Non Profit Organizations
Nonprofit organizations often begin with simple financial reporting. As they grow, take on new funding sources, or increase in complexity, expectations around financial transparency and independent reporting tend to increase as well.
If you’ve been asked for “audited financials,” or you’re unsure whether you need an audit, a review, or another form of independent financial reporting, this page explains what those requests usually mean in practice and what nonprofit organizations typically need to consider.
Different Types of Non Profit Organizations
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Churches & Faith-Based Ministries. Independent reviews or audits are commonly triggered by building projects, denominational requirements, large donations, leadership transitions, or the need to demonstrate financial stewardship.
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Grant-Funded Nonprofits (Education, Social Services, Community Programs). Organizations receiving government or institutional grants are more likely to face formal reporting and compliance expectations, including Single Audit requirements.
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Private Foundations & Family Charities. These entities often face expectations around governance, transparency, and proper handling of investment income and charitable distributions, particularly where related parties are involved.
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International NGOs & Missions Organizations. When funds are used or transferred overseas, donors and oversight bodies typically expect higher levels of accountability and documentation.
Quick Audit Readiness Check (For Nonprofit leaders)
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Can we produce a clean trial balance shortly after year-end?
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Are bank accounts reconciled regularly and independently reviewed?
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Do we track restricted and unrestricted funds separately?
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Are grant agreements and donor restrictions documented and accessible?
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Do we have basic financial policies in place?
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Do we understand which systems generate our financial reports?
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Are access rights to accounting and donor or grant systems reviewed periodically?
Audit vs Review vs Compilation — Plain English
Compilation
Financial statements are prepared from management’s records. No assurance is provided, and no independent verification is performed.
Review
A review provides limited assurance through analytical procedures and inquiries. It does not involve detailed testing of transactions or balances. Reviews may be accepted for smaller entities but may not meet requirements when certain thresholds are surpassed.
Audit
An audit provides the highest level of assurance and involves independent verification of selected balances, transactions, and controls. Audits often triggered by certain thresholds. These vary from state to state and for different compliance requirements.
The appropriate level of assurance often depends on regulatory context, donor/grant provider requirements and the nature of transactions being undertaken.
Not Sure What Level of Independent Reporting Is Appropriate?
If you are trying to determine whether an audit, review, or Single Audit is appropriate, a short readiness discussion can help clarify expectations and preparation needs before committing to a formal engagement.
Jedidiah CPA works with nonprofit organizations across different stages of growth, including faith-based organizations, grant-funded programs, foundations, and mission-oriented entities. Our experience spans organizations navigating their first independent review through those managing more complex audit and compliance requirements.
For those who would like additional background, you can review the lead partner’s professional experience and selected client feedback:
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Do Nonprofits Always Need an Audit?
Not all nonprofits require audits. Many organizations operate for years with internally prepared financial statements or limited external review. The need for an audit, review, or compilation usually depends on who is requesting financial assurance and for what purpose.
Organizations are commonly asked to provide audited or reviewed financial statements when:
- A grantor or government agency requires independent reporting
- A board of directors seeks stronger financial oversight
- Major donors request financial transparency before committing funds
- A bank or lender requests independently reviewed financial statements
- The organization is undergoing growth, restructuring, or leadership transition
- Funding sources include federal or state grants with compliance expectations
In many cases, organizations are told that they “need an audit” without a clear explanation of the level of assurance being requested or what the process involves.
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Common Situations That Trigger Audit or Compliance Requirements
Organizations often encounter audit or compliance requirements during practical turning points such as:
- Crossing funding thresholds that introduce new regulatory or grant compliance obligations
- Applying for bank financing for a building, expansion, or major project
- Receiving a request from a new institutional donor or foundation
- Experiencing a leadership or board transition
- Preparing for organizational growth, mergers, or new programs
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Practical Scenarios Commonly Seen
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You have operated for years without an external audit, but a new foundation or institutional funder now requires audited financial statements as part of a grant award.
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Your organization has grown in size and complexity, and board members are asking for more formal financial oversight and independent reporting.
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You are planning a major project (such as a building purchase or expansion) and your lender has requested reviewed or audited financial statements as part of the financing process.
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You have begun receiving government funding and are now navigating compliance requirements that were not previously part of your reporting environment.
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Key Areas Commonly Examined in Audits and Reviews
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Use of restricted funds and donor-imposed limitations
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Grant compliance and program-specific requirements
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Internal controls over receipts, disbursements, and approvals
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Cash handling and disbursements
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Related-party transactions involving board members, officers, or affiliated entities
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Governance and oversight practices
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Reliability of financial systems and reports used for accounting and donor or grant reporting
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Basic access controls over accounting systems and online giving or payment platforms
Technology and Data in Nonprofit Audits
Many nonprofits rely on cloud-based accounting systems, online giving platforms, donor management systems, and grant reporting tools.
While a financial statement audit is not a cybersecurity or IT audit, auditors do consider whether:
- Financial data comes from reliable systems
- Access to systems is appropriately controlled
- Key reports used for financial reporting are complete and accurate
- Third-party platforms involved in processing donations or grants are understood and appropriately overseen
Weaknesses in these areas can increase audit risk and may require additional audit procedures.
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When a Single Audit or Compliance Testing May Be Required
Some nonprofit organizations are required to undergo not only a financial statement audit, but also additional compliance testing over how certain funds are used.
This most commonly applies to organizations that receive federal financial assistance above prescribed thresholds in a fiscal year. In such cases, the organization may be subject to a Single Audit.
A Single Audit goes beyond a standard financial statement audit. In addition to an opinion on the financial statements, the auditor performs procedures to assess whether the organization:
- Complied with key terms and conditions of specific federal programs
- Maintained appropriate internal controls over compliance
- Used grant funds for allowable purposes
- Met reporting, eligibility, and other program-specific requirements
The preparation and documentation needed for compliance testing can be more extensive than what is typically required for a basic financial statement audit.
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What Can Go Wrong When Financial Reporting Is Not Ready
- Delays in grant approvals or renewals
- Funding withheld or conditioned on improved reporting
- Increased scrutiny in future audits or compliance reviews
- Strain on leadership and board relationships
- Erosion of donor and stakeholder confidence
In practice, delays or weaknesses in financial reporting can also affect an organization’s reputation and perceived credibility with donors and funders.
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What the Process Typically Looks Like
1. Planning and scoping – understanding the grant and donation process, compliance and donor/grant requirements
2. Risk assessment –(including compliance, and technology-related risk)
3. Fieldwork – testing selected balances, contracts, transactions, and system-generated reports
4. Discussion of observations – communicating matters identified during the engagement and practical implications for governance and reporting
5. Reporting – issuance of audit or review reports for funders and other stakeholders
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Not Seeing Your Exact Situation Here?
Many organizations do not fit neatly into a single category. Some operate across sectors, use emerging business models, or combine elements of different operating models.
A short audit readiness discussion can help determine what level of independent reporting may be appropriate based on your structure, funding sources, and stakeholder expectations — even if your organization does not match any single example on this page.
