Audit or financial statements

What it is

Financial statements show what your organization owns, owes, earned and spent. An outside accountant can prepare them at three levels, described by the National Council of Nonprofits:

• Audit: the auditor independently confirms the financial information, including testing source documents and internal controls. The most assurance, and the most cost.
• Review: a limited level of assurance that the statements are free of misrepresentations, without testing individual transactions.
• Compilation: the records put into standard financial statement format, with no opinion or assurance. It can cost much less.

Why funders ask for it

It shows a funder that someone outside the organization has looked at your books. Larger grants often ask for an audit; smaller ones may accept a review, a compilation, or internal statements. Each funder's guidelines say which.

When an audit is required

• Federal awards. The 2024 update to the federal grant rules raised the single audit threshold from $750,000 to $1,000,000 of federal awards spent in a year, effective October 1, 2024. Ask your auditor which of your fiscal years it applies to.
• California. The California Attorney General says charitable corporations with gross revenues of $2 million or more must have their annual financial statements audited by an independent CPA. Government grants the organization must account for are left out of that total. The board must appoint an audit committee, and the audit must be available to the public within nine months after the fiscal year ends.
• Other states have their own rules. Check with your state's charity regulator.

How to get it

Ask your accountant or auditor for the final, signed report for the most recent fiscal year, and add it to the client's Documents. Add the date the next one is due, so GrantAssembly reminds you before it expires.

Common mistakes

• Sending a draft audit, or one missing the auditor's letter.
• Calling a review or compilation an audit.
• Sending statements more than a year old when a funder asks for the most recent.