Your CPA firm will have its own audit checklist of things they need to accomplish now to complete your audit correctly and on time. Holding back information or not being responsive may delay your audit or cost you more money. If an audit is required by law, or if a third party has strict requirements that the nonprofit conduct an audit, a review or compilation will not satisfy that requirement.
Nonprofit Audit Guide© Table of Contents
By ensuring robust financial controls and transparency, this checklist helps organizations demonstrate fiscal responsibility, which can greatly enhance donor trust and confidence. https://greatercollinwood.org/main-benefits-of-accounting-services-for-nonprofit-organizations/ These articles and related content is the property of The Sage Group plc or its contractors or its licensors (“Sage”). Please do not copy, reproduce, modify, distribute or disburse without express consent from Sage.These articles and related content is provided as a general guidance for informational purposes only.
Summary of options for independent financial evaluations
If you have qualified staff, an internal audit can be a cost-effective way to ensure your organizational controls are working. Preparing for a nonprofit audit can feel overwhelming, but with a structured approach, you can navigate the process smoothly. Below is a detailed checklist that covers all the essential steps and documentation you’ll need to assemble and organize before your audit begins. Your organization can share the information discovered in an audit and how that information is being used to improve operations with its constituents. Not only does this demonstrate your organization’s ability to embrace change but to leverage it to the nonprofit’s benefit. An audit also shows that an organization takes its finances and operations seriously and is committed to continuously improving the use of its valuable resources.
- After receiving your report, take the time to review the auditor’s suggestions carefully.
- As a result, your organization will become more efficient and financially healthy, empowering you to invest more in your mission.
- Your organization’s leadership and board of directors should review and discuss this document and then prepare a list of questions for the auditor.
- These events often involve significant donations, ticket sales, and auction proceeds, which need to be accurately reported to ensure compliance with tax regulations.
- When choosing an auditor, nonprofits should consider factors such as experience with similar organizations, knowledge of nonprofit accounting standards, and reputation within the sector.
- If a nonprofit thinks it might get an adverse or disclaimer opinion, management should resolve any potential financial issues before seeking an audit.
When does the nonprofit audit become mandatory?
Audits can also be helpful in identifying areas where your organization can improve its financial practices. Increasing donor trust in the financial health of your nonprofit can be achieved by making audited financials available upon request or on your website along with your Form 990 returns. There are two types of financial reporting that nonprofits must adhere to, the financial review and the financial audit.
Compliance and Regulatory Requirements
- Nonprofits are subject to specific accounting standards, such as the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 958, which governs the presentation of financial statements.
- 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.
- Utilizing platforms such as annual reports or social media can help organizations share their successes while remaining accountable to those who support them financially.
- It is crucial for organizations to approach these findings constructively rather than defensively.
- They build trust with donors, grantmakers, and stakeholders by providing assurance that the nonprofit’s financial practices are sound and funds are used appropriately.
You’ll also have to report these amounts (and other information) regularly to the IRS. Even if you’re self-employed with no 5 Main Benefits of Accounting Services for Nonprofit Organizations additional employees, you’re still required to remit payroll taxes on your own salary. The auditor you choose will have a big impact on the quality and actionability of your audit. So do your due diligence when choosing one—focus on finding the right firm to suit your use case.
- Security features like data encryption protect sensitive donor, financial, and organizational information, restricting access only to people you have authorized.
- Since you’ll have plenty of time to plan for most audits, you can take time to research and prepare.
- This means you need to be prepared to revise policies and procedures and even reassess your NPO’s budget to improve the operational soundness and efficiency of your organization.
- They will then examine them to identify any internal or external risks to the nonprofit organization.
- This will reveal whether the audit firm really understands your organization and its risk areas.
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. Determining when to get an audit done can often be decided by answering the question of “Is an audit required? Generally, the cost is based on the amount of time the independent auditor or audit firm spends conducting the audit. The larger the organization’s budget, and the more complex its finances, the more time the audit will take and the higher the audit cost.