If a lender, investor, or board member has asked for "audited financials" — and you're not entirely sure what that means, how it differs from a review, or whether a compilation would do the job — you're not alone. These three engagements are frequently confused, and the wrong choice can cost you time, money, and credibility.

A financial audit is the highest level of assurance a CPA firm can provide. It is also the most rigorous, time-intensive, and thorough of the three engagements.
During an audit, your CPA firm does not simply review what management has reported — they independently verify it. That means testing samples of actual transactions, confirming account balances with third parties (banks, customers, vendors), reviewing internal controls, and scrutinizing accounting estimates and judgments.
At the conclusion of an audit, the firm issues an auditor's report — a formal opinion stating whether the financial statements present fairly, in all material respects, the financial position of the organization in accordance with the applicable accounting framework (usually U.S. GAAP).

A review sits between an audit and a compilation. It provides limited assurance — meaningful, but not the same level of rigor as an audit.
In a review, the CPA firm performs analytical procedures (comparing current figures to prior periods, industry benchmarks, and ratios) and makes inquiries of management about accounting policies, significant transactions, and anything unusual in the numbers. The firm does not test individual transactions or confirm balances with third parties.
The output is a review report, which states that nothing came to the CPA's attention suggesting the financials are materially misstated. This is "negative assurance" — the firm isn't saying the statements are correct, they're saying nothing obvious looks wrong given the procedures performed.

A compilation is the most basic of the three services. The CPA firm takes the financial data provided by management and presents it in the form of properly formatted financial statements — but does not verify, audit, or provide any assurance on that data.
Think of it this way: a compilation ensures your financials are presented correctly. It says nothing about whether the underlying numbers are accurate.
The CPA issues a compilation report that is explicit about this: the firm is not expressing an opinion or providing any form of assurance on the statements. The report exists to make clear what the CPA did — and did not — do.

Audit, review, and compilation are not interchangeable. They represent fundamentally different levels of scrutiny, different standards, and different degrees of confidence in the output. Choosing the wrong one — either underdelivering to a stakeholder who needs an audit, or overspending on assurance you don't need — is a costly mistake in either direction.
The right engagement depends on your obligations, your audience, and your stage of growth. If you're not certain which applies to your organization, that's exactly the conversation to have before you engage anyone.