Why Your Nonprofit Needs a Financial Statement Audit
For nonprofit organizations across Virginia and Washington DC, the question of whether to obtain an independent audit is often driven by external requirements rather than internal preference. Funders, lenders, boards, and regulators may require audited financial statements as a condition of funding or governance.
This guide explains when a financial statement audit is required, what the audit process involves, and how to prepare for it.
When Is an Audit Required?
A financial statement audit is the highest level of assurance a CPA can provide. It is typically required in the following circumstances:
Federal Grant Recipients: Organizations expending $1,000,000 or more in federal awards during a fiscal year must undergo a Single Audit under the Uniform Guidance. This includes both a financial statement audit and a compliance audit of major federal programs.
Virginia Nonprofits: Virginia requires a financial review (not a full audit) for organizations with gross annual revenue of $750,000 or more when applying for or maintaining sales tax exemption. A full audit may be required for organizations with revenue of $1.5 million or more.
Lender and Funder Requirements: Many private foundations, major donors, and financial institutions require audited financial statements as a condition of funding or credit.
Board Governance: Even when not required, many boards choose to conduct independent audits to fulfill fiduciary responsibilities and demonstrate transparency.
The Audit Process
A financial statement audit follows a structured process:
Planning: The auditor meets with management to understand the organization’s operations, internal controls, and risk areas. A document request list (PBC list) is provided.
Fieldwork: The auditor performs testing, confirms balances with third parties, reviews contracts and board minutes, and evaluates internal controls.
Reporting: The auditor issues an opinion on whether the financial statements are presented fairly in accordance with GAAP. A management letter may identify control weaknesses and recommendations.
Follow-Up: For Single Audits, corrective action plans are tracked, and prior-year findings are reviewed in the next audit cycle.
Preparing for an Audit
Organizations can prepare for an audit by maintaining clean, up-to-date books throughout the year, documenting internal controls, and reconciling accounts monthly. A pre-audit readiness assessment can identify gaps before the auditor arrives.
When a Review or Compilation Is Sufficient
Not every organization needs a full audit. A review provides limited assurance through analytical procedures and inquiries, and is often sufficient for smaller organizations or those with fewer reporting requirements. A compilation organizes financial data into statement format without providing assurance, and is appropriate for internal management or simple loan applications.
The right level of service depends on your funders, lenders, and governance requirements.
How Nova Tax & Accounting Services Can Help
Nova Tax & Accounting Services provides financial statement audits, reviews, and compilations for nonprofits across Virginia and Washington DC. Our team also conducts Single Audits under the Uniform Guidance for organizations receiving federal awards.
For more information, visit https://novataxservices.com/audit-attestation-services/ or schedule a free consultation.
Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice. Tax laws are subject to change, and individual circumstances vary. Consult a qualified tax professional for advice regarding your specific situation.