Audited financial statements aren’t required of non-profits. However, audited statements are more likely to reassure big donors, grant makers, and stakeholders about your organization’s financial stability and generally are required if your non-profit applies for a bank loan. When you engage a CPA to perform a financial statement audit, the auditor will express an opinion on them and determine if they’re free of material misstatements. Here are three tips for making the process as smooth as possible.

1. Understand Roles

You’ll need to prepare estimates (such as an allowance for bad debts), adopt sound accounting policies, and establish, maintain, and monitor internal controls. Auditors may make suggestions about these items, but it isn’t their responsibility to implement them.

Your auditor is required to evaluate whether internal controls, accounting policies, and estimates are adequate to prevent or detect errors or fraud that could result in material misstatements. But remember, all decision making is strictly your nonprofit’s responsibility.

2. Involve Your Board

Sometimes non-profits overlook their board’s role in annual financial statement preparation. That’s a mistake. Your board should have a strategic and oversight role in the process, which is part of its overall fiduciary duty. The board also can be a good resource for certain technical matters, depending on the members’ professional backgrounds.

3. Understand Statement Formats

Financial statement items — such as debt ratios, program vs. administrative expense ratios, and restricted vs. unrestricted resources — can help tell you how your non-profit is doing. So, when your organization’s financial team is preparing them, make sure statements are as user-friendly as possible.

One of the best ways to see the big financial picture is to compare your budget, your year-end internally generated financial statements, and the financial statements generated during an annual audit. This task can be completed more easily if the format of your annual audited statements is similar to that of your internal financial statements and budgets. If audited financial statements are formatted differently than internally generated reports, you may need to develop a bridge between them, perhaps in the form of an internal memo.

When reviewing internal vs. audited statements, look for any large differences in individual accounts resulting from audit correcting adjustments. These often are an indication of an internal accounting deficiency. You’ll also be able to spot any significant discrepancies between what was budgeted for the year and the actual outcome.

First Timers

If you’re engaging an auditor to prepare financial statements for the first time, don’t be anxious. Just provide your auditor with every requested document and keep the lines of communication open. Your KPM auditor will let you know if there’s anything you should be concerned about. Contact us for assistance.