These efforts not only support the organization’s financial health but also build trust with donors, grantmakers, and other stakeholders. The Financial Accounting Standards Board (FASB) principles require auditors to issue a report to the board of directors, presenting a professional opinion about the nonprofit’s financial practices. It will determine whether the audited financial statements represent the financial position of the organization without inaccuracies or material misrepresentations.
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Our CPAs are experienced in nonprofit financial audits and have the tools and information you need to prepare you for a smooth auditing process. Auditors examine funding agreements, donation receipts, and grant compliance to ensure that funds are used for the intended purposes and in accordance with donor requirements. Fund accounting allows nonprofits to segregate financial resources based on their intended purpose, ensuring accountability and transparency.
Steps to Prepare for a Successful Nonprofit Audit
However, they do still happen, so it is good to be aware of the possibility and everything the process entails. Knowing the reasons that organizations do end up getting audited by the IRS is important and can help instruct your organization on ways to operate properly in order to avoid ever being in that situation. Doeren Mayhew has a wealth of experience to offer you in your next nonprofit audit. A review points out issues with an organization’s finances and management’s response to those issues, without offering additional opinions, solutions, or comments. A review might therefore be helpful in pointing out issues before heading into an audit, if a nonprofit hasn’t previously had an audit. A nonprofit might also consider getting a review one year and an audit the next if an audit is too expensive to maintain on a yearly basis.
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They will then determine whether there are any modifications that should be made to your financial statements in order for them to conform with GAAP. The CPA will not share their opinion on whether or not your financial statements are in accordance with GAAP. The key benefit of a review is that many funders will accept a review in place of an audit. While IRS audits of nonprofit organizations are uncommon, they can still occur for a variety of reasons. Many websites report that the IRS does not require nonprofits to obtain audits regularly, which is true.
Organize Key Documents
These requirements, governed by accounting standards and regulations, ensure financial information is presented accurately. This system ensures resources are used according to donor restrictions and organizational objectives. For example, an endowment fund may stipulate that only income generated can be used for specific programs, while the principal remains intact. Proper fund accounting practices ensure these stipulations are honored and reflected in financial statements, providing stakeholders with a clear view of financial health and resource management. Tracking and reporting systems must capture specific financial data related to each grant, such as expenditures against budgeted categories and timeframes.
- It follows from this that transactions not yet posted should be noted by auditors.
- Thirty-nine states (plus the District of Columbia) require charitable nonprofits to register with the state in order to fundraise in that state.
- Audits are an independent evaluation and presentation of a nonprofit’s financial information prepared by a Certified Public Accountant (CPA).
- We’ll dive into what these are, why these are important, the different types of audits, how to choose the right auditor, and more.
- For example, nonprofits receiving $750,000 or more in federal funding annually are subject to a Single Audit under Uniform Guidance.
Audits, Reviews, and Compilations, Oh My!
Once again, be as cooperative as possible and set aside time to work with your firm and get them all the documents they need. If you’re not available, the auditors can’t do their jobs and may even suspect that there’s something you don’t want them to find. Although you’ll need to put in effort to prepare beforehand and apply the auditor’s recommendations afterward, the benefits of financial auditing typically outweigh these costs. Kristine Ensor is a freelance writer with over a decade of experience working with local and international nonprofits.
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. Our nonprofit CPAs pride themselves on our thorough approach to our audits, and the first step of our evaluation is to determine whether your nonprofit warrants an audit.
Financial audits primarily look at your nonprofit’s financial statements to find opportunities for improvement. The auditor may suggest ways to cut costs or recommend changing certain internal controls. Auditors or auditing firms will look at your financial statements, internal controls, and best practices to find areas for improvement. Common reasons why you might conduct a nonprofit audit are to improve your charitable organization’s financial position, transparency, accountability, and bookkeeping practices. In short, it helps you keep track of your donations and expenses and ensures no malpractice behind closed doors. For nonprofits, audits are more than just a regulatory requirement–they’re a tool for safeguarding the organization’s mission and financial health.
The Sarbanes-Oxley Act requires publicly traded companies to rotate lead auditors — not necessarily audit firms — every five years. While this provision of the Sarbanes-Oxley Act of does not apply directly to nonprofits, it is https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ still a wise practice for a nonprofit to consider how to rotate its lead auditor. Auditor independence may also be compromised if the audit firm provides consulting services to a client nonprofit. As a result, it is considered “best practice” to refrain from engaging the same individual or firm for both auditing and non-auditing services (other than filing IRS annual reports, such as the IRS Form 990). The importance of nonprofit audits extends beyond mere compliance; they are crucial for maintaining transparency and accountability within financial operations.