Nonprofit Audit: In-Depth Guide to Audited Financial Statements

We’ll dive into what these are, why these are important, the different types of audits, how to choose the right auditor, and more. Auditors will review your financial statements and assess the accuracy of their reporting. They will also look for misstatements or irregularities that could indicate fraud or other issues.

Not-For-Profit Audit and Review Costs

A compilation is the least in-depth examination of financial statements and provides no assurance as to the accuracy of those statements. In a compilation, the CPA simply collects the financial data provided and puts it into a format that complies with GAAP, without conducting any of the testing done in an audit or the analysis done during an audit or review. At NPact, we understand the importance of financial transparency, compliance, and accountability for non-profits and community foundations. Year-end audits are a crucial part of this process, ensuring that your organization remains in good standing and maintains the trust of its donors and stakeholders. We’ve compiled a comprehensive non-profit audit checklist to help guide you through streamlining the process. Auditors will also review any operational issues such as processes and procedures, employee management, inventory control, and financial reporting.

Respond to Management Letters

Some nonprofit organizations even specify how often they should be conducting audits in their bylaws. Auditing a nonprofit organization may seem like a daunting task, but it doesn’t have to be. In this article, we’ll explain how to audit a small nonprofit organization—from choosing an auditor to preparing and compiling key financial documents. We’ll also discuss how to analyze the data collected during an audit and provide some tips for ensuring your audit is successful. To summarize, a review is a less intensive examination of financial statements than an audit that provides moderate assurance. The accountant performing the review assesses whether the financial statements are plausible and in accordance with accounting standards.

3 Grants

For example, if your nonprofit is based in California and you have a gross income of $2 million or more, you will be required to get annual audits. After they receive the items on the PCB list, your auditor will begin conducting the audit. Once it’s done, you’ll receive a letter from your auditor with a report discussing any issues they found and https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ any recommendations they have for your organization. The primary purpose of the auditing committee is to find an independent auditor. You must start working with an auditor early enough to meet external and internal deadlines. It’s recommended that you find and begin working with the auditor 4 to 12 weeks before the deadline.

The one condition is that annual contributions must exceed $300,000 for the group to use an independent CPA to submit audited financial statements. If donations fall below this threshold, the nonprofit audit is only necessary if the charity employs a fundraising professional for solicitation. Yearly collections falling beneath $25,000 need not file any audited financial records.

• In the Guide, you can get information about what will happen at every stage of your independent audit.
• Reviews provide transparency to stakeholders, funders, or donors, and they are often expected to be undertaken even when they are not mandated.
• By learning from real-life examples and adopting best practices, nonprofits can overcome common challenges and ensure the accuracy and reliability of their audited financial statements.
• Inevitably, staff members are involved in the audit field work and in preparing the documents that are reviewed by the auditors.
• A nonprofit audit is an independent examination of audited financial statements and records to ensure compliance.
• Federal grants in the United States, for example, may require adherence to the Uniform Guidance (2 CFR 200), which outlines administrative, cost, and audit requirements.

Explore essential practices and insights for effectively auditing nonprofit organizations, focusing on unique financial and compliance aspects. For nonprofit executives, a successful financial audit is both a compliance milestone and a strategic advantage. With proper planning, strong internal systems, and board involvement, audits can become opportunities for growth—not just obligations. Use them to reaffirm your organization’s commitment to integrity, transparency, and fiscal responsibility.

• For starters, the Internal Revenue Service (IRS) rarely has a reason to audit your organization—since you’re a nonprofit and don’t pay taxes.
• It also makes the case for a regular independent audit to flush out issues in advance of an initial contact letter from the IRS.
• We can provide the expertise and staff augmentation required to ensure your audit is a success.
• They go beyond compliance, providing a window into an organization’s financial management and adherence to accounting principles.
• Nonprofit organizations can learn from this by ensuring their data is as comprehensive and categorically clear as the demographic information collected by Candid.
• Nonprofit audits typically include evaluating internal controls, analyzing financial data, and assessing risks.

Assessing Detection Risk in Contemporary Auditing Practices

An auditing committee is optional if you have a finance committee, but it may help your organization keep up to date with internal and external audit requirements. This type of audit generally addresses issues with your tax return, discrepancies between your organization’s and freelancers’ or employee returns, or if a division of the IRS issues an IRS-wide examination. Also, regular audits can help your organization receive more funds by encouraging accountability and transparency with your donor base. NFF regularly produces tools and resources like this to help nonprofits navigate big questions, challenges, and opportunities.

• For example, nonprofits receiving $750,000 or more in federal funding annually are subject to a Single Audit under Uniform Guidance.
• Addressing these challenges is essential for accurate and reliable audited financial statements.
• Non-profit companies must comply with applicable accounting standards as prescribed by the Institute of Chartered Accountants of India (ICAI).
• NFF regularly produces tools and resources like this to help nonprofits navigate big questions, challenges, and opportunities.
• Firstly, auditors must reach a complete understanding about reviewing specific financial statements during the audit process.
• These independently verified documents provide an in-depth look at an organization’s financial health, ensuring that the information presented is accurate, complete, and compliant with regulatory standards.

What Is a Nonprofit Audit? Ultimate Guide + Checklist

Read more detailed information about the staff’s role and preparing for the auditor’s fieldwork. Such organizations are involved in activities like education, the healthcare sector, scientific and The Key Benefits of Accounting Services for Nonprofit Organizations professional service, entertainment, religious acts, and social assistance. NPO, also known as a non-profit organization, is a specific kind of organization which aims at solving social causes and serving people at large. The source of revenue in such type of organization is by way of donations, charity programmes, fund-raising events or fees charged to people for becoming members of such organization.

‍Compliance audits review your organization’s adherence to regulations and requirements set by the federal, state, and local governing entities as well as your bylaws and other compliance requirements. Not conducting an audit can be detrimental for a nonprofit organization, as they risk not meeting important regulations or requirements which can lead to fines, penalties, and other sanctions. The purpose of such an audit is to ensure that the organization is in compliance with applicable laws, regulations, and accepted accounting principles. Unless a not-for-profit audit is mandated, it is a best practice to conduct a review as they are less expensive. Reviews provide transparency to stakeholders, funders, or donors, and they are often expected to be undertaken even when they are not mandated.