So what is a financial review vs. an audit, really? People often use these terms interchangeably. Both involve an outside CPA reviewing your financial statements. But they represent very different levels of scrutiny, cost, and assurance. Maryland nonprofits can run into real compliance trouble when they assume the two are interchangeable.
Here’s what actually separates them, and how to know which one your organization needs.
What Is a Financial Review?
A financial review is a limited-scope engagement. A CPA performs analytical procedures, comparing your current numbers to prior years and industry norms. The CPA also asks management questions about your financial statements. They do not test individual transactions or evaluate your internal controls.
The result is “limited assurance.” The CPA flags anything that suggests a problem with the statements, rather than independently verifying every figure.
What Is an Audit?
An audit goes much further. The CPA tests a sample of actual transactions. They confirm balances directly with your banks and vendors, and evaluate your internal controls. From there, the CPA forms an independent opinion on whether your financial statements fairly present your finances under GAAP.
That opinion is what banks, grantors, and state regulators want when they require an “audited financial statement.” It represents the highest level of assurance a CPA can provide short of forensic investigation.
What Is a Financial Review vs. an Audit? The Key Differences at a Glance
| Financial Review | Audit | |
|---|---|---|
| Assurance level | Limited | Reasonable (highest available) |
| Transaction testing | No | Yes, on a sample basis |
| Internal controls evaluated | No | Yes |
| Typical cost | Lower | Higher |
| Formal opinion issued | No | Yes |
| Common trigger | Board policy, smaller funders | Larger grants, lenders, state law |
When Maryland Nonprofits Need a Review vs. an Audit
Once you understand what is a financial review vs. an audit in general terms, ask which threshold applies to your nonprofit. Maryland’s Solicitations Act bases the requirement on how much your organization collects in charitable contributions each year. It doesn’t matter what type of organization you are.
Organizations that raise less than $300,000 must still file financial statements with the Maryland Secretary of State’s Charities Division. Maryland doesn’t require a review or an audit at this level. Between $300,000 and $750,000 in contributions, Maryland requires an independent CPA review. Above $750,000, Maryland requires a full independent audit. Private foundations affiliated with a state agency face a lower review threshold of $100,000.
These thresholds apply regardless of your budget size otherwise. A nonprofit with a small overall budget can still cross into review or audit territory after one large fundraising year. Check your contribution totals well before your fiscal year closes, so you aren’t caught off guard.
The Federal Single Audit Threshold Is a Different Test
Nonprofits that receive federal grants face a separate requirement, and it’s easy to confuse with the state rule above. Under the OMB’s Uniform Guidance, spending $1 million or more in federal funds in a fiscal year triggers a Single Audit. A Single Audit goes further than a standard audit. It also tests compliance with the specific terms of your federal awards. The National Council of Nonprofits’ guide to federal audit requirements is a good reference point. Check it if your organization receives federal pass-through funding and you’re unsure where you stand.
A Maryland nonprofit could clear the state’s $750,000 contribution threshold and still fall under the federal $1 million single audit trigger. The reverse can happen too. The two tests run independently, and meeting one doesn’t satisfy the other.
What About For-Profit Maryland Businesses?
Outside the nonprofit world, whoever is asking usually decides which one you need. Banks and lenders often accept a reviewed statement for smaller credit lines. For larger financing, or as an ongoing loan covenant, they typically require a full audit. Investors and potential buyers in an M&A transaction almost always want audited statements. Due diligence depends on that level of assurance.
A review is often enough for internal planning or a loan renewal with an existing lender. It also typically satisfies a smaller vendor or landlord’s financial requirements.
If nobody outside your organization requires a specific level of assurance, a review is usually the more cost-effective choice. It still gets you an outside, independent look at your books.
Which One Does Your Organization Need?
By now, what is a financial review vs. an audit should be clearer for your own situation. Start with who’s asking and why. A specific grant, lender, or state requirement usually tells you exactly which one you need. Check the letter of the requirement rather than assuming.
If nothing external is dictating your choice, weigh the cost of a review against the stronger assurance an audit provides. That trade-off matters most if you’re preparing for growth, a future audit requirement, or a transaction down the road.
Getting your books audit-ready is where most Maryland nonprofits and small businesses actually get stuck. That’s true whether you ultimately need a review or a full audit. If your financial statements aren’t clean going in, either engagement takes longer and costs more. Our fractional CFO services help organizations get their financials in order before their CPA firm shows up. That way, the review or audit goes smoothly instead of turning into a fire drill.
Now that you know what is a financial review vs. an audit, figure out which threshold applies to you. Then make sure your books are ready either way.