Most nonprofit organizations require an annual audit by a CPA. Smaller organizations can get by with what is called a review – or an “audit light.” For personnel who work in the accounting department, it’s too often anxiety time but audits can be an event to look forward to as they affirm your worthiness. If, as an organization, your financial reporting falls short of five stars (i.e., a clean audit), don’t despair; you will know what has to be done to get there next year.
Purpose – An audit is designed to ensure that financial reports are “reasonably accurate” while presenting the information in agreement with Generally Accepted Accounting Principles (GAAP). However, there are a few things to keep in mind. First, auditors only review the financial statements that you create internally and conduct various tests and confirmations to reach an opinion on their fairness and accuracy. Also, there’s a common misconception that audits are designed to search out fraud. Auditors do perform special-purpose forensic audits designed for that purpose, but not as part of the regular audit. If they fortuitously find it, of course, they’re obligated to report it to management and the Board. An important part of the audit is to review the system of internal controls. A weak system puts the organization at risk of fraud and could result in a qualified opinion. [Read more…]