Going through an audit can be a very daunting experience. That goes for both independent audits of your financial statements as well as those necessitated by the IRS. Even though an independent audit has a completely different purpose than an IRS audit, the process can feel equally stressful if you don’t know what to expect. So, how do you know if you need a financial statement audit? When should you begin?
Determining the Need: Why an Audit is Necessary
Annual independent financial statement audits are mandatory for most nonprofits. Any third party that has a significant agreement with your nonprofit could require a financial statement audit for reporting and compliance. State agencies, donors, and your nonprofit’s governing board all could require an audit depending on your particular circumstances.
Here are a few examples:
- Illinois nonprofits that have gross receipts over $300,000 are generally required to file with the state’s Attorney General.
- You’ll also need a financial statement audit to comply with the Illinois Attorney General if you’re using a professional fundraiser who’s collecting over $25,000 during their campaign.
- A grantor or donor may require an audit if they’re potentially giving your organization a substantial amount. The audit is a requirement for receiving the donation.
- If your nonprofit has an outstanding loan, it’s possible that the lending party may require an audit as part of the loan agreement.
- If your organization expends $750,000 or more in federal awards and grants, you may be required to perform additional audit procedures related to a Uniform Guidance audit. This should be communicated to your audit firm as soon as possible to properly plan the audit.
Staying Ahead of the Curve: When to Schedule an Audit
Nonprofit organizations should re-evaluate throughout each year to determine whether or not you’ll need a financial statement audit. The planning for an audit should take place before your fiscal year end. The need for an audit shouldn’t ever come as a surprise, so it’s important to consistently keep track of your gross receipts. It’s also important to understand the requirements and stipulations of your donor and loan agreements (see above). Staying ahead of the curve will prevent any potential delays in funding to your organization.
Click here to read Part 2 of this blog which addresses the process of selecting an accounting firm and gives insight into the audit process. If you have any specific questions relating to nonprofit financial statement audits, please call us today at 630-953-4900.