Finally, nonprofits that understand the benefits of audits will include this requirement in their organization’s bylaws, making https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ this mandatory each year. If your nonprofit relies on grant funding, you’ve probably noticed that these organizations want financial reports that have been audited. Don’t make the mistake of trying to wade through a mess of records from the previous twelve months at the end of the year. Instead, get in the monthly habit of generating the schedules, financial statements, and notes that your auditor will need to see at the end of the year.
Understanding Policy: Key Characteristics and How it Differs from Procedure & Guidelines
Our free courses provide in-depth knowledge on key accounting principles, budgeting strategies, and reporting requirements to help your organization thrive. Even when it’s not required, many growing nonprofits voluntarily pursue a financial statement audit conducted by an independent CPA, one that adheres to GAAS and GAAP accounting services for nonprofit organizations standards. If a trigger like federal grant funding over $750K applies in a given fiscal year, a financial audit is required for that year. However, if your nonprofit falls below the threshold the following year, the audit may no longer be mandatory.
Control Overhead Expenditures and Audit Costs by Staying Audit-Ready With Smarter Nonprofit Accounting
A nonprofit’s compliance with tax laws and reporting requirements is central to maintaining tax-exempt status and avoiding penalties. Rather, it is an examination of your accounting records and financial statements by an independent auditor—normally, a certified professional accountant (CPA). The auditor is an independent professional hired and paid by your nonprofit. The auditor will do an independent investigation to test the accuracy of your accounting records and internal controls. Nonprofits challenged by limited resources need to examine each budget item carefully. For organizations with annual revenue exceeding $1 million, the cost is generally $10,000-$20,000.
- However, even if not mandated, some organizations opt for audits to boost credibility and improve internal controls.
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- Receipt of an unmodified audit opinion, or a “clean bill of health from an auditor,” lets the financial statement user know the organization is keeping its books in a responsible manner and reporting appropriately.
- Audits give your nonprofit an excellent overview of where you need improvements.
- Or, if your organization doesn’t plan to apply for any grants that request audit reports this year, even though you did so in the past, you may be able to skip this year.
- DCG has a transparent and structured pricing approach tailored to the specific needs of our clients.
Internal policies and best practices
A nonprofit audit is an independent examination of a nonprofit organization’s financial statements and records to ensure compliance. An audit can also provide insight into the organization’s financial health and help identify areas of improvement. However, many foundations, government grants, and large donors may require audited financials as a part of their giving consideration process. In some cases, a nonprofit’s board of directors may require an independent audit to fulfill fiduciary responsibilities and maintain transparency with stakeholders. An audit can serve as a financial health check as it demonstrates the nonprofit’s commitment to operating in a responsible manner.
Because audits can be so costly, nonprofits that are not required to have an audit but still want to demonstrate financial transparency may wish to explore more affordable alternatives such as a review or a compilation. An annual audit is an examination of an organization’s financial systems and transactions at the end of a year by an independent, certified, professional auditor. The audit assesses whether or not financial statements have been prepared in conformity with Generally Accepted Accounting Principles (GAAP) or Other Comprehensive Basis of Accounting commonly referred to as OCBOA.
