Nonprofit Audit Preparation Guide: What You Need to Know

Contributions can be classified as unrestricted, temporarily restricted, or permanently restricted under FASB ASC 958, which provides guidelines for recognizing and classifying these streams. 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.

What are audited financial statements for nonprofits?

• Either way, you’ll learn exactly what you have to do to keep your nonprofit financially sound so you can continue allocating funds to your mission responsibly.
• Remember, to keep copies of all documentation received with your gifts (donor acknowledgement letter, cancelled check, grant agreements, etc.).
• These articles and related content is the property of The Sage Group plc or its contractors or its licensors (“Sage”).
• The “Single Audit” is designed to ensure that federal funds are used in compliance with federal regulations, emphasizing accountability and transparency.
• Once it’s done, you’ll receive a letter from your auditor with a report discussing any issues they found and any recommendations they have for your organization.
• Consequently, the laws that require a charitable nonprofit to submit audited financial statements also vary state-by-state.
• One of the quirks of working in the nonprofit sector is understanding that not all organizations are required to undergo an audit.

In summary, the benefits of regular audits extend beyond compliance; they are a crucial component in promoting sustainable growth and trust within the community. This openness not only enhances clarity regarding how donations are utilized but also builds donor trust, which is critical for long-term support and engagement. When stakeholders, including donors and volunteers, perceive a non-profit as transparent and accountable, they are more likely to invest their time and resources. Conversely, a lack of transparency can lead to skepticism and diminished support, jeopardizing the organization’s mission. Thus, prioritizing transparency and accountability is instrumental in sustaining a non-profit’s credibility and effectiveness in achieving its goals. Although many factors contribute to a non-profit’s success, transparency and accountability stand out as foundational pillars that strengthen stakeholder confidence.

• 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.
• The question of whether audits are mandatory for all organizations often depends on specific audit requirements set by governing bodies or funding sources.
• An organization’s revenue and donations are perhaps the most important aspects of running a nonprofit.
• The IRS mandates that organizations exceeding certain revenue thresholds undergo regular audits to maintain their tax-exempt status.
• The statement of activities captures the flow of resources and the fulfillment of the nonprofit’s mission.
• This highlights the importance of efficient and strategic planning during the audit process to ensure sustainability and growth.
• This audit is required for nonprofits that spend $750,000 or more in federal funds in a fiscal year.

What are the different types of nonprofit audits?

In many states, audits are also legally required once certain revenue thresholds are met. With a clear understanding of the audit process, the right tools, and a comprehensive checklist, you can approach audit season with confidence. Regular audits not only guarantee compliance and financial transparency but also build trust with donors and stakeholders, paving the way for your organization’s continued growth and success. Before issuing the final audit report, the auditors will issue a draft of the audited financial statements and any necessary audit adjustments. You should meticulously review each proposed reclassification or adjustment to ensure they are reasonable and accurate. A third-party auditor or firm certified in single audits conducts this type of audit to ensure the nonprofit has used federal funds for their intended purpose.

Assessing Detection Risk in Contemporary Auditing Practices

References from other organizations in your field will help you identify firms with experience in the different types of audits for nonprofits. Fund accounting allows https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ nonprofits to segregate financial resources based on their intended purpose, ensuring accountability and transparency. Separate ledgers for general funds, restricted funds, and endowments enable accurate tracking of resource allocation and expenditure. Revenue recognition in nonprofit organizations requires careful consideration of donor intent, grant conditions, and the timing of resource inflows.

Classy’s comprehensive fundraising platform offers unified giving tools that help optimize the donation process. In fact, 95% of Classy’s customers choose our platform year after year for the highest-quality solutions. Having a third-party perspective (someone paid to do the audit) means you’ll receive objective advice from someone less likely affected by relationships or emotions. They’ll provide you with actionable recommendations and let you know when you need to change a certain practice. At G-Squared Partners, audit readiness isn’t an afterthought—it’s built into everything we do.

• If the auditor finds any weaknesses in the internal controls, they will report them to the board of directors.
• These insights facilitate strategic decisions, streamlining functions and ensuring nonprofits operate efficiently and effectively.
• PrimeGlobal is not a partnership and independent member firms are not acting as agents of PrimeGlobal or other independent member firms.
• To meet regulatory deadlines, complete your audit before filing your annual tax return.

Throughout the audit preparation process, it’s crucial for all members of the organization to collaborate and support the effort. This not only makes the process more efficient but also fosters a culture of compliance and transparency that can strengthen the organization’s credibility and capacity to fulfill its mission. Nonprofit audits are more than just a statutory requirement; they serve as a powerful tool for organizations to enhance credibility, identify improvement opportunities, and maintain legal and regulatory compliance. That’s why our in-house team of 6 former nonprofit auditors helped put together this guide to nonprofit audit checklist to make sure  your audit goes as smoothly as possible. Internal audits are conducted by the organization’s own staff and are accounting services for nonprofit organizations used to assess the organization’s internal controls and procedures.

We also use different external services like Google Webfonts, Google Maps, and external Video providers. Since these providers may collect personal data like your IP address we allow you to block them here. Please be aware that this might heavily reduce the functionality and appearance of our site.

How to Choose an Auditor?

Organizations that prioritize audits can strengthen operations and improve donor confidence. A nonprofit audit is a systematic examination of an organization’s financial statements and related operations to ensure accuracy, compliance with applicable laws and regulations, and adherence to internal controls. It plays a crucial role in maintaining financial integrity and transparency within nonprofit organizations. Nonprofit audits typically include evaluating internal controls, analyzing financial data, and assessing risks. States like Ohio and Georgia introduce additional layers of complexity with their own distinct audit thresholds and reporting requirements, often going beyond federal mandates.