Preparing For an Audit – Nonprofit

Regardless of the type of audit you’re gearing up for, the preparation phase can be daunting. Your head might be spinning as you try to determine where to begin. I’ve organized some thoughts that I hope will assist you and serve as somewhat of a checklist to get you through this stage. As always, this is not all-inclusive, as every organization has different needs and, therefore, may require more or less from these suggestions.

Consider having a pre-audit meeting.

This is a great opportunity for the planning phase of the audit. As the auditee, prepare for such a meeting by gathering questions from your Board, your colleagues, and yourself. Has anything changed in your organization, such as key personnel, funding streams, significant capitalization of expenses, leasing arrangements, litigation, misappropriation of assets, change in software or service providers, etc.? This is a great time to bring these up as it could create the need for a change in planned auditing procedures. It’s ideal to express expectations regarding timeline and deliverables at this meeting as well. It’s most productive if everyone involved (auditor and auditee) is ready and available for the audit concurrently. If no formal meeting is taking place, these conversations can happen over a quick phone call.

Are there any changes in accounting standards?

Unfortunately, accounting standards are always changing, so this adds a level of intricacy. Thankfully, not all new accounting standards apply to everyone. If something new applies to your organization, it’s very important to read up on the change and ensure that your accounting records are compliant.

What were the results of last year’s audit?

First and foremost, were your financial statements given an unmodified opinion? If not, it’s important to understand why and what could be done to fix it. While considering prior year audit results, it’s imperative to review the required communications letter and, if applicable, management letter. These documents will explain if there were any material weaknesses, significant deficiencies, other notable issues, and sometimes even best practices. What needs to be done by your organization prior to the commencement of the audit that could remove these comments going forward? Lastly, review any journal entries that were made as a result of the audit so you can ensure they are considered during your year-end closing procedures from now on.

Self-review your trial balance.

Your organization’s year-end closing procedures should be performed first but printing a trial balance afterward is a great way to ensure you’re looking at every account for accuracy. Does your current year opening net assets match your ending net assets from your prior year financial statements? Have the cash accounts been reconciled? Is your investment activity recorded for the year? Are adjustments needed for prepaid expenses, accrued expenses, or deferred revenue? Has billing been completed through year-end or are all eligible expense reimbursement claims entered as receivables? Are any receivables deemed uncollectible? Has depreciation expense been entered for the year? Are all expenses properly classified or allocated? Now is the time to make these corrections.

Obtain a request list, assign tasks, and organize documentation.

It’s time to dive in! Ask your designated audit team for a request list and determine how documentation will be provided (i.e. electronically via secure online portal or on-site visit). Designate a main audit contact at your organization and ensure your auditors are aware of who that is. Review the request list and delegate tasks to your colleagues, if necessary. Label documents by task number to help you and your auditors stay organized. This also helps to prevent duplicate requests.

Preparation can help identify obstacles or errors that can be tackled before an audit even begins. It saves time and gets you in the right headspace. Preparing ahead of time ensures a successful and productive audit process overall.

THIS ARTICLE WAS ALSO FEATURED IN NFP ADVISOR VOL. 30. READ THE ARTICLE AND MUCH MORE RELATED CONTENT HERE

Crystal Harvey

Supervisor

Crystal is a member of Cerini & Associates’ audit staff where she focuses on serving organizations across a wide spectrum of industries, including nonprofit, technology, and contractor clients. She has experience performing assurance work and outsourced accounting work, as well as preparing tax returns. Crystal has extensive knowledge surrounding the operations, controls, and environment of the sectors she focuses on. She brings her expertise, diversified background, and helpful approach to all of her engagements.