Some of these reasons come from external sources, but regular audits can also be an excellent long-term practice for your organization. These can assess your organization’s systems, productivity, staffing, IT, HR, and other functions and can provide operational insights that are invaluable to the growth and success of your nonprofit. Whether it’s an IRS audit, external audit, or even an internal audit, the process can feel burdensome and worrying. Let’s talk about how we can support your audit readiness—whether through ongoing financial leadership or a one-time engagement designed to set you up for success. For detailed information on specific state requirements, you can refer to the State Law Nonprofit Audit Requirements Guide.

The Nonprofit Audit Guide

By understanding these procedures, your nonprofit can fortify its operations and achieve long-term success. The frequency of audits can vary, but many nonprofits undergo annual audits. The requirement may depend on the size of the organization, funding sources, and regulatory requirements. Off-the-shelf accounting software does not have the proper internal controls to meet this SAS requirement.

Do You Struggle to Make Sense of Your Financial Statements?

As a matter of fact, the Inflation Reduction Act provided the IRS with an additional $80 billion. This additional IRS funding may enhance enforcement capabilities, potentially increasing scrutiny of nonprofit audits. This heightened scrutiny underscores the necessity of audits to ensure compliance and financial health. Adopting best practices can significantly enhance the audit process and the quality of audited financial statements. In the past, you may have seen the terms “reportable condition” and “material weakness” in your audit reports. The term “material weakness” will still be used, but its definition has changed.

• When auditing becomes a standard practice within your organization, your board, staff, volunteers, and donors understand their responsibilities and hold themselves and others accountable.
• If any of these requirements apply to your nonprofit, that doesn’t necessarily mean you’ll need to conduct an independent audit every year going forward.
• Some of these actions may be simple improvements that add up to make a significant difference in your operations, while others may be more complex changes that will take time and effort to implement.
• Nonprofit audit requirements can differ depending on your organization’s size, revenue, and funding sources.
• Shortly after receiving the report, schedule a leadership team meeting to review it in detail and create an action plan that addresses everything the auditor identified across all relevant areas of your organization.
• While audits can be onerous, the process presents the ideal opportunity for verifying that everything is in order with your nonprofit’s finances.
• Your board will give the auditing committee authority to oversee all audits, including hiring and evaluating an independent auditor.

Question: What are the key audit requirements for nonprofits receiving federal funds?

Donors and board members rely on audit results to understand how effectively the organization is managed and whether resources are being used as intended. In https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ many states, audits are also legally required once certain revenue thresholds are met. Audited financial statements for nonprofits are comprehensive financial records that have been examined and verified by an independent auditor. They ensure the accuracy, completeness, and compliance of the financial information with accounting standards and regulations. Examining successful nonprofit audits can provide valuable insights into best practices and effective strategies.

For more information about the IRS’s general oversight of nonprofits and federal tax issues affecting nonprofits, you may visit the IRS’s Charities & Nonprofits webpage. The size of the organization and the complexity of its financial transactions are the primary factors that affect the cost and time of an audit engagement. Other factors include the number of locations, the number of employees, the number of funders, the number of volunteers, and the geographic dispersion of the organization’s operations. A financial audit may also be an official prerequisite as part of the application process when you seek a grant, particularly when the funders are government agencies or corporations. Regular audits reinforce your nonprofit’s transparency, strengthen donor trust, and help you stay on a good footing financially. Not all nonprofits are required to undergo an audit, but there are specific circumstances when it may be necessary.

Beyond Compliance Digital Magazine: Q2 2025 Issue

This is a perfect example of the deficiency inherent in off-the-shelf accounting software in their inability to generate financial statements for your audit. If your auditor creates financial statements for your audit, then they will report a deficiency in operation on your audit report. SAS 112 and nonprofit audit standards is an audit that redefines the types of internal control issues that will be reportable. The auditor will also look at the nonprofit’s financial statements from previous years, if they are available.

This potential occurrence is another good reason why accounting records should be consistently kept in order. It also makes the case for a regular independent audit to flush out issues in advance of an initial contact letter from the IRS. However, even if your nonprofit isn’t required to undergo an audit, it can still be worthwhile to conduct one to get a better understanding of your organization’s financial situation. Adding an audit requirement to your organization’s bylaws may seem redundant for many nonprofits. The additional cost to perform these audits may even feel improbable, but there are several benefits for nonprofits that perform regular internal audits. While the independent external audit is the most familiar to nonprofit organizations, the following can also support your compliance efforts.

And when you need an independent audit, consider partnering with Assurance Dimensions. Experienced accountants understand the specific regulations nonprofits face and can help ensure you meet all audit requirements. They stay current on state laws and funding guidelines, reducing the risk of non-compliance and penalties and providing security in your financial operations.

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For example, if the audit highlights gaps in financial reporting, update the financial policy to include more rigorous documentation and review procedures. Preparing for the audit is a crucial step that involves gathering all necessary documents and ensuring they are organized and ready for review. You must assemble various financial documents during the preparation phase to provide a comprehensive view of the organization’s finances. Transparency and accountability fostered by audits build trust with donors, grantors, and other stakeholders. If an organization is using off the shelf accounting software, such as QuickBooks for Nonprofits, it is likely more audit findings will be reportable.