An audit tells you whether a company's financial statements follow accounting standards. A quality of earnings report tells you whether the earnings a deal is priced on are real and likely to continue under a new owner. Reviews and compilations sit below an audit: a review gives limited assurance, and a compilation gives none. A QoE is not any of the three, and none of the three replaces a QoE when you are buying a business.
An audit asks one question: are the financial statements presented fairly under the accounting framework the company uses, usually GAAP. The auditor plans the work around risk, tests transactions and balances on a sample basis, confirms some items with third parties such as banks and customers, and looks at how the company's controls work. The result is an opinion letter attached to the statements.
That opinion is backward looking and framework based. It says the numbers were recorded properly. It does not say the earnings will hold up after the owner leaves. It is not built to.
Audits and reviews are attest engagements, performed by licensed CPA firms under professional standards, with independence rules attached. That is part of why they carry weight with lenders, investors and regulators.
They are the two lighter engagements under the same family of standards.
A review gives limited assurance. The accountant asks management questions and runs analytical procedures, such as comparing margins and balances across periods and looking for figures that do not make sense. There is no testing of underlying documents of the kind an audit does. The report states whether the accountant is aware of changes needed for the statements to follow the framework.
A compilation gives no assurance. The accountant puts the company's information into the form of financial statements. Nothing is verified. The report says so.
Many lower-middle-market companies have not had any of the three. What a buyer commonly sees is internally prepared statements, a general ledger kept by a bookkeeper or the owner, and filed tax returns. That is the normal starting point for a QoE.
A QoE starts from a different question, so it runs different procedures. Ours are:
The core difference is adjustment. An auditor reports what happened under the accounting rules. A QoE asks which of those costs and revenues a new owner will actually have. A personal vehicle run through the business is a properly recorded expense in an audit. In a QoE it is a possible add-back, if there is a document behind it.
Here is an illustration with round numbers. A company has clean audited statements showing $1,500,000 of EBITDA. Included in expenses are a $120,000 one-time legal settlement and $80,000 of pay to a relative of the owner who does not work in the business. Both are recorded correctly, so the audit opinion is clean. A QoE that finds documents for both adds them back, for $1,700,000 of adjusted EBITDA. The same QoE then finds that a customer worth 20 percent of revenue gave notice last quarter. The audit has no reason to adjust for that. The QoE puts it in the customer analysis and the risks summary, and the buyer prices it.
How deposits get tied to revenue is covered in more detail in proof of cash.
| Audit | Review | Compilation | Quality of earnings | |
|---|---|---|---|---|
| Main question | Are the statements presented fairly under the accounting framework? | Is the accountant aware of changes needed for the statements to follow the framework? | Are the company's figures put into financial statement form? | Are the earnings real, and will they continue under a new owner? |
| Assurance | Reasonable | Limited | None | Not an attest engagement; reports findings and the remaining differences |
| Main procedures | Risk assessment, sample testing, third-party confirmations, look at controls | Inquiry of management and analytical procedures | Assembles statements from company records | Cash proof, tax return reconciliation, documented add-backs, customer and working capital analysis, management Q&A |
| Adjusts for owner and one-time items | No | No | No | Yes, where documented |
| Looks forward | No | No | No | Yes, through the projection model and risks summary |
| Commonly ordered by | The company, for lenders, investors or regulators | The company, often for a lender | The company | Buyers, lenders, sponsors and business owners preparing to sell |
Usually, yes. Audited statements tend to make a QoE faster, because many of the balances have already been tested by someone independent. They do not answer the deal questions: which expenses stop after closing, how much of revenue depends on a few customers, how much working capital the business needs, and how the most recent months compare to the last audited year end.
Timing matters too. An audit covers a fiscal year that may have ended many months before the LOI. The deal is priced on recent performance, so the QoE works through the months since then as well.
For SBA financing, there is now a specific requirement. Under SBA SOP 50 10 8.1, effective October 1, 2026, Initial Acquisition and Business Expansion loans where the business purchase price is $3 million or more need a QoE from an independent financial professional engaged by and acting on behalf of the lender. Audited statements do not satisfy that requirement. The QoE also supplements the business valuation rather than replacing it. Confirm with your lender how they apply it to your deal.
No. A QoE does not issue an opinion or conclusion on whether the statements follow accounting standards. If a loan agreement, an investor or a regulator requires audited or reviewed statements, a QoE does not meet that requirement. Some lenders ask for reviewed or audited statements on larger credits after closing. That is a separate engagement with a licensed CPA firm.
The two answer different questions, so on larger deals it is common to see both. The audit establishes that the books were kept properly. The QoE establishes what those books say about earnings going forward.
For a plain definition of the report itself, see what is a quality of earnings report. The sample quality of earnings report page shows how the deck and workbook are laid out.
The fees are not directly comparable because the work is different. Our QoE fee is $7,500 flat for SBA-sized deals, whether or not SBA financing is used. Deals larger than SBA size are scoped and priced to the work after a call, with the fee quoted before work starts, and there is no hourly billing. An added fee applies when the company has no financial statements and they have to be built, or when the deal includes more than one business, quoted once the documents are in. Details are on the pricing page.
Not in the way an audit does. A QoE notes control issues where they affect the numbers, for example deposits that do not tie to revenue, and those go into the management Q&A.
A QoE generally takes two to four weeks from receipt of documents. The company's response time sets most of the pace.
A U.S.-based team, with the work reviewed in-house by a CPA-led team. We have completed more than 600 QoE engagements and take on about 40 a month. The full service is described on the quality of earnings page.