A lender's requirement, an investor's due diligence, a foreign parent's group reporting, a donor's grant condition or an owner who simply wants the numbers checked independently: each situation raises the same question. Audit or financial review? The choice is not only about fees and timing. It determines what level of evidence the users of your financial statements receive, and how well that evidence fits the specific risk.

Both services are built on international professional standards, independence and analysis of financial information. In Georgia, these standards are adopted by the Service for Accounting, Reporting and Auditing Supervision (SARAS). Yet the two services differ in purpose, scope of work and the form of their conclusion. The right choice starts not with "which one is better?" but with "who will use the financial statements, what decision will they make, and how much assurance do they need?"

The Key Difference: Reasonable vs Limited Assurance

An audit of financial statements is performed under the International Standards on Auditing (ISA) and provides reasonable assurance that the statements are presented fairly, in all material respects, in accordance with the applicable framework, such as full IFRS or IFRS for SMEs. This does not mean the auditor checks every transaction or guarantees there are no errors. It means the auditor uses risk-based procedures to gather sufficient appropriate evidence to express a professional opinion on the financial statements.

A financial review is performed under the International Standard on Review Engagements (ISRE 2400) and provides limited assurance. Its procedures consist mainly of inquiries of management and responsible staff, analytical comparisons, and evaluation of significant fluctuations and relationships. The reviewer does not perform testing of the same depth as an auditor. The conclusion is therefore worded differently: the practitioner states whether anything has come to their attention that suggests the financial statements are materially misstated.

This difference is not a technicality. For a bank, an investor, a foreign parent company or a supervisory board, the type of conclusion signals directly how much independent examination was actually performed.

When an Audit Is Mandatory in Georgia

Before weighing the options, check what the law requires. Under the Law of Georgia on Accounting, Reporting and Auditing, enterprises are divided into four size categories, and a mandatory audit applies to:

▪        Public interest entities (PIEs): for example, banks, insurance companies and issuers of publicly traded securities;

▪        Category I and II enterprises: large and medium-sized companies;

▪        Other entities where a separate law requires an audit.

Category III and IV enterprises are not subject to mandatory audit, but they must still prepare annual financial statements and file them on reportal.ge by 1 October. This is where the choice becomes real: for these categories, an audit or review is voluntary and is usually requested by a bank, an investor, a group or a donor.

One rule matters here: if the law requires your company to have an audit, a financial review cannot replace it. That is why determining the enterprise category should be part of the annual close, not a last-minute question.

What a Financial Statement Audit Involves

An audit begins with understanding the business, its industry and its control environment. The auditor assesses where material misstatement is most likely, for example in revenue recognition, inventory valuation, related-party transactions, the recoverability of receivables or tax accounting.

The auditor then designs procedures that respond to those risks. Depending on the circumstances, these may include:

▪        testing of source documents;

▪        confirmation of balances with third parties;

▪        attendance at the inventory count;

▪        examination of bank accounts;

▪        analysis of subsequent events;

▪        evaluation of internal controls.

The scope of work is not the same for every company: it grows with the complexity of operations, the level of risk and the expectations of the users of the financial statements.

The practical value of an audit goes beyond the audit report itself. The process often uncovers control weaknesses, documentation gaps, inconsistent application of accounting policies or early signs of tax risk. The auditor typically summarises these findings in a management letter. Identifying them early gives management the chance to fix a process before the problem turns into a financial loss or a regulatory issue.

At the same time, an audit requires significant involvement from the company. The finance team prepares working papers, explanations, contracts, reconciliations and other evidence. If the accounting records are disorganised, or key controls do not exist even on paper, both the timeline and the cost of the audit can grow.

What Happens During a Financial Review

A review is the more targeted choice when the users of the financial statements need independent professional involvement but do not require full audit-level assurance. The practitioner analyses trends in financial indicators, compares them with the budget, prior periods and known business circumstances, asks questions about significant changes and assesses whether the financial statements are consistent with the framework applied.

For example, if the company's gross margin has changed significantly, the review may look at pricing policy, purchase costs, the effect of lari exchange rate movements on imports, inventory write-downs or revenue classification. On its own, however, this kind of analytical review usually does not include detailed document testing of every significant sales transaction or external confirmation of balances with customers.

As a result, a review usually takes less time and fewer resources than an audit. This advantage matters for a growing Category III business that needs more credible periodic reporting, is not required by its loan agreement to have an audit, and has not yet reached the scale or capital structure that would justify a full examination. Reviews are also used for interim (half-year or quarterly) reporting when the annual financial statements are already audited.

Lower cost should not be the only argument, though. If a user's requirement explicitly calls for an audit opinion, a review cannot satisfy it. Choosing the wrong type of engagement can delay a financing process or force the work to be redone.

Which Option Is Right for Your Business?

1. External requirements. The first source for the decision is the law and the contract. Credit agreements, investment documents, shareholder agreements, grant agreements and group reporting policies often specify directly whether an audit, a review or another type of report is required. Read the requirement carefully, because terms are sometimes used loosely: "audited financial statements" may be used to mean reviewed ones, and vice versa. If in doubt, ask the bank or investor in writing which standard they expect.

2. Ownership and governance structure. In an owner-managed company where day-to-day operations are directly controlled, a review may be sufficient for certain purposes. When owners, management and the users of the financial statements are separate, for example with several partners or a foreign investor, an independent audit often builds more trust.

3. Risk profile. Rapid growth, multiple branches, foreign-currency transactions, a complex revenue model, significant inventory or active related-party relationships all increase the number of areas that need in-depth examination. In that environment, an audit may be not only an external requirement but also a management tool.

4. Purpose of the financial statements. If the goal is to negotiate with a potential investor, sell the business or consolidate into an international group, an audit usually provides a stronger basis for credibility. If the goal is to maintain periodic financial discipline for management and give one specific party limited assurance, a review may be the more proportionate solution.

Prepare the Ground Before Choosing

Both an audit and a review work better when the accounting process is in order. Months closed on time, reconciled bank accounts and sub-ledgers, accounting balances checked against rs.ge data, a documented accounting policy and clearly assigned responsibilities all reduce last-minute adjustments. This is especially important for companies that work with foreign groups or international donors and prepare financial statements to meet several sets of requirements at once.

Independence also matters. The auditor or reviewer must be independent under the applicable professional ethics requirements. If one organisation needs accounting support, tax advice and an independent examination at the same time, the service model must be planned in advance so that responsibilities, management's role and quality control are clearly defined. In practice, this often means that the same team does not both prepare a company's financial statements and examine them.

AGIC combines audit, advisory and accounting expertise so that management sees the choice of engagement as more than a formal obligation. The right format should support the quality of financial reporting, tax risk management and access to reliable information for decision-making.

Frequently Asked Questions

Can a financial review replace a mandatory audit?

No. If the company is a public interest entity, belongs to Category I or II, or another law requires an audit, an audit is needed. A review is used for voluntary or contractual requirements.

What does a Category III company need for its bank?

It depends on the loan agreement or the bank's credit policy. Some banks require audited financial statements, while others accept reviewed ones. Confirm the requirement with the bank in writing before commissioning the work.

Can an annual audit be combined with interim reviews?

Yes, this is a common model. The annual financial statements are audited, while half-year or quarterly statements are reviewed. It is particularly useful for subsidiaries of foreign groups and for companies with bank loans.

What does a review conclusion say?

A review conclusion states whether anything has come to the practitioner's attention that causes them to believe the financial statements are not prepared, in all material respects, in accordance with the applicable framework. It is not an audit opinion, and readers should not treat it as one.

The Form of the Conclusion Determines the Level of Trust

A financial review is not a "shortened audit" in the sense that the only difference is the number of hours. They are two separate services, with different levels of assurance, different procedures and a different signal to the users of the financial statements. An audit supports a professional opinion with broader evidence. A review uses analytical and inquiry-based work to obtain limited assurance.

The right choice is made when management clarifies the requirement, the risk, the timeline and the future use of the financial statements in advance. Clear answers to these questions are often the most effective way to make a financial examination not a cost, but a foundation for sound management.

Since 2007, AGIC has served Georgian and international companies, international organisations and donor-funded projects across audit, accounting, tax and advisory.

 Not sure whether you need an audit or a review? Send us your bank's, investor's or group's requirement and we will help you choose the right format - agic.ge

This article is general in nature and does not constitute specific legal or professional advice. Information is current as of November 2026.