Am I Required to Have an Audit? by Sherri Rose, Nonprofit Auditor
The first question I ask as a nonprofit auditor when receiving a request for an audit quote is “Why do you need an audit?” Audits can be required by law, by a grantor, by the organizations by-laws, or some other requirement. There is no audit requirement based on the mere fact an organization is a not-for-profit entity. Audits are the highest level of assurance and require the most time to complete; therefore, are the most costly.
An audit is designed to provide the user with assurance that the financial statements are a fair representation of the organizations financial position and results of operations. In order to provide this assurance, the nonprofit auditor must obtain an understanding to the organizations internal control and assess the fraud risk. The nonprofit auditor is also required to test accounting records by obtaining sufficient appropriate audit evidence through inspection, observation, confirmation, or the examination of source documents (for example, cancelled checks or bank images).
The next lower level of service is a Review. I often discuss this option with clients who do not require an audit, as an option to meet their needs. A review is substantially less in scope than an audit and is therefore less expensive. A review includes primarily applying analytical procedures to your financial data and making inquiries of organization management. A review provides the user with comfort that the accountant is not aware of any material modifications that would be required to be in conformity with generally accepted accounting principles or other applicable financial reporting framework.
The level of service is determined by your needs and third party requirements. Sometimes a creditor may request an audit but agree to accept reviewed financial statements.
Contact us, Nonprofit Auditor, to discuss your audit and review needs.