What Is a Nonprofit Audit? Ultimate Guide + Checklist

Take our 2-minute survey to find out if outsourced accounting and bookkeeping is a good fit for your organization. We’ll help clean up your books and implement state-of-the-art systems to save you time and bring your accounting department into the 21st century. An audit shows your organization is trustworthy, compliant, and well-managed.

• One or a group of IRS agents show up to your organization and begin to file through your financial paperwork.
• If your audit is optional, you can simply consider when your team will have adequate time to prepare for it and implement the recommendations.
• If your nonprofit relies on grant funding, you’ve probably noticed that these organizations want financial reports that have been audited.
• And quite simply, conducting an independent audit is good practice (although cost benefit analysis should be made).
• In most cases, the audit results in a conclusive opinion— positive assurance—on the fairness of the not-for-profit’s financial statements after an independent examination by an objective third-party auditor.
• An audit gives the agency confidence that your organization is managing resources responsibly.

Grant Funding Requirements

It is an in-depth examination of an organization’s financial statements, records, accounts, business transactions, accounting practices, and internal financial controls, conducted by an independent licensed CPA. It provides the most assurance on the accuracy and presentation of the financial data and systems, based on the application of generally accepted accounting principles (GAAP). Most government, public or private foundations require independently audited financial statements when applying for funding, regardless of state law. Organizations with gross revenue greater than $1,000,000 as indicated on your 990 or business tax return, must have an independent audit report completed by an independent certified public accountant. All financial statements must be signed by an independent certified public The Key Benefits of Accounting Services for Nonprofit Organizations accountant on the auditor’s letterhead. During the independent audit, the auditor will review the organization’s financial statements to determine whether they adhere to “generally accepted accounting principles” (commonly referred to as “GAAP”).

Who should be a part of the audit committee?

Preparing an audit for a nonprofit requires careful planning and consideration of best practices. From establishing goals to reporting findings, there is an organized process that should be followed to ensure accuracy and efficiency when conducting the audit. The first major difference between an independent audit and an IRS audit is that you won’t have an IRS agent showing up at your organization’s offices.

Best Practices for Nonprofit Audit

Whether your organization is obligated to obtain an audit or not, there are many positives that will help your nonprofit as it https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ moves forward. This document should provide a structured way to evaluate potential auditors. The circumstances  where an organization can request an audit or review waiver have also changed.

• Now that we have grasped the purpose of the audit, let’s understand its frequency for nonprofit organizations.
• The first major difference between an independent audit and an IRS audit is that you won’t have an IRS agent showing up at your organization’s offices.
• A set of principles devised during a meeting of Charities officials in Charleston, South Carolina, called the Charleston Principles, addresses the issue of internet solicitation.
• While not a legal requirement, some nonprofits conduct annual audits voluntarily to demonstrate transparency to donors, board members, and the public.
• Your company withholds FICA taxes (along with their federal income taxes) from your employees’ paychecks.
• Comparatively, in performing an audit, the auditor must corroborate the ending balances in the client’s accounts and disclosures.

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. A review will cost your organization around half as much as a regular audit.

• However, most organizations choose to have a financial audit conducted every year once they reach a point of needing one.
• Every CPA firm has a couple of nonprofit clients they handle, but this does not make them experts.
• If your nonprofit is small or has minimal revenue, an audit might not be necessary or required.
• This payment must be deposited quarterly to the EFTPS by the last day of the month after the end of each quarter.
• Alright, we’ve covered the frequency; now, let’s discuss why audits are so critical.
• Brady Ware Nonprofit Advisors want to help you fulfill your mission with financial health and compliance services and a network of nonprofit consultants who specialize in strategic decision-making.
• This examines whether your operation adheres to applicable laws, regulations, and funding requirements.