Nonprofit Audit: In-Depth Guide to Audited Financial Statements

If your nonprofit receives grants or contracts, mention the need for compliance with grantor requirements. This sounds obvious, but you’d be surprised how many RFPs we see that require information that’s totally irrelevant. Too often, RFPs are copied and pasted from another organization, then sent to audit firms.

Optimizing Board Governance: Strategies for Effective Leadership, Collaboration, and Shared Success

• In addition, proper documentation should be maintained in case further evidence is needed by auditors at a later date.
• A review points out issues with an organization’s finances and management’s response to those issues, without offering additional opinions, solutions, or comments.
• An audit can also provide insight into the organization’s financial health and help identify areas of improvement.
• It is crucial to select a firm that not only possesses extensive experience in nonprofit audits but also has a deep understanding of both national and state-specific regulations.
• States like Ohio and Georgia introduce additional layers of complexity with their own distinct audit thresholds and reporting requirements, often going beyond federal mandates.
• A compilation is the least in-depth examination of financial statements and provides no assurance as to the accuracy of those statements.

Get support at every stage of the nonprofit audit The Key Benefits of Accounting Services for Nonprofit Organizations process by partnering with Jitasa. Before you face your official audit, conduct a self-lead financial review of your organization. Think of it as a dress rehearsal for your official audit using the audit checklist. Finally, being prepared for your audit shows a level of professionalism that helps protect your nonprofit’s reputation with the public. Audits must be performed by a CPA (Certified Public Accountant) or an auditing firm.

Be selective in deciding which audit firms receive your RFP.

A financial statement audit is a thorough review of your financial statements to determine if your financial statements present fairly, in all material respects, in accordance with generally accepted accounting principles. As an alternative to an independent audit, auditors can provide either a financial statement “review” or a “compilation.” Neither a review nor a compilation is a substitute for an audit. Specialist nonprofit accounting software with audit automation capabilities can make sense of this entire operation by organizing documents, ensuring secure access, and tracking internal review processes. References from other organizations in your field will help you identify firms with experience in the different types of audits for nonprofits. Many nonprofits choose to conduct regular audits as best practices, even if it’s not legally required. A nonprofit audit is more than just numbers on a page—it’s your chance to demonstrate transparency, build credibility and identify areas for growth.

Trust Your Nonprofit Audit to Lewis.cpa

The audit is free of consultation with the IRS and devoted solely to evaluating internal controls and documentary accuracy. In the end, this accountant submits an audit report that details the investigative findings such as areas of strength, improvement, weakness, and danger. Absent the curiosity of the IRS, nonprofit leaders may seek audited financial records for other reasons. A nonprofit audit might result from a judicial directive or another agency request, e.g., an agency granting federal funding.

• This means that the auditor will examine the financial statements and check for any errors or omissions.
• Rather than performing extensive testing, the CPA primarily conducts analytical procedures and inquiries to determine whether the financial statements appear reasonable.
• Once you’ve selected an auditor, they should provide information about preparing for the audit.
• If your nonprofit is not required to have an audit, you may still choose to have one conducted on a voluntary basis.
• These are sometimes assessed in large urban areas (think New York City, San Francisco, etc.).

Determining when to get an audit done can often be decided by answering the question of “Is an audit required? It is common practice to complete the audit before filing Form 990 so that any adjustments resulting from the audit can be reflected on the document. An annual audit allows for each fiscal year’s financial reports to be verified so that the beginning balance on all ledger accounts is correct each year.

While one-off single audits are a great start, get on a regular cadence with annual audits. Auditors will make recommendations to boost your organization’s efficiency and help you reach your financial goals. For example, users on your accounting software might not follow password best practices, or there may be too loose of access privileges across your organization. Control deficiencies are categorized as deficiencies in design or deficiencies in operation.

• This is because the auditor will have a comprehensive understanding of the nonprofit’s operations and can offer suggestions on how to improve them.
• These suggestions can be anything from improving financial controls to increasing fundraising efforts.
• During these discussions, organizations should inquire about the firm’s approach to audits, including their methodology and communication style.
• This is because the auditor will examine transactions and activities to ensure they are in compliance with these laws and Generally Accepted Accounting Principals (GAAP) rules.
• Ensuring that these policies are clearly documented and consistently enforced is vital for maintaining organizational integrity.
• Enter the number of times internal control assessments are performed per year.

A review is also done by a CPA, but only examines an organization’s financial statements, accounting practices, and accounts. It does not cover records, individual transactions, or internal financial controls, and therefore provides less assurance on the accuracy and presentation of the financials than an audit does. The obligation to file an independent audit report with the state government is generally just one requirement among many in connection with charitable solicitation registration.