Personal and business Tax

For nonprofit organizations, financial transparency is the bedrock of donor trust and public confidence. But not every organization needs the same level of financial scrutiny. Understanding the differences between a financial statement audit, a review, and a compilation helps you choose the right level of assurance for your organization’s needs and budget. The Three Levels of Assurance Financial statement services provide three distinct levels of assurance, ranging from the highest level (audit) to no assurance (compilation). Each service serves a different purpose and is appropriate for different circumstances. Compilation: No Assurance A compilation is the most basic level of financial statement service. The CPA organizes your financial data into formal financial statements in accordance with accounting standards, but performs no verification or testing. No assurance is provided that the statements are free from material misstatement. When it’s appropriate: Internal management reporting Tax preparation Small loan applications where assurance is not required Newer nonprofits with simple operations Grant applications that do not require audited statements What it includes: Presentation of financial data in statement format No inquiry, analytical, or verification procedures A compilation report that clearly states no assurance is provided Review: Limited Assurance A review provides limited assurance, sometimes called “negative assurance.” The CPA performs analytical procedures—examining trends and relationships among financial data—and makes inquiries of management to assess whether the statements are plausible and free from material misstatement . When it’s appropriate: Nonprofits with revenue between $100,000 and $1,000,000  Board members seeking a comfort-level report without the cost of an audit Lenders or grantors who require limited assurance Organizations preparing for a future transition to an audit What it includes: Analytical procedures to identify unusual trends or unexpected differences Inquiries of management about the financial statements No testing of transactions or confirmation of balances with third parties A review report stating that nothing came to the CPA’s attention suggesting material misstatement Audit: Reasonable Assurance An audit provides the highest level of assurance—reasonable assurance that the financial statements are free from material misstatement and are presented fairly in accordance with GAAP. The CPA performs extensive testing, confirms balances with third parties, evaluates internal controls, and issues an opinion on the financial statements . When it’s appropriate: Federal grant recipients expending $1,000,000 or more in federal awards (Single Audit) Organizations required by state or local law to have audited financials Major donors or grantors requiring audited financial statements Organizations with significant financing or lender requirements Boards seeking the highest level of financial oversight What it includes: Comprehensive risk assessment Walkthroughs and testing of internal controls Substantive testing of transactions Confirmation of key balances with banks, donors, and grantors Review of contracts, grant agreements, and board minutes An audit opinion on the fairness of the financial statements Factors to Consider When Choosing a Service Stakeholder Requirements The primary driver is often external requirements. Loan agreements, grant letters, and state rules should specify the required level of service. Major donors, private foundations, and government agencies frequently require audited financial statements as a condition of receiving funds. Organization Size and Complexity Smaller organizations with simpler operations may find that a review or compilation meets their needs. As organizations grow and their operations become more complex, the need for a full audit often increases. Cost Considerations An audit is significantly more expensive than a review, and a review is more expensive than a compilation. Many organizations move between these levels over time as their needs and budgets evolve. Virginia Nonprofit Audit Requirements Organizations with income under $25,000 in Virginia may file a certified treasurer’s report containing a balance sheet and income and expense statement instead of an audit or IRS Form 990 . For organizations with higher revenue, Virginia law may require a financial review or audit, particularly when applying for or maintaining certain state tax exemptions. The Audit Program For organizations undergoing an audit, the audit program will vary with the type of nonprofit, its volume of income, and the complexity of its operations . Key areas of emphasis include: 1. Proper Authorization of Activities and ExpendituresThe budget and board of directors’ minutes are the usual source of verification of a nonprofit’s activities. Committee chairs are generally required to authorize any expenses from their budget funds. Employees often document their own timesheets and expense records, with a second party reviewing these documents each month . 2. Determination of the Physical Existence of AssetsVerification of bank balances, count of securities owned, and count of merchandise help the audit team determine physical existence of assets. Examination of deeds and tax assessments applies when real property is owned by a nonprofit . 3. Ascertaining That Returns and Reports Are Filed in a Timely FashionA nonprofit has the same obligation to file tax returns and corporate reports as a for-profit organization. Failure to comply will expose the nonprofit to possible fines or penalties . How We Can Help At Nova Tax & Accounting Services , we help nonprofits choose the right level of financial assurance and prepare for a smooth audit or review experience. Our audit and assurance services include financial statement audits, reviews, compilations, and Single Audit compliance. We also provide Form 990 preparation and nonprofit consulting to help organizations strengthen internal controls and maintain compliance. Schedule your free consultation today to discuss your organization’s needs.  Nova Tax & Accounting Services | Audit & Assurance Services | Form 990 Preparation | Schedule a Consultation External Links: IRS Charities and Nonprofits | Uniform Guidance (2 CFR Part 200) | Virginia Department of Taxation Nonprofit Resources

For organizations that receive federal funding, the Single Audit requirement represents one of the most significant compliance obligations they face. In 2024, the Office of Management and Budget (OMB) raised the Single Audit threshold from $750,000 to $1,000,000, effective for fiscal years beginning on or after October 1, 2024 . This change brought relief to many smaller organizations but also created confusion about which entities must undergo the rigorous audit process. What Is the Single Audit Threshold? The Single Audit threshold determines whether a non-federal entity—including nonprofit organizations, state and local governments, and other federal award recipients—must obtain a Single Audit for its fiscal year. Under 2 CFR 200.501, any entity that expends $1,000,000 or more in federal awards during its fiscal year must have either a Single Audit or, in limited single-program situations, a program-specific audit conducted for that year . The threshold is based on federal awards expended during the fiscal year, not on awards received. This distinction is important because organizations may receive awards in one year but expend them over multiple years. The threshold applies to the total amount of federal funds actually spent, not the total amount awarded or drawn down. Who Is Affected by the Single Audit Threshold? The Single Audit requirement applies to all non-federal entities that expend federal awards, including: Nonprofit organizations (including 501(c)(3) organizations, foundations, and charities) State and local governments Public housing authorities Colleges and universities Healthcare providers Tribal organizations For-profit entities (only when explicitly required by the award or agency) For most for-profit businesses, the Single Audit requirement does not automatically apply. However, some federal awards or agencies may specifically require a Single Audit or program-specific audit as a condition of the award. What a Single Audit Includes A Single Audit is more comprehensive than a standard financial statement audit. It combines: A Financial Statement Audit: Examines the accuracy of your financial statements and internal controls over financial reporting. A Compliance Audit: Assesses whether your organization has followed the specific rules, regulations, and terms of each federal award or program under the Uniform Guidance. This means the audit is not just about the numbers, but also about how federal funds were managed, documented, and reported. The audit includes testing of internal controls over compliance and compliance testing for major federal programs . 2026 Single Audit Updates OMB published a proposed rewrite of 2 CFR Part 200, the Uniform Guidance, in the Federal Register on May 29, 2026 . The proposal does not lower the Single Audit threshold or reverse the 15% de minimis indirect cost rate. Both remain in effect at $1,000,000 of federal awards expended and 15% of modified total direct costs . The proposal instead targets broader grant administration policy, including pre-issuance review of selected discretionary awards and expanded agency termination authority. The audit framework in Subpart F is being refined, not rebuilt . If finalized, the proposed rule contemplates an effective date as early as October 1, 2026, which would align with the start of the federal fiscal year . How to Determine If You Need a Single Audit To determine whether your organization needs a Single Audit: Calculate total federal awards expended during your fiscal year. This includes all federal grants, contracts, cooperative agreements, and other federal assistance. **Compare the total to the $1,000,000 threshold.** If the total equals or exceeds $1,000,000, a Single Audit is required. If you are below the threshold, no Single Audit is required, but you may still need to comply with other audit requirements from state or local governments, grantors, or funders. For HUD multifamily entities, be aware that the REAC FASS-MF system still validates against the old $750,000 threshold, creating a compliance gap . Entities expending between $750,000 and $999,999 must navigate this system issue carefully. How We Can Help At Nova Tax & Accounting Services , we provide Single Audit (Uniform Guidance) services for nonprofits, government entities, and other federal award recipients. Our team helps you prepare for a smooth Single Audit experience, organize your grant documentation, and address any findings or questioned costs. We also assist with pre-audit assessments to identify and address potential issues before the audit begins. Schedule your free consultation today to discuss your Single Audit needs.