If you work in the world of nonprofits, there’s a good chance you are familiar with the idea of having an annual, independent, NonProfit audit by a CPA.
You may be required to have an audit by your funding sources or by state law (in your home state or where you solicit contributions). But even if it is not a requirement, there may still be very good reasons for requesting a not-for-profit audit.
But there may also be another option that you haven’t considered yet.
NonProfit audits vs. financial statement reviews
Having a voluntary audit may be a good option, but you may also decide that your small not-for-profit is not quite ready to take that step. After all, these audits can be expensive and may involve a huge amount of work for everyone concerned.
A less expensive, less invasive, version of a NonProfit audit is the financial statement review, sometimes informally known as a financial review, or a CPA review.
Let’s look at the main differences below:
NonProfit audit or review? Other factors to consider
In both audits and reviews, the CPA may find material errors (e.g. pledges missing from the financial statements, in-kind support not recorded, etc.) and will propose to management that they correct the errors. Provided that management corrects the errors, the independent CPA will issue an unmodified report.
Some funding sources and banks will accept a review instead of an audit. Reviews tend to work well for smaller organizations (e.g. annual budget under $1M) that cannot afford a full audit.
A review fee can often be about half the cost of an audit. It’s an opportunity for small non-profits to get periodic meaningful fiscal expertise, especially if they don’t have a finance director. A review can be like a “dress rehearsal” for startup organizations that have never had an audit but are growing and know it will be required in the next few years.
When a comprehensive not-for-profit audit is not required, a financial statement review provides an excellent alternative with a reduced scope for organizations – involving less expense and less effort on your part.
For more information on a NonProfit Financial Statement Review or other NonProfit accounting questions, please contact WendroffCPA at 703-553-1099 or firstname.lastname@example.org.