top of page
  • Writer's pictureMichael Bryant

Navigating Financial Statement Audits: Common Questions from Nonprofits and Private Foundations


Q&A Financial Statement Audits for Nonprofits & Private Foundations_BryMar CPA

Whether you are an experienced professional or a newcomer to the field of financial audits, the process can often appear intimidating. Fear not, in this article we will clarify the complexities of audits and address the most common questions posed by nonprofits and private foundations. 


Q1: What is a financial statement audit, and why do we need one? 

A: A financial statement audit is a thorough examination of your organization's financial records and statements by an independent auditor. This process ensures that your financial statements are accurate and comply with accounting standards. But why do you need one? Audits provide credibility to your financial statements, which can boost donor confidence, ensure compliance with grant requirements, and help you identify areas for financial improvement. Additionally, audits are often required to comply with grant and government regulations, ensuring that funds are used appropriately and transparently. 

 

Q2: How often should you have a financial statement audit? 

A: This depends on a few factors. For many nonprofits and foundations, an annual audit is standard practice. However, the frequency can be influenced by donor requirements, state regulations, and your own organization's policies. If you're receiving significant funding or handling complex financial transactions, an annual audit is a good idea. But if you're a smaller organization, you might opt for an audit every two or three years. Check your bylaws and grant agreements to be sure! 

 

 

Q3: What should you expect during the audit process? 

A: Expect a thorough but collaborative process! Here's a quick rundown: 

1. Planning Phase: The auditor will get to know your organization, understand your financial processes, and outline the audit plan. 


2. Fieldwork Phase: This is where the action happens. The auditor will review your financial records, test internal controls, and verify transactions. They might ask for additional documentation or clarification. 


3. Reporting Phase: Once the fieldwork is complete, the auditor will draft a report outlining their findings. You’ll have a chance to review and discuss it before the final report is issued. 


4. Communication Phase: The auditor will present their findings to your board or audit committee, highlighting any areas for improvement and celebrating your financial strengths. 

  

Q4: How can you prepare for an audit? 

A: Preparation is key! Here are some tips to make the process smoother: 


  • Organize Your Records: Keep your financial documents, bank statements, receipts, and invoices well-organized and easily accessible.  


  • Review Internal Controls: Ensure your internal controls are robust and well-documented. This includes policies for handling cash, approving expenses, and reconciling accounts.  


  • Communicate with Your Auditor: Have regular check-ins with your auditor to clarify any questions and provide requested documents promptly.  


  • Train Your Team: Make sure your finance team understands the audit process and their roles in it. A little training goes a long way! 

  

Q5: What are some common issues that auditors find? 

A: Every organization is unique, but here are a few common findings: 


  • Inadequate Internal Controls: Weaknesses in policies or procedures that could lead to errors or fraud. 

 

  • Revenue Recognition Issues: Challenges in accurately recording donations, grants, or other revenue streams. 

 

  • Expense Misclassification: Misallocating expenses to incorrect categories. 

 

  • Noncompliance with Grant Requirements: Not adhering to the specific financial reporting requirements of grants. 


Q6: How do we choose the right auditor? 

A: Selecting the right auditor is crucial. Here are some tips: 


  • Experience with Nonprofits: Ensure they have experience auditing nonprofits or private foundations. 

  • Reputation: Check their references and reputation within the nonprofit community. 

  • Meets Timelines: Make sure they are known for meeting timelines to keep your audit on track and running smoothly.  


  • Communication Style: Choose someone who communicates clearly and can explain complex financial concepts in an understandable way. 

  • Peer Review Rating: Look for an auditor with a PASS rating for their peer review. This indicates they have undergone and passed a rigorous review by their peers, ensuring they know what they're doing. 

  • Cost: While you don’t want to skimp on quality, ensure their fees are within your budget. Remember, choosing the lowest price isn't always the best option for your organization. Expertise and quality go a long way, and paying a bit more for a knowledgeable auditor can save you from headaches and costly mistakes in the long run. 

  

Q7: What should we do after the audit? 

A: Celebrate your successes and tackle any recommendations head-on! Here’s what to do post-audit: 


  • Review the Report: Go through the auditor's report with your board or audit committee. 

 

  • Implement Recommendations: Address any areas for improvement highlighted by the auditor.  


  • Plan for Next Year: Use the insights gained from this audit to prepare for future audits. 

Remember, audits aren’t just about finding mistakes—they’re an opportunity to improve your financial health and demonstrate your commitment to accountability and transparency. So, embrace the process and know that each audit brings you one step closer to financial excellence. 

We hope this Q&A has helped to clarify some of the mysteries of financial statement audits. Keep up the amazing work, and remember, a well-prepared audit is a happy audit!  

 

Is Your Nonprofit or Private Foundation in Need of an Audit?  

If you have more questions or need expert assistance, reach out to us at BryMar CPA. We specialize in audits for nonprofits and private foundations, and we're here to make the process simple and fun. Contact us today!  

6 views

Comments


bottom of page