If decision-makers will rely on your financial statements—banks, grantors, your board, or major donors—choosing a compilation with full disclosures (footnotes) is one of the simplest ways to boost credibility without jumping to a review or audit.
Quick refresher: what a compilation is (and isn’t)
A compilation is an engagement under SSARS (AR-C 80) where an accountant presents management’s financial information in the form of financial statements. No assurance is provided—unlike a review (limited assurance) or an audit (reasonable assurance).
Within compilations, you have two options:
- With full disclosures: Includes the footnotes required by your reporting framework (e.g., GAAP, cash-basis, income-tax-basis).
- Omit disclosures: Same statements, but without footnotes, and the report warns users that disclosures are missing.
“Full compilation” usually means the first option: a compilation with full disclosures.
Why the footnotes matter
1) Funders need apples-to-apples clarity.
Footnotes explain your accounting policies, how you recognize revenue, what “restricted” actually means, and how you value key assets and liabilities. That clarity helps lenders and grantors compare you to peers and check covenant compliance.
2) Board governance and donor trust.
Notes disclose related-party transactions, commitments, liquidity risks, and debt terms—things boards must monitor. For nonprofits, the liquidity and availability footnote (under GAAP) is often the single most useful, practical disclosure your board reads all year.
3) Fewer back-and-forths.
Without footnotes, third parties ask follow-up questions: Are these cash-basis? Any debt covenants? What’s restricted vs. unrestricted? Footnotes answer those up front and save your team time.
4) Smoother future reviews or audits.
Disclosures organize the “story” of your financials now, making any later upgrade (review/audit) faster and less disruptive.
5) Better internal decision-making.
Footnotes surface judgment calls and risks (e.g., concentration of revenue, going-concern factors, lease obligations), which improves planning and budgeting.
When a full-disclosure compilation is the right call
- You’ll share statements with a bank, grantor, or major donor.
- Your board wants stronger governance but you don’t need the cost of a review/audit.
- You’re preparing for a capital campaign or refinancing.
- You expect to pursue an audit next year and want to get your disclosures in order now.
- You’ve had confusion around restricted funds or revenue recognition and want to clarify.
What the footnotes typically cover
(Exactly what’s required depends on your reporting framework and your organization’s facts, but common nonprofit areas include:)
- Organization and purpose
- Basis of accounting (GAAP, cash, tax, or modified cash)
- Significant accounting policies (revenue recognition, functional expenses, capitalization, estimates, in-kind gifts)
- Liquidity and availability of resources (key for nonprofits)
- Net asset classifications (with/without donor restrictions; roll-forwards)
- Grants and conditional contributions
- Concentrations (revenue, credit risk, funding sources)
- Debt and covenants
- Leases
- Commitments and contingencies
- Related-party transactions
- Subsequent events
Tip: Even on cash- or tax-basis statements, tailored footnotes still add value and may be preferred by funders.
Cost vs. benefit
A full-disclosure compilation costs more than a disclosure-omitted version because your accountant drafts and ties out notes and ensures consistency with the statements. But relative to the time saved answering third-party questions—and the credibility gained with stakeholders—the upgrade is usually inexpensive.
If a third party is involved at all, disclosure-omitted statements are frequently not accepted. Paying for footnotes once is often cheaper than dealing with repeated re-work.
How to prepare (and keep it painless)
- Clarify the framework you want to use (GAAP, cash-basis, or income-tax-basis).
- Share policies you actually follow (capitalization threshold, revenue recognition, cost allocation).
- Provide debt documents (notes, interest rate, maturities, and any covenants).
- List donor-restricted funds and any purpose/time restrictions.
- Summarize leases, commitments, and related-party arrangements.
- Flag subsequent events (grants awarded, debt closed, major asset purchases after year-end).
- Align internal labels (class/fund structure, program vs. management & general) with how you want them reported.
Common questions
Does a compilation with footnotes give assurance?
No. The report still says we did not audit or review and provide no assurance. The value is in the context and credibility the disclosures add.
If we’re on cash-basis, do we still need notes?
You don’t “need” them unless a third party requires them, but you’ll benefit from concise footnotes that explain your basis, policies, restrictions, and risks. Many lenders/grantors prefer it.
Could we include only a few key notes?
Yes—“selected disclosures” are allowed. Your report will say other disclosures are omitted. If you know funders will rely on the statements, full disclosures are the safer choice.
Will this replace the need for a review or audit?
Not if a third party explicitly requires assurance. But many stakeholders just need clarity and consistency—footnotes often meet that need at a lower cost.
Bottom line: If anyone outside your organization will rely on your numbers, choose a compilation with full disclosures. You’ll communicate your financial story clearly, reduce follow-up questions, and set the table for smoother financing, grants, and future audits.
Want help deciding which option fits your situation? I offer a quick “Compilation Options” consult plus a prep checklist to speed things up. Reach out and I’ll send the one-page guide.