Skip to main content
Business People Having a Casual Discussion During a Meeting

Tips for a Smooth Nonprofit Audit

Having an unmodified audit opinion is important for nonprofits since it can affect their reputation. Read on for tips to help make the audit process smoother.
banner background

While audit time can be very intense for everyone involved, a smooth process is the goal of every audit. An audit is designed to provide the external stakeholders reasonable assurances related to financial reporting. Starting with the organization and the auditor firm’s staff—all the way up to the audit partner and board of directors—the importance of an audit can be felt year-round in any organization. Having an unmodified audit opinion may be amplified for nonprofit organizations as it can affect reputation, funding, and donor relationships.

While your auditor’s main goal is to issue an opinion on financial reporting, it’s important to remember they also can serve as your trusted business advisor, subject to certain independence limitations. Having a smooth audit allows for more strategic conversations during the audit work.

While many organizations may be well organized when it comes to audits, some do not know where to begin when thinking about making their audit smooth. Our team at FORVIS believes that keeping the five items below in mind can help decrease the stress level for any audit and allow for a true collaboration between the organization and its audit firm.

  1. Ownership of Audit Schedules

    The biggest stumbling block in many audits happens when the client workpapers don’t tell the story of the financial statement line items. When workpapers may not have a description and purpose or do not tie, it creates delays for all parties involved. These schedules are only as good as the details put into them. The better the audit prep work, the smoother and quicker the audit should go. The following goes a long way in helping to make an audit more efficient: 

    • Having a clear purpose and procedure on the workpaper
    • Having prewritten explanations for any significant variances from last year’s numbers with supporting documentation ready to view
    • Confirming that workpapers tie back to the trial balance or providing explanations/reconciliations as to why they do not 

    Providing more comprehensive insight to your auditor at the beginning of the process should help reduce the myriad of questions, allowing your auditor to focus on the substantive analytics/testing and riskier areas.

  2. Monthly Flux Analysis

    While the audit comes once a year, preparation can be a year-round exercise. One way an organization can prepare better throughout the year is to perform a monthly review of its accounts to review any unexpected or significant changes. This monthly flux can lead to catching and correcting errors, creating necessary journal entries that need to be recorded, and even identifying potential fraud. Looking at account fluctuations each month should result in more efficiencies than spending hours at year-end trying to remember details from several months ago. Having fresh data and looking at a smaller population can lead to more substantial analyses and more efficient corrections. Analyzing the data monthly also should make the year-end prep more manageable. 

  3. Audits Should Not Be Fully Remote

    While working remotely may have become the normal course of business during and after the pandemic, our experience indicates that a virtual audit should not be the only answer. Being fully on site helps create efficiencies during the audit process; at a minimum, the audit should be done on a hybrid schedule. Reasons to switch from a full virtual audit include:

    • Having direct access to the client’s team to address questions. Being able to walk down the hall to clear things up can be much quicker and lead to less wasted time
    • Being able to talk through potential findings as they happen can lead to quicker mitigation or explanation
    • Avoiding the “out of sight, out of mind” mentality that can cause the audit to take much longer if email communication lags
    • Being able to see processes in action can lead to more understanding from the auditor’s perspective and possibly fewer questions

    There is a human aspect to auditing that is missed when performing an audit fully remote and having your auditors on site, even part time, can lead to efficiencies in the overall process. 

  4. Net Assets Rollforward

    Out of all the audit areas, taking one’s time when preparing this schedule is essential as it helps provide the most back-and-forth communications. A few tips when preparing the net assets rollforward: 

    • The first step should be checking that net asset balances from the prior year-end agree to the prior-year audited financials. If the balances do not tie, the first step is verifying that the prior-year audit adjusting entries were recorded properly, as those are a likely culprit.
    • Next, for net assets with donor restriction, adding contributions and subtracting releases by each restriction should equal to their ending net asset balance.
    • Review if journal entries were booked directly to net assets. (This should almost never happen and any entries booked directly to net assets should most likely be reversed).
  5. Auditors Can Be a Year-Round Resource

    The majority of organizations may only speak with their auditor during the audit. However, your auditor can be a trusted resource throughout the year! Whether it is new process questions, contemplation of new programs, or tax implication questions, your auditor can be your trusted advisor at any time. Having conversations in the early stages of organizational change can allow for the proper accounting treatment from the onset and, consequently, for fewer surprises come year-end. 

While these tips cannot guarantee that everything will flow smoothly during an audit, they can go a long way. Clean and detailed schedules with easy access to the client and audit team during the audit work can help create an easier and more efficient audit, which in turn helps nonprofits to focus on strengthening communities in which they operate, serving their constituents and stakeholders, and fulfilling their mission!

If you have any questions or need assistance, please reach out to a professional at FORVIS.

Related FORsights

Like what you see?
Subscribe to receive tailored insights directly to your inbox.