Nonprofit Audits: Common Issues and Frequently Asked Questions

Assurance Services

Questions about nonprofit audits usually concern requirements, scope, assurance, timing, records, and the meaning of the final report. This page addresses the most common issues in plain English and identifies the decisions management should settle before engaging a CPA.

The issues that deserve attention first

Nonprofit reporting must explain not only financial position and operating results but also restrictions, liquidity, functional expenses, grants, contributions, programs, and stewardship. Audit readiness depends on coordination among finance, development, programs, grants, payroll, and the board.

The most effective response is not to create more year-end spreadsheets. It is to establish a close process in which operational records, subsidiary systems, the general ledger, and the financial statements reconcile on a repeatable schedule.

• Conditions and donor restrictions confused or not tracked through release
• Grant receivables or revenue recorded without sufficient support
• Functional expense allocations based on unsupported or outdated assumptions
• Federal awards, pass-through identifiers, or noncash assistance omitted from the SEFA
• Form 990, grant reports, and audited financial statements presenting inconsistent information

How to reduce the risk

Management can improve both reporting quality and audit efficiency through a small number of durable practices:

• Close and reconcile significant accounts monthly, with evidence of preparation and review
• Maintain current contracts, policies, minutes, approvals, estimates, and third-party reports in a controlled repository
• Assign ownership for every material schedule and document the source, method, assumptions, and review
• Investigate unusual trends and old reconciling items before the auditor asks about them
• Communicate new transactions, disputes, financing, system changes, control failures, and suspected fraud promptly
• Perform a pre-audit quality review using the prior-year adjustments and management comments as a checklist

Frequently asked questions

Does every nonprofit need an audit?

No. Requirements depend on state registration rules, grants and contracts, lenders, bylaws, board policy, and federal-award expenditures. Confirm all applicable obligations each year.

What is a single audit?

A single audit is a compliance-focused engagement under Uniform Guidance that includes financial statement work and testing of major federal programs. It is not simply another name for a nonprofit financial statement audit.

What is the current federal single-audit threshold?

For fiscal years beginning on or after October 1, 2024, the revised Uniform Guidance generally sets the threshold at $1 million of federal awards expended during the fiscal year. Confirm applicability and any agency-specific requirements.

How are donor restrictions different from board designations?

Donor restrictions arise from external donor stipulations. Board designations are internal decisions and generally remain within net assets without donor restrictions, although they should be clearly documented and disclosed as appropriate.

Does the auditor prepare Form 990?

The audit and Form 990 are separate services. A CPA firm may perform both subject to independence and engagement terms, but management remains responsible for the return and should reconcile it to the audited financial statements.

What should the audit committee do?

It should understand scope and independence, meet with the auditor, monitor readiness and findings, oversee corrective action, and provide an opportunity for private communication with the auditor.

Questions to ask a prospective CPA firm

The engagement partner should be able to answer practical questions before appointment:

• What experience does the team have with nonprofit audits and the applicable reporting framework?
• Which standards, regulatory guides, contractual provisions, or submission requirements will govern the work?
• Who will manage the engagement day to day, and when will the partner communicate with management and governance?
• What information is needed before fieldwork, what will be selected later, and how will secure documents be exchanged?
• What assumptions support the fee and timetable, and how will scope changes or readiness problems be handled?
• What independence, licensing, peer review, quality management, specialist, or continuing education considerations apply?

Choosing the right assurance level

An audit provides reasonable assurance and an opinion on the financial statements. A review provides limited assurance principally through inquiry and analytical procedures. A compilation presents financial information with no assurance. Compliance examinations, agreed-upon procedures, single audits, and program-specific engagements have different objectives and should not be substituted solely because their names sound similar.

Start with the exact user requirement and the decision the report must support. Selecting too little assurance can lead to rejection and rework; selecting more than users need can add cost and time without a corresponding benefit.

Next step

Schedule a scoping discussion with Dohan CPA to review the reporting requirement, intended users, current records, prior reports, and deadline for nonprofit audits. The firm should confirm engagement acceptance, independence, staffing, and final scope before any service is promised.

Authoritative sources

• Grant FAQs - Uniform Guidance single audit threshold - Health Resources and Services Administration
• Yellow Book: Government Auditing Standards - U.S. Government Accountability Office
• FASB: Accounting Standards Updates Issued - Financial Accounting Standards Board

General educational information only. This page is not accounting, auditing, tax, investment, or legal advice and does not create a CPA-client relationship. Requirements and standards can change and depend on specific facts and agreements.