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Does Your Nonprofit Need an Independent Audit?

The Internal Revenue Service (IRS) doesn’t require nonprofits to have independent audits, but that doesn’t mean your nonprofit never needs an audit. Some federal, state and local government agencies require audits, as do some banks and foundations. Generally, the requirements relate to the nonprofit’s size or spending.

When an Audit Is Required

An independent audit might be required in the following circumstance:

These requirements are straightforward. If your nonprofit falls into any of these categories, an independent audit is required.

When an Audit Is Beneficial

Sometimes, however, it is a good idea to have an audit even if one is not required. Better community relations and greater transparency can be compelling reasons to have an audit. Here are three ways an audit can be beneficial:

For some nonprofits considering an independent audit that is not required, the cost of an audit may outweigh its benefits, however. These organizations should consider more cost-effective alternatives, such as a review, compilation or agreed-upon procedures.

A review, in contrast, is a lower level of assurance on the reliability of the financial statements. It may be appropriate for smaller nonprofits. Another service is a compilation, where a certified public accountant takes information supplied by management and prepares financial statements, without offering any assurance. The differences between an audit, review and compilation are subtle but significant.

If you’re still not sure what’s best for your nonprofit, give us a call so we can help.