When Does Your Nonprofit Need an Audit, Review, or Compilation?
Three types of financial examination. Three different levels of assurance. Here's the difference — and how to know which one applies to your organization.
Audit, Review, or Compilation — What's the Difference?
Audit — The most thorough option. An independent CPA examines your records in depth, tests internal controls, and issues a formal opinion on whether your financial statements are presented fairly. Most funders requiring financial verification want an audit.
Review — A step down. A CPA applies analytical procedures and issues limited assurance. Less expensive than an audit and satisfies some funder requirements.
Compilation — The lightest touch. An accountant formats your data into standard financial statements but provides no assurance on accuracy.
When Each Is Required
Federal Single Audit: Required if you spend $750,000 or more in federal awards in a fiscal year.
State law: Many states require audits above certain revenue thresholds. Verify your state's current requirements — they change.
Funder requirements: Many foundations, government grantors, and United Way chapters require audits above certain grant amounts. Review your grant agreements.
Board policy: Some boards require annual audits regardless of legal requirements — increasingly common for nonprofits above $500K in annual revenue.
What to Expect From the Audit Process
Your auditors will need reconciled bank statements, grant documentation, board meeting minutes, fixed asset schedules, payroll records, and documentation of internal controls. Starting without preparation causes delays and added cost.
A good accountant keeps your books audit-ready year-round so there's no scramble when audit season arrives. Plan for at least 60 to 90 days from engagement to final report — longer for a first audit.
Common Questions
A first-time audit for a smaller nonprofit typically runs $5,000 to $12,000. Reviews generally run 30–50% less. Getting multiple quotes from CPA firms that specialize in nonprofit audits is worthwhile.
No. The Form 990 is a tax return filed with the IRS. An audit is a separate process by an independent CPA. They serve different purposes and filing a 990 does not satisfy any audit requirement.
Plan for at least 60 to 90 days from engagement to final report. If your books aren't audit-ready, add time for cleanup. Don't wait until you're close to a funder deadline.
Get your books current, then ask for referrals to CPA firms that specialize in nonprofit audits. Note that firms providing your ongoing accounting generally can't also audit you (independence rules), so you'll need a separate audit firm.