Talk with your banker or a trusted nonprofit auditor to clarify what level of assurance your organization needs. While it still involves an independent CPA examining the organization’s financial statements, the level of analysis is significantly less detailed. Rather than performing extensive testing, the CPA primarily conducts analytical procedures and inquiries to determine whether the financial statements appear reasonable. Implementation may involve revising existing policies or procedures, providing additional training for staff members, or investing in new technology solutions that enhance financial management practices. Nonprofits should also consider establishing a timeline for implementing recommendations and regularly reviewing progress toward achieving these goals. By actively working on improvements suggested by auditors, organizations can strengthen their operations while demonstrating their commitment to accountability and transparency.

Does the IRS audit nonprofit organizations?

At James Moore, our nonprofit assurance professionals provide both reviews and audits of various types of nonprofit entities. Here’s a rundown of what each entails and what might be best for your organization. Doeren Mayhew has a wealth of experience to offer you in your next nonprofit audit. It is advisable to solicit proposals from multiple firms to compare services, fees, and approaches to auditing. Engaging with an auditor who understands the unique challenges faced by nonprofits can lead to more insightful recommendations and a smoother audit experience. Once an auditor has been selected, it is essential to establish clear communication channels.

Financial Audit for Nonprofits: A Complete Guide

Auditors or auditing firms will look at your financial statements, internal controls, and best practices to find areas for improvement. As part of the audit process, nonprofits must prepare accurate financial statements and disclosures that comply with generally accepted accounting principles (GAAP) or other relevant standards. These statements serve as the foundation for the audit and must reflect the organization’s financial position accurately. Nonprofits should ensure that all transactions are recorded correctly in their accounting system and that any necessary adjustments are made prior to the audit. If a nonprofit’s financial position opens it up for an audit, one possible scenario is the field audit. This involves an on-site visit by an IRS agent to discover where and how financial information is maintained.

Key Differences in Nonprofit Auditing

• The audit is free of consultation with the IRS and devoted solely to evaluating internal controls and documentary accuracy.
• Before you face your official audit, conduct a self-lead financial review of your organization.
• This involves creating controls or procedures ensuring corrective actions should any issues arise during future audits.
• They’ll also provide recommendations for improving financial practices and addressing any issues they identify.

Ledgers and financial statements are checked and re-checked in search of duplications, omissions, or mathematical miscalculations. They will then examine them to identify any internal or external risks to the nonprofit organization. They might also relate to cash management practices or internal control systems. Auditors will then evaluate the potential effects that these risks could have on the accuracy of the financial statements or on compliance with applicable laws and regulations. There are a few different types of audits that a nonprofit organization can go through.

• This is particularly important if your organization has the technological means to run paperless nonprofit audits.
• Knowing exactly what you are looking for will make reviewing proposals and interviewing prospective audit firms more productive and meaningful when you get to that point.
• These interviews help gauge understanding of processes, controls, and significant financially relevant activities.
• 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).
• So do your due diligence when choosing one—focus on finding the right firm to suit your use case.

This commences with extensive research and continues with winnowing the field of auditors with interviews and deeper questions, issuing a request for proposal (RFP) by an auditing firm, and making a final choice. A review shares the goals of an audit, however, a review is not conducted with the same level of investigation or analysis as an independent audit. 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. Choosing the right nonprofit auditor involves more than just finding someone who can perform the audit.

It follows from this that transactions not yet posted should be noted by auditors. To conduct an independent audit thoroughly, examiners must likewise analyze payments to the firm’s vendors, staffing agencies, office supply wholesalers, and maintenance services, for example. Furthermore, any undeposited funds that are held by the organization require identification and tabulation. Sound financial practices demand that the accounting services for nonprofit organizations enterprise works from a sufficient base of capital, a reality that an independent audit will confirm or question.

Conduct the audit

It accurately reflects transactions https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ in compliance with generally accepted accounting principles (GAAP). Nonprofit audits typically include evaluating internal controls, analyzing financial data, and assessing risks. Your organization’s stakeholders should determine when the audited financial statements need to be finalized. This date often hinges on the date of the board meeting at which the audit firm formally presents the audited financial statements to board members.