change to loan terms or covenants, since the CPA is required to ask.
• List your related-party deals, such as loans to or from owners and transactions with other companies you own.
• Decide who answers questions. The CPA needs people who know the numbers and can explain unusual items.
• Start early. If your lender has a deadline, work backward from it.

Talk To A CPA Before The Bank Asks

The best time to learn what a lender wants is before you sign. Poston Denney & Killpack has been an Idaho Falls CPA firm since 1984, and audited and reviewed financial statements are part of the work we do. If you have a loan on the horizon, we can tell you what level of CPA service the loan agreement is likely to require and what you'll need to have ready.

Learn more about our business services, contact us, or call (208) 522-0886. We call back.

Frequently Asked Questions

What Is A Reviewed Financial Statement?

A reviewed financial statement is a set of financial statements that comes with a CPA's written report based on a review engagement. In a review, the CPA performs analytical procedures and asks management questions to gain limited assurance. The report says the CPA is not aware of any material modifications that should be made for the statements to follow the reporting framework. A review is less thorough than an audit, and the CPA does not give an opinion.

What Is The Difference Between A Review And An Audit?

An audit gives reasonable assurance, which is a high but not absolute level of assurance, while a review gives limited assurance. In an audit, the CPA assesses risk, looks at internal controls, and tests records, and an audit ends in an opinion. In a review, the CPA mainly uses analytical procedures and inquiries, and the report states that the CPA isn't aware of anything needing modification. Both require the CPA to be independent.

What Is The Difference Between A Reviewed And A Compiled Financial Statement?

A compilation gives no assurance. The CPA presents your numbers in financial statement form but doesn't test them, and a lack of independence is simply disclosed. A review adds analytical procedures, inquiries, and a conclusion, and it requires independence. Lenders often ask for a review when they want more comfort than a compilation provides.

Why Is My Bank Asking For Reviewed Financial Statements?

Your loan agreement or lender policy probably requires it. Banks put reporting requirements in loan covenants so they can monitor the risk of the loan, and larger loans can call for a higher level of CPA service. The lender decides, and the thresholds vary from bank to bank. The fastest way to find out what yours needs is to read the covenant language or ask your banker which level of service the loan requires.

Can My CPA Prepare My Financial Statements And Review Them Too?

Sometimes, but independence rules decide it. Preparing financial statements is a nonattest service, and AR-C 90 says it is subject to the AICPA's nonattest services rules. A CPA has to be independent to issue a review report, and if their independence is impaired, they have to withdraw from the review. Ask your CPA up front how they would handle both the preparation and the review.

What Does A CPA Actually Do In A Review Engagement?

The CPA agrees the terms in an engagement letter, learns your industry and business, runs analytical procedures, and asks management questions. They read the financial statements, reconcile them to your accounting records, and do more work if something looks materially off. When the work wraps up, they collect a representation letter from you and issue a written review report.

What Do I Need To Give My CPA For A Review?

You provide the financial statements or the books they come from, full access to the information the CPA needs, and truthful answers to their questions. You also sign an engagement letter and, at the end, a representation letter confirming that you met your responsibilities. If the statements will go to a lender, tell your CPA early so the work matches what the loan agreement calls for.

What Happens If I Don't Deliver The Financial Statements My Loan Requires?

If your loan covenant requires financial statements and you don't deliver them, it can be a technical default. The lender may waive the requirement, but that is the lender's choice and the outcome varies by agreement. If you think you will miss a deadline, talk to your lender and your CPA early. Waiting makes it harder to work something out.

Sources

• AICPA, Statement on Standards for Accounting and Review Services No. 21
• AICPA, Statement on Standards for Accounting and Review Services No. 25 (materiality in a review)
• AICPA, AR-C Section 90, Review of Financial Statements, text of the standard
• Withum, Understanding Bank Loan Covenants
• Abrigo, Loan covenants refresher: What, when, why & how
• AllBusiness, Understanding Typical Business Loan Covenants
• Innovative CPA Group, Loan Covenant and Compliance
• Prepito, Compilation vs Review vs Audit: SSARS Levels

This post is general information, not accounting or legal advice for your situation. Lender requirements and professional standards vary and change. Talk with a CPA and read your loan agreement before you commit.

Pass-Through Entity Tax: Should Your S-Corp Or Partnership Make The Election?

TLDR: It depends, and the 2025 federal tax law changed the math. Idaho's pass-through entity tax lets an S-corp or partnership pay Idaho income tax at the entity level (5.3%) and deduct it on the federal return, outside the owner's SALT cap ($40,400 for 2026). It pays off most above roughly $505,000 of income. To deduct it on your 2026 return, the entity has to pay by December 31, 2026.

For a few years, the advice on the pass-through entity tax was simple: if your state offers it, elect it. Every year. No questions. That advice was written when the federal SALT cap was $10,000 and the workaround was the only game in town.

Then Congress raised the cap. Old advice on this topic has a shelf life, and it expired on July 4, 2025, when the new law was signed. If the article you're reading still treats a $10,000 cap as current, check the date.

This post covers what the pass-through entity tax is, how the 2025 law changed the numbers, how Idaho's version works (rate, deadlines, forms), and 5 questions to answer before your S-corp or partnership makes the election. It's written for business owners in Idaho Falls and across Southeast Idaho, including owners who earn income in more than 1 state. Rates, rules, and deadlines below were checked against Idaho State Tax Commission and IRS sources on November 3, 2026.

What Is The Pass-Through Entity Tax?

The pass-through entity tax (PTET, or PTE tax) is an elective state income tax paid by the business instead of by its owners. It exists because of the federal SALT cap, the limit on how much state and local tax an individual can deduct on Schedule A.

Normally, an S-corp or partnership pays no income tax itself. Profit passes through to the owners, who report it on their personal returns and pay Idaho tax there. That Idaho tax counts as a state and local tax, so it competes for room under each owner's SALT cap.

With the election, the entity pays the Idaho tax instead. Under IRS Notice 2020-75, that payment is a deduction when the entity figures its federal income, which lowers the income reported on each owner's K-1. Because it never lands on Schedule A, the SALT cap never touches it.

Idaho calls this the affected business entity (ABE) election. Accountants also say "PTE election" and "PTET." Same thing. Here is how the money moves:

1. The entity elects and pays Idaho tax on its Idaho-source income at the corporate rate.
2. The entity deducts that payment on its federal return, which lowers each owner's K-1 income.
3. Each owner claims an Idaho credit equal to their share of the tax the entity paid. For individuals, a credit bigger than their Idaho tax is refunded.
4. The owner still reports the income on their Idaho return and claims the credit for the tax the entity paid. What changes is which federal return gets the deduction.

That last point is the whole game. The election moves a federal deduction from a place where it might be capped to a place where it can't be.

What Changed With The Federal SALT Cap?

The cap went from $10,000 to $40,000 for 2025, rises 1% a year through 2029, and drops back to $10,000 in 2030 unless Congress acts. The 2025 law (P.L. 119-21, the One Big Beautiful Bill Act) also left the PTE workaround alone. A House draft would have restricted it; the final law did not, according to the AICPA's Tax Adviser.

Tax year	SALT cap (single, joint, head of household)	Phase-down starts at MAGI over
2018 to 2024	$10,000	No phase-down
2025	$40,000	$500,000
2026	$40,400	$505,000
2027 to 2029	Up 1% a year	Up 1% a year
2030 and later	$10,000 (unless Congress acts)	Not applicable

Married filing separately gets half of each cap. Above the threshold, the cap shrinks by 30 cents for every dollar of modified adjusted gross income (MAGI) over the line, but never below $10,000. For 2025, the cap hits that floor at $600,000 of MAGI, and the thresholds rise 1% a year after that. The figures come from the IRS instructions for Schedule A and the AICPA article above.

2 things in that table matter for a PTE decision:

• Below the line, the cap is big now. Many Idaho owners who itemize can deduct all of their state taxes with no workaround at all.
• Above the line, the cap collapses fast. That is exactly where the PTE election earns its keep.

When Does The PTE Election Help, And When Does It Not?

It helps most when the cap is limiting your deduction, or when an entity-level deduction does something Schedule A can't. It helps least when you already deduct everything or the entity has an Idaho loss.

When The Election Usually Pays Off

• Your MAGI is above about $505,000 (2026). The cap is shrinking toward $10,000, so Idaho tax you pay personally stops being deductible. The entity-level deduction isn't subject to the cap.
• You take the standard deduction. The entity deducts the tax before income reaches your K-1, so you benefit even if you never itemize. Notice 2020-75 points to Revenue Ruling 58-25 for the principle that owners can still claim the standard deduction. Thomson Reuters Checkpoint shows how electing can raise total deductions even when the cap isn't the problem.
• You own a partnership interest. The entity-level deduction can also lower self-employment income, per the same Thomson Reuters analysis.
• You face the alternative minimum tax. The SALT deduction is disallowed for AMT, and an entity-level deduction sidesteps that, per the AICPA.
• You're planning past 2029. The cap is scheduled to fall back to $10,000 in 2030.

When The Election Usually Doesn't

• You're under about $505,000 of MAGI, you itemize, and your total state and local taxes fit under the cap. You may already deduct everything. The election adds paperwork for little federal benefit.
• The entity has an Idaho loss. Idaho doesn't pass an electing entity's net operating loss through to the owners that year. It stays at the entity (Idaho Code 63-3026B).
• You're selling Idaho property that qualifies for the Idaho capital gains deduction. An electing entity can't take that deduction; the owners claim it on their own returns, per the Idaho State Tax Commission. Ask your CPA how that plays out for your sale.
• Your owners aren't all in the same spot. The election covers every owner. Different residency, trusts, or tax positions make it messier, and S-corps have to watch the 1-class-of-stock rule.

What The Numbers Look Like

Here is the arithmetic for 3 joint filers in 2026. These are illustrations, not recommendations. They assume Idaho tax of a flat 5.3% on Idaho-source pass-through income with no adjustments, $8,000 of property tax, and itemized deductions. Your return will differ.

	Example 1	Example 2	Example 3
Joint MAGI	$300,000	$560,000	$750,000
Idaho-source pass-through income	$250,000	$500,000	$700,000
Idaho tax at 5.3%	$13,250	$26,500	$37,100
Idaho tax plus $8,000 property tax	$21,250	$34,500	$45,100
2026 SALT cap at that MAGI	$40,400	$23,900	$10,000
Deductible without the election	$21,250	$23,900	$10,000
Lost to the cap	$0	$10,600	$35,100

Example 1 is why "always elect" retired: nothing is lost to the cap. Examples 2 and 3 show deduction lost to the cap, which an entity-level deduction can recover at your own federal rate. The entity-level deduction also lowers MAGI, which can ease the phase-down; the table leaves that out to keep the math readable. If the couple in Example 1 took the standard deduction instead of itemizing, the math changes, so have a CPA run it before you rule the election out.

How The Idaho PTE Election Works: Rate, Deadlines, And Forms

Idaho's version is the affected business entity (ABE) election. It's open to partnerships and S corporations, including LLCs taxed as either, it's made each year on the entity's return, and the tax is due by the return's original due date. Here are the Idaho PTE rules in 1 place.

Topic	Idaho rule
Who can elect	Partnerships and S corporations, including LLCs taxed as either. Check how your LLC is taxed before assuming it qualifies.
Rate	The Idaho corporate rate: 5.3% for tax years beginning on or after January 1, 2025 (Idaho Code 63-3025).
Income taxed	Idaho-source income, after Idaho adjustments. Income earned in other states isn't included.
How to elect	Check the ABE box on the entity's return. It must be signed by every member or by an officer, manager, or member authorized to elect. Keep Form ABE on file; don't mail it in.
How often	Every year you want it. The election doesn't carry over.
New for 2026	Since July 1, 2026, the election can be made on any original return, even a late one. To change it after filing, amend the return before the original due date.
Payment due	April 15 for calendar-year entities, or the 15th day of the 4th month after year-end. A first-time elector with no prior Idaho return must pay 80% of the tax by the original due date to qualify for an extension.
Estimated payments	Voluntary. Use Form ABE-ES or pay online. Making a payment is not the same as making the election, and ABE estimated payments don't earn refund interest.
Owner reporting	The entity files Form PTE-12 and a Form ID K-1 for each owner. Owners claim a credit equal to their share of the tax paid.
Nonresident owners	A nonresident individual whose only Idaho income comes from electing entities doesn't need to file an Idaho return, as long as the entity files and pays on time.
Losses	An electing entity's Idaho net operating loss stays at the entity and carries forward to later years in which it elects.

Sources for the table: the Idaho State Tax Commission's pass-through entity guide, its July 15, 2026 announcement, Form ABE-ES, and Idaho Code 63-3026B.

The December 31 Trap

The federal deduction belongs to the year the entity pays. Notice 2020-75 allows the deduction in the taxable year the payment is made. When the election launched, the Idaho Tax Commission's own guidance said it plainly: a calendar-year entity that wanted the deduction in the same year had to pay by December 31.

So if you want the deduction on your 2026 return:

1. Estimate the entity's 2026 Idaho-source income.
2. Multiply it by 5.3%.
3. Pay that amount with Form ABE-ES or through the Tax Commission's online payment system before December 31, 2026.
4. Check the ABE box on the 2026 return next spring.

Paying doesn't lock you in, because the election happens on the return. But ABE estimated payments are voluntary and earn no refund interest, so aim for a reasoned estimate, not a guess. Wait until April 2027 to pay, and the payment (and the deduction) lands in 2027.

5 Questions To Answer Before You Elect

1. Will the entity have Idaho taxable income this year? If it's headed for an Idaho loss, hold off. The loss stays at the entity, and there's no tax to deduct.
2. Where does your MAGI land? Under about $505,000, the cap probably isn't squeezing you. Over it, the cap is shrinking toward $10,000 and the election is usually worth modeling. In between, it depends on your property taxes and other deductions.
3. Do you itemize? If you take the standard deduction, state tax you pay personally gets you nothing. The entity-level deduction can still lower your taxable income.
4. Is this a partnership or an S-corp? Partnership owners may also lower self-employment income, per Thomson Reuters. Not sure which one you are? Our July post on the S-corp vs. LLC decision explains the difference.
5. Do all of your co-owners want in? The election covers every owner, so everyone has to be on board, or at least informed.

If you answered "not sure" to 2 or more, that is what a side-by-side projection is for.

What If Your Owners File In More Than 1 State?

Multistate income is where the pass-through entity tax gets more complicated. Idaho's election only covers Idaho-source income, so it does nothing about what your entity owes elsewhere.

• Every state writes its own rules. Elective or mandatory, the rate, the deadline, and how owners get credit all vary. Several states had PTE regimes set to expire and changed their dates in 2026, according to Forvis Mazars. A rule that held last year may not hold this year.
• An Idaho election isn't an election anywhere else. Each state with a PTE regime needs its own decision and its own payment.
• Credits can get lopsided. Idaho gives resident owners a credit for their share of tax an entity pays to another state, calculated the way the Tax Commission prescribes (Idaho Code 63-3026B). An owner who lives in a different state depends on that state's rules. EY flagged the risk in 2020: if a home state doesn't credit another state's entity-level tax, an owner can end up without the credit they were counting on.
• Nonresident owners may not benefit. An Idaho entity's election can spare out-of-state owners an Idaho return, but Thomson Reuters notes that nonresident owners may not benefit and could even be disadvantaged.

Which states can tax your business at all comes down to nexus, the tax connection a business has with a state. We're covering nexus separately this month.

Talk To A CPA Before The Year Ends

The pass-through entity tax is among the few elections where timing is the whole game. For 2026, the date that matters is December 31. After that, the payment lands in 2027, and so does the deduction.

Poston Denney & Killpack has been an Idaho Falls CPA firm since 1984. If you own an S-corp or partnership and you're not sure the election pencils out, our team can model your entity and your personal return side by side. Multistate business tax is part of the work we do. Learn more about our tax planning and business services, or call (208) 522-0886. We call back.

Frequently Asked Questions

What Is The Pass-Through Entity Tax?

The pass-through entity tax is an elective state income tax that lets an S-corp or partnership pay state tax at the business level instead of its owners paying it personally. The business deducts the payment on its federal return, which lowers the income passed to each owner, and the owners get a state credit for their share. The IRS blessed this structure in Notice 2020-75, and it exists mainly to get around the federal SALT cap. In Idaho it's called the affected business entity (ABE) election.

Is The PTE Election Still Worth It Now That The SALT Cap Is $40,400?

Sometimes. For owners with income well under about $505,000 who itemize and whose total state and local taxes fit under the cap, the election often adds paperwork without adding much federal savings. Above that income level, the cap shrinks by 30 cents per dollar until it bottoms out at $10,000, and the election can recover deductions you'd otherwise lose. It can also help owners who take the standard deduction, own partnership interests, or face the alternative minimum tax, and the cap is scheduled to drop back to $10,000 in 2030.

What Is The Idaho PTE Tax Rate?

Idaho taxes an electing entity at the corporate income tax rate, which is 5.3% for tax years beginning on or after January 1, 2025. That matches Idaho's flat individual rate. The entity pays the tax on its Idaho-source income and the owners claim a credit for their share.

When Is The Deadline For The Idaho PTE Election?

Idaho's election is made on the entity's return for the year, and the tax is due on or before April 15 for calendar-year entities. The deadline that catches people is earlier: to deduct the payment on your 2026 federal return, the entity has to pay before December 31, 2026, because the deduction follows the date of payment. A new Idaho law that took effect July 1, 2026 also lets entities make the election on any original return, even one filed late. If you want to change the election after you file, you have to amend the return before the original due date.

Can An LLC Make The PTE Election In Idaho?

Yes, if the LLC is taxed as a partnership or an S-corp. Idaho's election rules treat LLCs that are taxed either way as partnerships or S-corps. An LLC with 1 owner that files on the owner's personal return isn't taxed as either, so check with your CPA before assuming it qualifies. The federal return your LLC files is a clue: Form 1065 means partnership, and Form 1120-S means S-corp.

Do All Of The Owners Have To Agree To The Election?

The election is made for the whole entity, so it applies to every owner. Idaho requires it to be signed either by every member or by an officer, manager, or member who has the authority to make the election under local law or the entity's governing documents. Owners with different residency or tax positions don't all benefit equally, and S-corps also have to watch the 1-class-of-stock rule when owners are treated differently. Get your partners or shareholders on the same page, and check your operating agreement, before the entity pays anything.

What Happens If My Business Has A Loss?

An electing Idaho entity can't pass an Idaho net operating loss through to its owners that year. The loss stays at the entity and carries forward to later years in which it elects again. If the entity skips the election in a later year, the unused loss flows through to the owners as usual. Because a loss year has no Idaho tax to pay, electing usually adds nothing, so model each year on its own.

How Does The Election Work For Owners Who Live Or Earn Income In Other States?

Idaho's election only covers Idaho-source income, so it has no effect on what your entity owes elsewhere. Each state sets its own rules for whether a pass-through entity tax is elective, what the rate is, when it's due, and how owners get credit, and several states changed those rules in 2026. Idaho gives resident owners a credit for their share of tax an entity pays to another state, but an owner who lives in a different state depends on that state's rules. The safest approach is to review every state where your entity files before any of them gets paid.

Sources

• IRS, Notice 2020-75
• IRS, Instructions for Schedule A (Form 1040), 2025
• AICPA, The Tax Adviser, Cap raised, strings attached: The 2025 SALT shake-up (March 31, 2026)
• Idaho State Tax Commission, Pass-Through Entities
• Idaho State Tax Commission, New law changes ABE election timing (July 15, 2026)
• Idaho State Tax Commission, Form ABE-ES
• Idaho State Tax Commission, guidance when the ABE election launched (2021)
• Idaho Code, 63-3026B and 63-3025
• Thomson Reuters Checkpoint, OB3 SALT Cap Increase: Why Pass-through Entity Tax Elections Still Make Sense (September 23, 2025)
• Forvis Mazars, A Refresh and an Update on the Pass-Through Entity Tax (June 10, 2026)
• EY Tax News, IRS plans to issue proposed regulations on deductibility of certain state and local tax payments (November 2020)

This post is general information, not tax advice for your situation. Tax rules change, and your facts matter. Talk with a CPA before you elect or pay.

Section 179 Deduction Before December 31: What Southeast Idaho Businesses Should Buy (and Skip)

TLDR: For 2026, the Section 179 deduction lets a business deduct up to $2,560,000 of qualifying equipment in the year it is placed in service. The limit starts shrinking once you place more than $4,090,000 in service during the year. For a calendar-year business, the deadline is December 31, 2026, and "placed in service" means ready and available for use, not just ordered or paid for. Idaho follows Section 179 but not bonus depreciation, so a large purchase can produce different deductions on your federal and Idaho returns.

The Section 179 deduction is one of the few year-end tax moves that comes with a hard deadline and real money attached. It is also easy to get wrong. Buy the right equipment too late and the deduction slides into 2027. Buy the wrong equipment and you spend $1 to save a fraction of it.

This guide is written for larger Southeast Idaho businesses: the trucking company adding to its fleet, the manufacturer replacing a production line, the farm operation eyeing new machinery, the owner whose building needs a new roof. It covers what qualifies, what to skip, and the part national tax sites leave out: what Idaho does differently from the IRS. For the wider checklist, start with our year-end tax planning guide for Idaho business owners, then come back here for the equipment details.

Figures in this post are current as of October 16, 2026, and come from IRS Publication 946, Revenue Procedure 2025-32, IRS Notice 2026-11, and Idaho House Bill 559.

What Is The Section 179 Deduction?

The Section 179 deduction lets a business deduct the cost of qualifying property in the year it is placed in service, instead of recovering that cost through depreciation over several years (IRS Publication 946). It is an election, not an automatic deduction. You make it on Form 4562 when you file your return.

What Are The Section 179 Limits For 2026?

For tax years beginning in 2026, the maximum Section 179 deduction is $2,560,000, and it shrinks dollar for dollar once the cost of Section 179 property you place in service exceeds $4,090,000 (Revenue Procedure 2025-32). The One Big Beautiful Bill Act raised the base limits to $2,500,000 and $4,000,000, and inflation adjustments lifted them for 2026.

Section 179 limits, 2025 and 2026

Item	2025	2026
Maximum Section 179 deduction	$2,500,000	$2,560,000
Phase-out starts when purchases exceed	$4,000,000	$4,090,000
Deduction fully phased out at	$6,500,000	$6,650,000
Heavy SUV cap	$31,300	$32,000

The $6,650,000 figure is the $4,090,000 threshold plus the $2,560,000 limit. Three limits decide how much you can actually take:

• Dollar limit: $2,560,000 for 2026.
• Phase-out: The limit drops by every dollar of qualifying purchases above $4,090,000. Once purchases reach $6,650,000, the Section 179 deduction is gone.
• Business income limit: The deduction can't exceed the taxable income from your active trades or businesses for the year. Whatever you can't use carries forward to a later year.

These limits apply to each taxpayer, not to each business. Partnerships and S corporations apply them at the entity level, and each owner applies them again on their own return.

Is The Section 179 Deadline December 31?

For a calendar-year business, yes, with one catch: the deadline is the date the equipment is placed in service, not the date you order it, sign for it, or pay for it. The IRS defines "placed in service" as ready and available for a specific use.

That one definition explains most year-end Section 179 mistakes. The IRS gives an example of a machine that was delivered one year but not installed and operational until the next. It counts as placed in service in the second year. Here is how that plays out on a loading dock:

• Ordered and paid for, but still at the dealer or in transit on December 31: not in service.
• Delivered, but not yet installed or operational: not in service.
• Delivered, set up, and ready to run on December 31: in service, even if nobody has used it yet.
• Financed instead of paid in cash: still eligible. The cost includes debt obligations, and you own property even if it is subject to a loan.

If your business uses a fiscal year, your deadline is the last day of that tax year instead. For everyone else, December 31, 2026 is a Thursday, and the week between Christmas and New Year's is a rough time to learn that a delivery slipped. Order early, ask for a written delivery and installation date, and keep a signed delivery receipt.

Missing the cutoff delays the deduction; it doesn't erase it. Equipment placed in service in 2027 is eligible for 2027. The IRS also expects records that identify each piece of Section 179 property, how you acquired it, who you bought it from, and when you placed it in service.

Section 179 Vs. Bonus Depreciation: What Is Different In Idaho?

Federal law gives you two ways to write off equipment fast, and Idaho accepts only one of them. Section 179 and bonus depreciation both work on your federal return. On your Idaho return, Section 179 stays and bonus depreciation does not.

The federal side. Under the One Big Beautiful Bill Act, 100% bonus depreciation is permanent for qualified property acquired and placed in service after January 19, 2025 (IRS Notice 2026-11). Bonus depreciation is figured as a percentage of the property's depreciable basis, so it has no dollar cap like Section 179's, and you take it after any Section 179 deduction (Publication 946).

The Idaho side. The Idaho State Tax Commission says you can claim the Section 179 expense on your Idaho return to the extent you claim it federally (Idaho conformity page). For bonus depreciation, it tells taxpayers to figure Idaho depreciation as if they had not claimed the special depreciation allowance, using a separate Form 4562 or detailed computation (Idaho bonus depreciation page). Idaho House Bill 559, signed February 10, 2026, moved Idaho's conformity date to January 1, 2026. Its depreciation adjustment still applies to subsections (k) and (n) of section 168: bonus depreciation, and the new federal deduction for qualified production property (House Bill 559).

What Does That Look Like On A $3,000,000 Or $5,000,000 Purchase?

Here are two hypothetical purchases, not real clients. Assume all of the equipment was acquired after January 19, 2025, is placed in service in 2026, is used 100% for business, and the business has enough taxable income to use the full Section 179 deduction.

Two hypothetical purchases: federal vs. Idaho

Equipment placed in service in 2026	Section 179 deduction	Bonus depreciation (federal only)	Federal first-year deduction	Idaho first-year write-off from Section 179	Left to depreciate over time for Idaho
$3,000,000	$2,560,000	$440,000	$3,000,000	$2,560,000	$440,000
$5,000,000	$1,650,000 (limit cut by $910,000)	$3,350,000	$5,000,000	$1,650,000	$3,350,000

On the Idaho return, the amount left over is recovered through regular depreciation in later years, so it is delayed, not lost. Regular first-year depreciation on that remainder adds a smaller deduction that the table doesn't show.

The planning takeaway: every dollar you deduct under Section 179 gets the same first-year treatment on both returns, and every dollar left to bonus depreciation does not. For a business that buys heavily, that is worth a conversation with your CPA before December, while you can still adjust the timing and size of purchases. The answer depends on your taxable income, since Section 179 only works up to that limit.

Two more things to know. If your business operates in other states, each state makes its own conformity decision, and Idaho's answer won't be theirs. And manufacturers should know that the federal deduction for qualified production property (section 168(n)) is separate from Section 179. Idaho decoupled from it as well, so talk to a CPA before building it into a plan.

What Should Southeast Idaho Businesses Buy Before December 31?

Buy what the business needs anyway, and let the deduction improve the timing. These are the categories Section 179 covers, with the details that trip people up.

Machinery And Shop Equipment

Machinery and equipment, tools, production and testing equipment, office equipment, signs, and items attached to a building that aren't structural components all count as tangible personal property. Off-the-shelf software also qualifies if it is available to the general public, subject to a nonexclusive license, and not substantially modified.

Farm And Ranch Equipment

Farm machinery is machinery, so it follows the same rules. Publication 946 also lists livestock and single-purpose agricultural (livestock) or horticultural structures as eligible property, and it points farm operators to IRS Publication 225 for farm-specific rules. Used equipment from an unrelated seller can qualify.

Fleet And Heavy Vehicles

Vehicles are where Section 179 gets expensive to guess at. The business-use test is more than 50%, and you need records showing business, investment, and personal use.

• The heavy SUV cap: For 2026, the Section 179 deduction on a 4-wheeled vehicle built mainly to carry passengers, and rated above 6,000 pounds and up to 14,000 pounds gross vehicle weight, is capped at $32,000.
• The exceptions: The cap does not apply to a vehicle that seats more than 9 passengers behind the driver, has a cargo area at least 6 feet long that is not readily accessible from the passenger compartment, or has an integral enclosure fully enclosing the driver compartment and load-carrying device, with no seating behind the driver and no body section protruding more than 30 inches ahead of the windshield.
• Lighter vehicles: Passenger automobiles have separate limits on the combined Section 179 and depreciation deduction.

Confirm the rated gross vehicle weight for the exact vehicle you plan to buy before you sign.

Building Improvements

You can elect to treat certain improvements to nonresidential buildings as Section 179 property: roofs, heating, ventilation, and air-conditioning property, fire protection and alarm systems, and security systems, plus qualified improvement property. Qualified improvement property covers interior improvements placed in service after the building was first placed in service, and it excludes enlargements, elevators and escalators, and a building's internal structural framework. A full roof replacement is an improvement. Patching one corner is a repair, which you deduct as an ordinary expense.

What Should You Skip?

Skip anything on this list unless a CPA has looked at your numbers first.

• Equipment you don't need. A deduction lowers your taxable income; it does not refund what you spent.
• Anything that won't be in service by December 31. If it isn't ready and available for use, it moves to 2027.
• Vehicles you'll use 50% or less for business. They don't qualify, and you can owe recapture as ordinary income if business use drops to 50% or less during the property's recovery period.
• Purchases from related parties, gifts, and inheritances. Property has to be acquired by purchase. For Section 179, related persons include a spouse, ancestors, lineal descendants, and owners of more than 50% of an entity.
• Land and land improvements. Paved parking areas, fences, bridges, docks, and swimming pools don't qualify for Section 179. They may be eligible for federal bonus depreciation instead, but Idaho does not follow it.
• The building itself. New buildings and additions don't qualify. Only the specific improvements listed above do.
• Rental property outside your business. Property you acquire only to produce income, such as investment property or rentals when renting isn't your trade or business, doesn't qualify.
• Deductions bigger than your business income. A large purchase in a low-income year can leave the deduction waiting until a later year.

A 6-Question Check Before You Sign The Purchase Order

1. Will the equipment be delivered, installed, and ready to use by December 31?
2. Does the business need it, with or without the deduction?
3. Will business use be above 50%, and can you document it?
4. Is the seller unrelated to you and your owners?
5. Does the business have enough taxable income to use the deduction this year?
6. Does the plan lean on bonus depreciation? If so, what does that do to the Idaho return?

How Do You Claim The Section 179 Deduction?

You elect it in Part I of Form 4562 and file the form with your original return for the year you place the property in service, or with an amended return filed within the time allowed by law. You can revoke the election without IRS approval by filing an amended return. If you elect the deduction for a vehicle or other listed property, complete Part V of the form first (Publication 946).

Run The Numbers Before The Purchase Order, Not After The Invoice

If you are planning equipment, vehicle, or building purchases before December 31, 2026, call Poston Denney & Killpack at (208) 522-0886 or use our contact page. Bring a list of planned purchases, expected delivery and installation dates, and last year's return. Our team will run the federal and Idaho numbers side by side, so you can see what each purchase does on both returns before you commit.

Poston Denney & Killpack has served Idaho Falls businesses since 1984. See how our tax planning and business accounting and tax services work together, or read our year-end tax planning guide for the rest of the December checklist.

Section 179 FAQ

What is the Section 179 deduction limit for 2026?

The maximum is $2,560,000 for tax years beginning in 2026. It shrinks dollar for dollar once the cost of Section 179 property you place in service during the year passes $4,090,000, and it reaches $0 at $6,650,000. The deduction also can't exceed your taxable income from your active trades or businesses, and any amount you can't use carries forward to a later year.

What is the Section 179 deadline in 2026?

For a calendar-year business, the equipment must be placed in service by December 31, 2026. Placed in service means ready and available for its specific use, so equipment that has been ordered, paid for, or even delivered but is not yet installed and operational does not count. A fiscal-year business uses the last day of its own tax year, and equipment that misses the cutoff qualifies for the following year instead.

Does Idaho allow the Section 179 deduction?

Yes. The Idaho State Tax Commission says you can claim the Section 179 expense on your Idaho return to the extent you claim it on your federal return. Idaho House Bill 559, signed February 10, 2026, moved Idaho's conformity date to January 1, 2026. Idaho does not follow federal bonus depreciation, so the Section 179 portion is the part of a purchase that gets the same first-year treatment on both returns.

Can I use Section 179 and bonus depreciation on the same equipment?

Yes. You take the Section 179 deduction first, up to your limits, and the special depreciation allowance (bonus depreciation) applies to the cost that remains. For qualified property acquired and placed in service after January 19, 2025, the federal bonus rate is 100%. On your Idaho return, only the Section 179 portion is deducted up front, and the rest is depreciated over time.

Can I take Section 179 on a truck or SUV?

Sometimes. The vehicle must be used more than 50% for business, and a 4-wheeled vehicle built mainly to carry passengers and rated above 6,000 pounds and up to 14,000 pounds gross vehicle weight is capped at $32,000 for 2026. The cap does not apply to a vehicle that seats more than 9 passengers behind the driver, has a cargo area at least 6 feet long that is not readily accessible from the passenger compartment, or meets the IRS's enclosed-cab rule. Lighter passenger vehicles face separate annual limits, so have a CPA look at the exact vehicle before you sign.

Can I take Section 179 on used equipment?

Yes, if you acquire it by purchase. Property you get by gift or inheritance does not qualify, and neither does property bought from a related person, such as a spouse, parent, or child. The equipment also has to be used more than 50% for business in the year you place it in service, and the same placed-in-service deadline applies.

Can I take Section 179 on a roof or HVAC system?

Yes, for nonresidential buildings. Roofs, heating, ventilation, and air-conditioning property, fire protection and alarm systems, and security systems qualify when they are placed in service after the building was first placed in service, and you make a specific election to treat them as Section 179 property. Qualified improvement property, which covers certain interior improvements to nonresidential buildings, also qualifies, but enlargements, elevators, escalators, and a building's internal structural framework do not.

What if my business doesn't have enough income to use the full deduction?

Section 179 can't exceed the taxable income from your active trades or businesses for the year. Whatever you can't deduct carries forward to a later year, so the deduction is delayed rather than lost. Whether bonus depreciation fits better in a low-income year is a question for your CPA, and Idaho's decoupling from bonus depreciation is part of that math.

Should I buy equipment just to get the deduction?

No. A deduction lowers your taxable income; it does not refund what you spent. If the purchase wouldn't make your business more productive or replace something that is wearing out, the tax savings rarely justify the cash. Buy what the business needs, and let Section 179 improve the timing.

Sources

• IRS Publication 946, How To Depreciate Property (2025)
• IRS Revenue Procedure 2025-32, 2026 inflation adjustments (section 4.24)
• IRS news release IR-2026-06 on Notice 2026-11, bonus depreciation guidance
• Idaho House Bill 559 (2026), Internal Revenue Code conformity
• Idaho State Tax Commission, Conformity to Federal Internal Revenue Code
• Idaho State Tax Commission, Bonus Depreciation

This post is general information, not tax advice for your situation. Tax law changes, and the figures above are current as of October 16, 2026.

Audit Vs. Review Vs. Compilation: Which One Does Your Business Actually Need?

TLDR: The 3 services differ by how much assurance the CPA gives you. An audit gives reasonable assurance (the highest level), a review gives limited assurance, and a compilation gives no assurance at all. The right pick depends on who relies on your financial statements: if a lender, investor, regulator, or board sets the requirement, their requirement wins, and if nobody outside the business is asking, a compilation may be all you need.

Why This Question Trips Up So Many Business Owners

Somebody just asked for your financial statements, and the email said something like "CPA-prepared" or "audited" or "reviewed." Maybe all 3. Now you are searching audit vs. review vs. compilation at 9:40 on a weeknight, which is a perfectly normal thing to do and also a sign that nobody explained it to you up front.

Here is the short version. These are 3 different levels of service a CPA can perform on financial statements, and the real difference is assurance: how much comfort the CPA's work gives anyone who relies on your numbers. Poston Denney & Killpack (PDK) has been working with businesses in Idaho Falls since 1984, and partners Bruce Denney (CPA, CVA) and Kevin Killpack (CPA) have spent their careers on exactly this kind of work. This guide covers what each level involves, who usually requires it, and how to pick the right level before you find out you picked wrong in the middle of a loan renewal.

Audit Vs. Review Vs. Compilation At A Glance

Here is the side-by-side. Everything after this table explains the rows.

	Compilation	Review	Audit
Level of assurance	None	Limited	Reasonable (high, but not absolute)
Governing standards	SSARS, AR-C Section 80	SSARS, AR-C Section 90	AICPA auditing standards (GAAS), including AU-C Section 200
What the CPA does	Helps management present financial information as financial statements; reads them for obvious problems; does not verify the numbers	Asks questions and runs analytical procedures to look for unusual trends or variances; does not test controls or accounting records	Assesses risk, including fraud risk; evaluates internal controls; tests records; confirms balances with outside parties
What you receive	Statements plus a report stating no assurance is provided	Statements plus a review report with a limited-assurance conclusion	Statements plus an auditor's opinion
Independence required?	No, but a lack of independence must be disclosed in the report (per Armanino)	Yes	Yes
Who typically requires it	Usually nobody outside the business; owners and management who want properly formatted statements	Lenders, investors, and other outside parties whose agreement calls for reviewed statements	Lenders with significant loans, regulators, grantors, boards, and some investors; public companies follow PCAOB standards
Best fit when	Only management or owners rely on the numbers	Outsiders want some comfort, but no rule or agreement demands an audit	An agreement, rule, or stakeholder names an audit, or the highest comfort level matters

Quick read: more assurance means more evidence gathered, and more evidence gathered means more work on both sides of the table. The level is set by who needs to trust the numbers, not by which word sounds most impressive.

Key Facts Worth Knowing Before You Decide

• 3 levels of assurance: none (compilation), limited (review), reasonable (audit)
• 2 separate rulebooks: compilations and reviews fall under SSARS; audits fall under auditing standards, not SSARS
• 4 core SSARS sections: AR-C 60 (general principles), 70 (preparation), 80 (compilation), and 90 (review)
• SSARS No. 25 (materiality in a review and adverse conclusions) took effect for periods ending on or after December 15, 2021
• Independence: required for reviews and audits; a compilation can be issued without it if the report says so
• The agreement wins: whatever your lender, investor, regulator, or board wrote down sets the minimum level
• PDK since 1984: BBB accredited with an A+ rating, led by Bruce Denney (CPA, CVA) and Kevin Killpack (CPA)

What Is An Audit?

An audit is the highest level of assurance a CPA can provide. The auditor gathers enough evidence to give reasonable assurance, a high but not absolute level, that the financial statements are free of material misstatement, then issues an opinion on whether they are fairly presented under the applicable framework, usually U.S. GAAP. Audits of private companies follow auditing standards issued by the AICPA, and AU-C Section 200 lays out the auditor's overall objectives. Audits of public companies follow PCAOB standards instead. The Journal of Accountancy frames the auditor's goal as accumulating greater evidence to reach a reasonable, or high, level of assurance.

Reasonable assurance is not a guarantee. An audit is built to catch material errors and fraud, not every small mistake in the file.

What The Auditor Does

• Learns your business, your industry, and your internal controls
• Assesses where a material misstatement, including fraud, is most likely
• Tests transactions, balances, and disclosures against supporting records
• Confirms balances directly with outside parties, such as banks and customers
• Evaluates significant estimates and management's judgments
• Issues an auditor's opinion on the financial statements

The auditor also has to be independent of your business. That independence is part of why lenders, regulators, and boards trust the result. Bruce Denney and Kevin Killpack lead this kind of work at PDK, and the firm has been building that track record in Idaho Falls since 1984.

What Is A Review? How A Review Engagement Works

A review gives limited assurance. In plain English, the CPA is telling you they did not find anything that makes them think the statements need material changes, based on questions and analytical procedures rather than detailed testing. Reviews follow the Statements on Standards for Accounting and Review Services (SSARS), specifically AR-C Section 90, Review of Financial Statements.

What The CPA Does In A Review Engagement

• Learns your business, your industry, and your accounting policies
• Makes inquiries of management about transactions and unusual items
• Runs analytical procedures: comparing periods, ratios, and expectations to spot trends or variances
• Follows up on anything that looks off
• Gets written representations from management
• Issues a review report with a limited-assurance conclusion

What A Review Does Not Do

A review does not evaluate your internal controls, assess fraud risk, or test your accounting records, according to Armanino's comparison. That gap is exactly why a review cannot stand in for an audit when an agreement calls for it.

The standard has also been updated. SSARS No. 25, issued in February 2020, added requirements on materiality in a review and on adverse conclusions, and it applies to periods ending on or after December 15, 2021.

What To Have Ready

Your CPA expects the books to be closed and the major balance sheet accounts reconciled before the review starts, as GRF CPAs notes. Show up with open items and the engagement turns into a cleanup project. PDK's team returns calls quickly, so if you are not sure your books are ready, ask before the work begins rather than halfway through.

What Is A Compilation?

A compilation is the CPA helping management present financial information in the form of financial statements, with no assurance. It falls under AR-C Section 80, Compilation Engagements. The CPA gets a general understanding of your business and reporting practices and reads the statements for anything that looks inappropriate in form or obviously wrong. The CPA does not verify the numbers, and the report says so.

Independence works differently here. A CPA can issue a compilation report without being independent, as long as the report discloses that fact, per Armanino. Reviews and audits do not allow that.

A compilation tells you the statements are put together properly. It does not tell you the numbers are right. If only the owners and management use the statements, that is often fine. If a lender or investor is relying on them, they may want more.

The 4th Option People Forget: Preparation

Sometimes the right answer is none of the 3. AR-C Section 70, Preparation of Financial Statements, applies when a CPA is engaged to prepare financial statements but is not engaged to audit, review, or compile them. No assurance, no formal compilation report. If you just need clean statements for internal planning, ask whether preparation covers it before you pay for a bigger scope than you need.

Review Vs. Audit: Where The Line Actually Falls

Review vs. audit is the comparison that trips people up most, because the finished statements can look nearly identical. The difference is what happened behind them.

• Evidence: a review relies mainly on inquiry and analytics; an audit adds testing of records and outside confirmations
• Internal controls: an audit evaluates them; a review does not
• Fraud risk: an audit assesses it; a review does not
• Assurance: limited in a review, reasonable in an audit
• Output: a review report with a conclusion versus an auditor's opinion
• Standards: SSARS for reviews versus auditing standards for audits

If an agreement says "audit," a review will not meet it. If it says "review," an audit is more than it asks for. Either way, the document in your hand decides.

Compilation Vs. Review Vs. Audit: Which Does Your Business Actually Need?

Start with who is asking, not with which service sounds most official. Here is how the common situations line up.

If this is your situation	Start here	Why
Your loan agreement or covenant letter says "audited"	Audit	The agreement sets the level; nothing lower satisfies it
Your loan agreement says "reviewed"	Review	It matches the requirement exactly
Outside investors or partners want comfort on the numbers, and no rule requires an audit	Review	Limited assurance gives outsiders something to rely on without the full scope of an audit
A grant, regulator, or board names the requirement	Audit (confirm the exact wording)	These requirements are commonly written as audits, but the document controls
You are a public company	Audit	Public company audits follow PCAOB standards
Only the owners and management use the statements	Compilation or preparation	No outside party needs assurance
You are planning for a sale, new financing, or larger contracts	Ask the other party what they will accept, in writing	The requirement can change faster than your books do

5 Questions To Settle Before You Pick

• Who will read these statements, and what did they ask for in writing?
• Does the agreement use the exact words audit, review, or compilation, or just "CPA-prepared"?
• Does anyone need an opinion, a conclusion, or neither?
• Could a new lender, buyer, or bonding company ask for more in the next 12 to 24 months?
• Are your books closed on time and reconciled?

A short conversation with Bruce Denney or Kevin Killpack is a good way to settle this before you commit to a scope. They can read the agreement with you and tell you what it actually requires.

4 Mistakes That Derail Financial Statement Projects

1. Assuming "audit" means what the banker meant. Many people use the word audit to mean any financial statement service, and accountants know the difference even when clients do not. Ask the lender to name the level in writing.
2. Treating a review like a mini audit. A review is its own service with its own scope. It does not test controls or records, so it does not satisfy an audit requirement. Some owners assume a review is an easy on-ramp to an audit, and that is not always how it plays out.
3. Reading a compilation as a clean bill of health. A compilation provides no assurance. It is a formatting and presentation service, not a verification service.
4. Starting before the books are ready. Unreconciled accounts and open items slow every level of service. Close the period before anything else.

Why Business Owners Across Southeast Idaho Bring This Question To PDK

PDK opened in 1984 and is BBB accredited with an A+ rating. Bruce Denney, CPA, CVA, brings 20+ years of public accounting and tax experience. Kevin Killpack, CPA, has spent his career in accounting and management consulting for small and large businesses. PDK's business services include audited and reviewed financial statements, multistate tax, and business tax, so the financial statements and the tax work that follows from them stay under 1 roof.

Responsiveness matters here, because a lender's deadline does not move. PDK's approach is simple: return the call and give a straight answer on which level fits.

Frequently Asked Questions

What Is The Difference Between An Audit, A Review, And A Compilation?

The difference is how much assurance the CPA gives you. An audit provides reasonable assurance, which is high but not absolute. A review provides limited assurance, and a compilation provides no assurance at all. The more assurance an outside reader needs, the more evidence the CPA has to gather.

Is A Review The Same As An Audit?

No. A review relies mainly on inquiries and analytical procedures, while an audit adds testing of records, outside confirmations, and a look at internal controls and fraud risk. A review ends with a report expressing limited assurance, and an audit ends with an opinion on the financial statements. If your loan agreement says audit, a review will not satisfy it, even though the finished statements can look similar on the surface.

What Happens During A Review Engagement?

The CPA learns your business, then asks questions about your accounting policies, transactions, and unusual items. Next, the CPA runs analytical procedures, which means comparing numbers across periods and against expectations to find trends or variances that need an explanation. Your CPA expects the books to be closed and the major balance sheet accounts reconciled before the work starts. The engagement ends with a review report that states the CPA's conclusion and explains that a review is substantially less in scope than an audit.

Which Level Will My Bank Or Lender Require?

Your loan agreement or covenant letter decides, not a general rule of thumb. Some lenders ask for CPA-prepared statements, some ask for reviewed statements, and some require audited statements, particularly when the loan is large. Plenty of people use the word audit loosely to mean any CPA-prepared financials, so ask the lender to confirm the exact level in writing before you engage anyone. A single email can prevent a wasted season.

Can A Review Turn Into An Audit Later?

Not automatically. An audit requires its own evidence, including testing and outside confirmations that a review does not include. Some owners treat a review as an easy on-ramp to an audit, but that does not always work out. If you expect an audit requirement within the next 1 to 2 years, tell your CPA early so your books and documentation can be built with that in mind.

Do Private Companies Need An Audit?

Usually only when someone else requires it. Public companies are audited under PCAOB standards, but a private business generally needs an audit when a lender, investor, regulator, grantor, or board says so. If no outside party requires an audit, a review or compilation may fit better. The decision comes down to who relies on the statements and what they need to feel comfortable.

What Is The Difference Between A Compilation And A Preparation Engagement?

A compilation produces a CPA report stating that no assurance is provided, and it is governed by AR-C Section 80. A preparation engagement falls under AR-C Section 70 and applies when the accountant prepares financial statements without performing an audit, review, or compilation on them. In plain English, both involve the CPA helping you present the numbers, but only a compilation comes with a formal compilation report. Ask your CPA which service fits what the statements will be used for.

What Should I Have Ready Before The CPA Starts?

Close your books for the period and reconcile the major balance sheet accounts, such as cash, receivables, payables, and debt. Gather your loan agreements, leases, and any other documents that set reporting requirements. Have your prior-year statements and accounting software access ready, because the CPA uses them to understand how you report. For an audit, plan for extra requests, including outside confirmations and supporting documents for specific transactions.

How Do I Know Which Level Fits My Business?

Start with who relies on the statements and what they have asked for in writing. If a lender, investor, regulator, or board names the level, that requirement wins. If nobody outside the business is asking, think about who might ask in the next 12 to 24 months, such as a new lender, a buyer, or a bonding company. A short conversation with a CPA like Bruce Denney or Kevin Killpack at Poston Denney & Killpack can settle it before you commit to a scope.

Get A Straight Answer On Which Level Fits

Not sure whether your situation calls for an audit, a review, or a compilation? Bring the lender email, loan agreement, or investor request, and Bruce Denney, Kevin Killpack, and the PDK team will tell you what the document actually requires.

• Call the Idaho Falls office at (208) 522-0886
• Contact PDK online to start the conversation
• Read more about PDK's business services

Standards And Sources Referenced

• Journal of Accountancy: SSARS AR-C Sections 60, 70, 80, and 90
• CPA Practice Advisor: SSARS No. 25 on materiality in a review
• Journal of Accountancy: compilation and review standards compared with audit objectives
• AU-C Section 200: Overall Objectives of the Independent Auditor (codification index; full text requires a subscription)
• Armanino: Audit vs. Review vs. Compilation
• GRF CPAs: Alternatives to the Financial Statement Audit

This article is general information, not tailored accounting advice. Your agreements and circumstances determine which service applies.