As the summer starts to wind down and the air grows crisp, it won’t be long before autumn is here. Students will go back to school, the leaves will change colors, and pumpkin spice will return. For many nonprofit organizations with fiscal year-ends, the autumn months also coincide with the annual financial statement audit. Often required by lenders, regulators, government agencies, and grantors, audits are important for an organization’s regulatory compliance. They serve as a report card of whether the organization’s financial statements are presented fairly in accordance with generally accepted accounting principles (GAAP). The goal of the financial statement audit is to obtain an unmodified or “clean” opinion – equivalent to earning an “A” on a report card. With proper planning and a little extra attention to detail, you can ensure that your audit goes smoothly and effectively. An audit typically involves three phases – planning, fieldwork, and delivery. We will dive into each of the three phases to explore how to make the audit as painless as possible.
Planning is an important first step in the audit process, as it sets the tone and scope for the rest of the audit. Proper attention and time to planning-related tasks are needed by the organization’s staff. To ensure efficiency in the planning process, upfront communication is key. It is important to hold a year-end meeting with the auditors prior to the start of planning. You can use this meeting to update your auditors on the events of the year, talk through major changes in the organization, discuss expected year-to-date financial results, go through significant new grants and contributions, and discuss changes in key personnel. The auditors may also discuss with you any new GAAP accounting standards that are expected to impact the financial statements. This planning meeting should also be used to reflect on the last audit and discuss what went well, what did not go well, and what can be done better or differently in the upcoming audit. During this meeting, you and your auditor should agree upon deadlines, establish the audit timeline, and determine whether the audit will be conducted on-site or remotely. As part of the planning process, the auditors will need to gain an understanding of your internal control systems and perform walkthroughs of transactions. The walkthroughs allow the auditor to better understand the organization’s internal control processes and procedures over key accounting transactions. Members of the organization’s accounting department should be ready to meet with the auditors, either virtually or in-person, to walk through the major processes and procedures.
Fieldwork is the next stage in the audit process. The auditors will provide the organization with a list of requested items for audit fieldwork. Organizations should review the auditor’s request list and determine who from the organization is responsible for each item. To facilitate the flow of information, it may be helpful to create an electronic audit documentation folder so that each member of the accounting team can save files to be given to the auditors. As audit information is gathered, staff should verify that all requested information has been included, and that supporting schedules agree to the amounts shown on the trial balance. For audits involving compliance with federal grants, organizations should be sure to maintain and be able to provide documentation to support costs charged to grants. Since much of the audit process is now electronic/paperless, many accounting firms use secure online information-sharing portals.
The financial records should be fully reconciled and closed prior to the start of fieldwork. If the organization is not on target to have this done before the scheduled fieldwork date, a member of the accounting team should communicate this to the auditor, and discuss the possibility of revising the fieldwork date, while of course, remaining cognizant of internal and regulatory filing deadlines. Beginning the audit fieldwork when an organization is not fully ready for the audit may impact the ability to meet deadlines. In addition, audits often take longer to complete when the books require further reconciliations or adjustments. Moreover, a large volume of audit entries can lead to reportable internal control deficiencies for the organization. The best way to ensure a smooth and painless audit is to start off on the right foot with fully reconciled books and records. If you need assistance closing the books, it is recommended that you reach out to your accountant prior the start of the audit to discuss options. Communication throughout the duration of the audit is crucial. All parties should stay informed about the progress of the audit and be available to answer questions. This can be accomplished by attending regular check-in calls or meetings with the auditors.
Delivery is the final phase of the audit process. At the conclusion of the audit, you will receive drafts of the financial statements and other deliverables. You should review the financial statements carefully and ask your auditor any questions that you may have. Do not be afraid to discuss with your auditor different ways to word the required disclosures. Remember, the annual financial statements can provide an opportunity to tell your organization’s story and showcase the important programs you provide, as well as the impact you have in the communities you serve. Once the governing body has approved the financial statements and all final sign-offs have been obtained, the audit will be ready to be issued. Then, you can breathe a sigh of relief knowing that you made it through another audit.
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Please reach out to Citrin Cooperman’s dedicated Not-for-Profit Practice team members at any time, as we are ready and able to assist your and organization.
“Citrin Cooperman” is the brand under which Citrin Cooperman & Company, LLP, a licensed independent CPA firm, and Citrin Cooperman Advisors LLC serve clients’ business needs. The two firms operate as separate legal entities in an alternative practice structure. Citrin Cooperman is an independent member of Moore North America.
Gina Pellicano is a director in Citrin Cooperman’s Providence office with approximately ten years of experience. Gina specializes in providing financial statement audits to a diverse range of clients, with a focus on nonprofit organizations.
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