In fact, they’re one of the best ways to ensure your nonprofit’s financial practices are strong, donors continue confidently supporting your work and your mission stays on track. This guide will walk you through what financial audits are, why they matter, and how to ensure your next audit not only meets compliance standards but strengthens your nonprofit’s credibility and financial practices. Posted to Jitasa on June 30, 2022, this guide helps professionals in the sector gain a basic understanding of the nonprofit auditing process. It addresses the choice whether to get an independent audit or not, the types of audits available, and the work you’ll need to do pre- and post audit.
Understanding Nonprofit Audits
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. A financial audit by an independent CPA accounting services for nonprofit organizations is performed methodically and according to rigorous criteria. One step leads to the next so the nonprofit firm has a full picture of its financial health. Overall, the audit ideally confirms that the organization is operating in accordance with generally accepted accounting principles (GAAP). They include cost principle, revenue recognition, materiality principle, and full disclosure principle, among many others. The audit helps to hold the organization accountable to its directors, its investors, and its donors.
Is your documentation ready?
Ask your network for recommendations if you don’t know a firm and try to get someone lined up at least 6 months in advance. Establishing a well-organized system for financial records is essential for a successful audit. This includes maintaining up-to-date invoices, receipts, and bank statements to ensure all transactions are easily accessible.
How long does the nonprofit audit process take?
The following checklist addresses both standard financial requirements and nonprofit-specific compliance needs that auditors will examine during fieldwork. Some of these are required by other federal or state government organizations, foundations, or nonprofits themselves. Generally accepted auditing standards (GAAS) require certain elements to be present in an auditor’s report on an entity’s financial statements that are prepared in conformity with GAAP. Refer to the AICPA Audit and Accounting Guide for additional information and examples.
- This type of audit focuses on the accuracy and completeness of financial statements.
- A poorly prepared financial report can cause management or board members to receive incorrect financial information.
- Tracking and reporting systems must capture specific financial data related to each grant, such as expenditures against budgeted categories and timeframes.
- The audit examines the organization’s financial statements, including income and expenses (such as salaries).
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The statement of functional expenses further breaks down expenses by program, management, and fundraising categories, highlighting the https://holycitysinner.com/top-benefits-of-accounting-services-for-nonprofit-organizati/ efficiency of resource allocation. The statement of activities captures the flow of resources and the fulfillment of the nonprofit’s mission. Revenues and expenses are categorized by unrestricted, temporarily restricted, and permanently restricted funds, providing transparency on resource utilization. For example, grants designated for specific projects must be clearly reflected in this statement.
- Common reasons why you might conduct a nonprofit audit are to improve your charitable organization’s financial position, transparency, accountability, and bookkeeping practices.
- 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.
- Auditor’s reports will look different for audits of financial statements for periods ending on or after December 15, 2020.
- Below are the primary balance sheet accounts (and related income statement accounts) that you will want to reconcile and roll forward.
- For example, grants designated for specific projects must be clearly reflected in this statement.
- 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.
Organizations are selected for reviews for a variety of reasons, and the scope of the audit or compliance check will vary based on the type of review. Also, the federal Office of Management and Budget says that if your nonprofit spends $500,000 or more in federal funds in a year, you’ll have to get a single audit. Donorbox is an all-in-one online fundraising platform for nonprofits of all sizes. Our simple-to-use and powerful features range from Donation Forms and Fundraising Pages to Recurring Donations, Crowdfunding, Peer-to-Peer, Events, Memberships, and more. Our tool integrates with leading CRM tools to help you utilize this data to the max!