How Not-for-Profits Can Facilitate a Smooth Independent Audit– May 30, 2017

Few of us enjoy taking tests, and unfortunately that’s what independent audits sometimes feel like. CPAs conduct audits to verify the information contained in nonprofits’ financial statements, and, even if you have no reason to be anxious about what the auditor will find, preparing for and accommodating an audit can be stressful for you and your staff.
 
But if you understand what the process entails and ensure that the right records are available, you’re more likely to be comfortable with the audit process. For example, because external auditors are required to be independent, they generally don’t perform accounting duties, such as completing book entries, during the audit engagement. Instead, the focus is on risk assessment and internal control policies, and the auditor will likely test transactions and balances.
 
To prepare for the audit, your auditor will provide you with a list of required records when the audit is scheduled. But it’s not a bad idea to get a head start, particularly if you need to supply an analysis of balance sheet items and revenue and expense accounts.
 
Items on your auditor’s list may include your nonprofit’s current operating budget; interim financial statements; bank statements and reconciliations, records of deposits, and issued checks; annual investment account statements; payroll records; accounts receivable and payable documentation; board meeting minutes; and Form 990 information.
 
Some organizations may need to produce material related to:

  • Loans and mortgages,
  • Leases and other legal contracts,
  • Grants and contributions, including restrictions on their use, and
  • Financial or accounting policies and procedures.

Also ensure that you have a policies and procedures manual, because your auditor will want to see that you follow well-established processes. If you don’t already have one, it’s time to develop one.
 
In general, audits are less stressful if you keep good accounting records. Specifically, make sure subsidiary ledgers are reconciled and ending balances have been reviewed before field work begins. And be sure to use the standard preaudit meeting with your auditor to ask questions. The more time spent resolving issues before the audit, the fewer issues your auditor will need to address during it.
 
Contact Marie Brilmyer at mbrilmyer@cohencpa.com or a member of your service team for further discussion.

 

Cohen & Company is not rendering legal, accounting or other professional advice. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts and circumstances.