Is someone telling you that your not-for-profit organization needs an audit? Many have misconceptions about audits and what they achieve. Before you dive in, let’s take a step back and look at the bigger picture. While audits play a crucial role in the not-for-profit sector, they’re not always the best fit for every organization. Let’s explore your options together and find the right path forward for your mission.
Not-for-Profit Accounting Services: Understanding Your Options
When it comes to financial reviews, one size definitely doesn’t fit all. Your organization’s unique needs, size, and goals should drive this decision. Here are the main options available:
Financial Statement Audit
Think of an audit as your organization’s most comprehensive financial check-up. It provides the highest level of assurance and includes detail testing of transactions and balances, gaining a thorough understanding of processes and internal controls, sending confirmations to outside third parties, and many other procedures. While in-depth, it’s also typically the most resource-intensive option. Additionally, it often isn’t as targeted to specific areas of concern as an Agreed Upon Procedure (AUP) audit can be.
Financial Statement Review
A review offers a different possibility. While not as extensive as an audit, it provides limited assurance through analytical procedures and inquiries. Stakeholders may find this level of assurance meets their needs while being more cost-effective.
Agreed-Upon Procedures (AUP)
Looking to address specific concerns? An AUP engagement allows you to target specific areas of interest, often to meet internal needs or specifications. While it doesn’t provide formal assurance, it delivers factual findings based on procedures you help define.
When the Choice Isn’t Yours
When external requirements don’t dictate your path forward, your Board of Directors will need to weigh several key factors to make the best decision for your organization. Here are the key considerations that should inform their choice:
- Federal funding requirements: Organizations spending more than $1,000,000 in federal funds annually need both a financial statement and compliance audit
- Grant requirements: Some funding sources mandate specific types of financial reviews
- State regulations: Requirements vary by state, often based on your gross receipts
- Donor specifications: Major donors might require certain levels of financial oversight
Making the Right Choice for Your Organization
If you have the flexibility to choose, consider these factors:
Resource Investment
While cost shouldn’t be the only factor, it’s important to consider. Audits generally require the largest investment, followed by reviews, with AUPs often being the most economical choice.
Timing and Frequency
Both audits and reviews typically work best as annual engagements, providing consistent oversight and year-over-year comparability. While some organizations have tried alternating between audits and reviews to manage costs, this approach often proves challenging due to the complex testing requirements for audit years. Agreed-Upon Procedures offer more flexibility – they can be performed as needed to address specific concerns, making them a practical solution for targeted oversight between regular annual engagements.
Organizational Needs
Your choice should align with your specific concerns:
- Looking for comprehensive financial oversight? An audit might be your best bet
- Need limited assurance while managing costs? Consider a review
- Have specific areas of concern? An AUP could be perfect
Building a Stronger Financial Future Together
Choosing the right financial review isn’t just about meeting requirements. Think of it as building a foundation for your organization’s future success. Whether you need help understanding your options or implementing the right solution, our experienced not-for-profit team is here to help.
Ready to find the right financial review approach for your organization? Let’s talk about your needs and goals. Together, we can build a strategy that supports your mission while providing the assurance your stakeholders need.
Contact Rea’s not-for-profit advisory team today to start building your financial assurance strategy.
By Adam Schultz (Avon Office)
