How to Prepare for a Nonprofit Audit

Assurance Services

A successful nonprofit audit starts before fieldwork. This preparation guide gives management and governance a practical sequence for confirming the requirement, closing the records, organizing support, responding to selections, and protecting the target report date.

Start with the requirement and the deadline

A nonprofit may need an audit because of state law, grant or contract terms, lender requirements, bylaws, board policy, or federal-award expenditures. Under revised Uniform Guidance, the federal single-audit threshold is generally $1 million for fiscal years beginning on or after October 1, 2024. A financial statement audit and a single audit are related but distinct scopes.

Obtain the exact document that creates the requirement and share it with the CPA. Confirm the fiscal period, reporting entity, basis of accounting, report recipients, supplementary schedules, compliance work, portal or electronic submission, and due date. Build backward from the delivery date to allow time for management review, governance approval, corrections, and unexpected evidence requests.

Assign clear owners

Name one audit coordinator who controls the request list, versioning, secure uploads, status meetings, and routing of questions. Assign schedule owners for cash, receivables, revenue, payables, debt, fixed assets, equity or net assets, legal matters, and industry-specific schedules. A board, committee, owner, or senior executive should remain available for governance communications and final approval.

Third-party information should be requested early. Banks, lenders, custodians, attorneys, property managers, recordkeepers, trustees, administrators, valuation specialists, and grant managers may need lead time and may require management authorization before responding.

Core readiness checklist

Prepare final, internally reviewed schedules rather than raw reports. At a minimum, assemble:

• Trial balance, financial statements, net-asset rollforward, restriction schedule, and liquidity calculation
• Donor and grant agreements, award notices, contribution schedules, receivable analysis, and conditional-gift tracking
• Investment and endowment statements, spending calculations, board designations, and related policies
• Functional expense allocation methodology, payroll allocations, time records, invoices, and occupancy support
• Federal award listing, SEFA draft, assistance listings, grant expenditures, subrecipient files, and compliance reports
• Board minutes, conflict disclosures, related parties, legal matters, budgets, Form 990 draft, and subsequent events

Make every schedule audit-ready

Each schedule should state the entity, period, preparer, preparation date, source system, and general-ledger accounts covered. It should foot, cross-foot, and agree to the final trial balance. Explain reconciling items, identify estimates, link or index supporting documents, and remove duplicate or superseded versions.

Do not force an unexplained difference to zero. A clear reconciliation that isolates a real issue is more useful than a schedule that appears to tie but cannot be reproduced. When an adjustment is posted, update the affected schedule, financial statements, and downstream reports so all versions remain aligned.

Resolve common delay points before fieldwork

The following issues frequently create rework or threaten the reporting date:

• 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

Prepare for selections and follow-up

For nonprofit audit work, expect the auditor to select transactions, balances, agreements, or participants based on materiality and risk. Maintain complete populations so selections can be reproduced. Provide source evidence rather than screenshots without context, and explain how each item moves from initiation through authorization, recording, settlement, and review.

Questions are normal. The audit becomes inefficient when management sends partial support, changes answers without explanation, or allows requests to sit unresolved. Use a regular status cadence, flag genuine constraints early, and close each request with a complete answer or a documented action plan.

Finalization checklist

Before report release, management and governance should confirm that:

• All proposed adjustments are accepted or formally evaluated and the final trial balance is locked
• The financial statements, notes, supplemental schedules, and any filing or electronic submission agree
• Subsequent events, litigation, commitments, related parties, fraud inquiries, and going-concern matters are updated
• Management representations are accurate and signed by people with appropriate knowledge and responsibility
• Required governance communications and management responses are complete
• The final report package, distribution list, retention plan, and corrective-action responsibilities are approved

How Dohan CPA can help

Dohan CPA can scope the reporting requirement, issue a tailored request list, establish milestones, and perform the nonprofit audit after confirming independence and engagement acceptance. Separate accounting assistance may be available when permitted, but management must retain responsibility and safeguards may be required.

The best next step is a readiness conversation before the reporting period closes. Bring the requirement, prior report, current trial balance, organizational chart, and target delivery date so the team can identify dependencies early.

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.

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.