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Illinois lawmakers passed a new bill (HB1197) this summer which increases the threshold requirements for obtaining an “Audited” financial statement by an independent accountant for nonprofit organizations (NFPs). The bill also sets new requirements for NFPs that sit between the old threshold and the new threshold to get “Reviewed” financial statements. The new law becomes effective for tax years beginning January 1, 2024 and currently set to expire after tax years ending December 31, 2028.
Previously, most NFPs soliciting for contributions to the general public were required to get “Audited” financial statements if their total contributions for an annual period were above $300,000. The new bill increases the Audit threshold to $500,000.
However, the bill sets a new requirement for those NFPs with total contributions between the old threshold of $300,000 and the new threshold of $500,000 to get “Reviewed” financial statements. This means that the NFPs resting in this window are not completely off the hook for getting an independent sign off on their financials. However, the accounting and administrative burden should be less expensive and less time consuming since a Review does not require as much validation or substantiation by an independent accountant as an Audit.
The new law was enacted in May of 2023 and Illinois is still ironing out the kinks. There may be additional guidance to follow as forms are reworked for the 2023/2024 filing season. CK will make sure to update you on any amendments or guidance related to the bill as it becomes finalized by Illinois lawmakers and the Attorney General’s Office.
For the purposes of the reviewed and audited financial statement thresholds “Contributions” include all funds raised by solicitation activities to the general public. This includes donations, pledges, program service revenue, fundraising events, etc. However, there is an exception in the law to exclude admission/ticket revenue for music or theatrical performances by nonprofits organized under 501(c)(3) with the mission/purpose of providing live public performances on a regular basis.
For more information on the increase in the Audit threshold, the new Review requirements, or understanding on what constitutes “Contributions” for the purpose of these thresholds, please contact the CK nonprofit team by calling (630) 953-4900.
Now that you have determined the need for a nonprofit financial statement audit, it is time to select an accounting firm and begin the process. This can be an overwhelming experience, but it doesn’t have to be. With the right team on your side and all the documentation you need prepared ahead of time, you’ll be ready to execute a successful audit.
As soon as the need is determined, you can start the process of selecting an accounting firm for your financial statement audit. In addition to selecting a firm that’s certified to perform audits in the state of Illinois, you’ll want to make sure that you choose a team that truly understands your operations and transactions. It’s critical that the firm has extensive nonprofit experience since the regulations differ significantly from those of for-profit businesses. It is highly recommended to ask all potential accounting firms to provide a copy of their most recent peer review certificate and report.
After your firm has been selected, you’ll start the organizational and preparation processes. Your audit team should clearly communicate what documentation you’ll need to have ready initially. You’ll also meet with your auditors to understand what metrics, such as key balances from your balance sheet, will be important to the process. The auditors will go over your risk assessment and internal controls to ensure that they’re working properly. In a perfect world, those meetings should take place throughout the year so that nothing is missed. Finally, the team will review your accounting and personnel policies to ensure everything is up to date. Based upon these discussions, your audit team will determine the procedures that will take place during the audit.
Once you’re ready to move forward, the most critical element of a successful audit is good communication between the auditors and your internal team. The audit team will relay which key documents will be necessary. Having all of your documentation and reporting ready in advance of any on-site visits will save you time and money. Since most firms bill by the hour, the less time that’s spent on the audit means more resources to devote towards fulfilling your mission.
As a final note, there are going to be updates to the financial statements themselves. There are new reporting standards that will take effect for 2018’s audits. These changes are going to require major revisions to the current accounting policies and reporting for nonprofits. It’s important to start implementing these changes prior to the end of this year so that you’re prepared for next year. Click here for more information.
An unqualified audit report from the audit firm will provide reasonable assurances to your governing bodies, lenders, and donors that you’re running your organization responsibly. It can help open doors for more funding so that you’ll be able to pursue your mission to the fullest. Contact us today if you have questions about whether you need an audit or to see how we can make the process as seamless as possible.