One of the most common inquiries from nonprofit leaders is whether their organization is required to submit to an audit or financial review. The answer depends on the type and size of your nonprofit corporation. The laws that regulate independent audits of nonprofits differ from state to state. While not always required by law, some organizations are compelled to have an annual audit conducted as a best-practice and as part of a grant or funding requirement.

Nonprofit Audit or Financial Review – Which is Right for your NPO?

An audit lends a high level of credence to an organization’s financial statements. According to California law, any registered charitable corporation that receives $2 million or more must have a financial audit completed by an independent certified public accountant. This independent financial audit must be performed in accordance with generally accepted accounting principles. Audited financial statements must be made available for review by the Attorney General’s Office, along with the general public, no more than 9 months following the close of the fiscal year. During an audit of nonprofits, the auditor will review and test the nonprofit organization’s financial statements and internal controls.

Audit vs. Financial Review

As opposed to an independent audit, a financial review provides “limited assurance” that an organization’s financial statements do not need material modifications to be fairly stated. Less comprehensive than an independent audit, financial reviews are usually the choice of newer, smaller nonprofit organizations that are not required to submit to an independent audit by law.

More budget-friendly than a full-scope audit, financial reviews provide nonprofits with limited resources a viable alternative to an independent audit. In some cases, funders will accept a financial review in lieu of an audit, especially when the organization is still in its infancy. Some funders, especially those in the Government sector, require an independent audit, regardless of an organization’s size or budget. Nonprofit organizations may also choose to have an audit conducted every other year, or whenever a notable change takes place. During years when an audit of nonprofits is not conducted, they may opt for a financial review instead.

Before making a final decision to opt for an independent audit or financial review of your nonprofit organization, it’s wise to conduct some general research.

Our knowledgeable and experienced CPAs will help you decide whether you need a nonprofit audit or financial review.  We will consider all factors and what will work best for your organization. Contact us to discuss your goals and needs at (925) 933-2626 or, email us at info@winttercpa.com.