Whether your organization is required to undergo a financial statement audit or has decided to conduct one voluntarily, the process brings multiple benefits. From enhanced accountability to improved internal controls and donor confidence, a well-prepared audit can strengthen both your financial management and your organization’s reputation.
What Are the Benefits of Conducting a Financial Statement Audit?
- Enhanced accountability. Preparing for an audit ensures your organization meets industry standards and manages resources responsibly.
- Better risk management. Audits can illuminate potential financial risks. Conducting regular audits allows you to stay on top of these risks and mitigate their impact.
- Improved financial processes. A nonprofit audit often dives deeper into your financial practices and internal controls, allowing you to address any weaknesses.
- Increased transparency. Sharing audit results with donors, volunteers, board members, and other grantors builds trust and demonstrates your commitment to precise, accurate financial reporting.
- More positive reputation. Financial transparency inspires donor confidence. Communicating that your nonprofit conducts regular audits can enhance your organization’s public perception and increase donor support.
Overall, conducting a financial statement audit allows your organization to improve internal financial management and strengthen relationships with external supporters.
Key Items in Preparing for the Audit
- Communication, Planning, and Accountability (CPA). The best way to save time, money, and resources for both your organization and the auditors is to get organized and be ready.
- Engagement letter. Confirm what the fees are – whether they are fixed or may include extra charges for additional questions, issues, or significant adjustments. Knowing this ahead of time helps manage expectations and budgets.
- Pre-audit meeting. Before fieldwork begins, communicate what has changed since the prior year. Relying solely on a “Same as Last Year (SALY)” approach can limit the identification of new risks and reduce efficiency gains from new technologies. Discuss changes such as new bank or investment accounts, leases, litigation, financing, payroll turnover, fundraising campaigns or major gifts, multi-year awards, leadership changes, major property additions or deletions, new programs, internal control updates, and software access like bill.com or QuickBooks Online.
- Timeline planning. Set clear audit readiness milestones, fieldwork start and end dates, and draft financial report deadlines. Work backward from audit committee or board meetings and other established deadlines such as tax filings. Always allow sufficient time to review and distribute drafts.
- Accountability for the Prepared By Client (“PBC”) List. Identify team members responsible for each area and when items will be ready. The PBC list typically includes administrative items (board minutes), account reconciliations, sampling sections (e.g., grant agreements), and a permanent file section for key document updates.
- Organizing documents. Establishing folders before year-end facilitates adding documents. Many audit firms use electronic portals with required item lists. Having reconciliations and documents ready for upload saves time and streamlines the process.
- Weekly meetings during fieldwork. Set a consistent day and time to meet with auditors and arrange sessions with team members. Inquiries will include discussions on fraud with board members (Treasurer or Audit Committee Chair), HR and finance directors, and top leadership. Walk-throughs of internal control activities covering payroll, revenue, disbursements, financial reporting, and journal entries are also conducted. Regular communication helps resolve open items more quickly.
Being prepared for the audit on time avoids delays, cost overruns, and potential negative consequences such as significant audit adjustments for missed accruals. Providing organized and accurate records allows auditors to focus on complex areas and offer valuable recommendations instead of basic data verification. This ultimately leads to a more efficient and successful audit, increasing the likelihood of a clean report with no adjustments.
Final Thoughts
A well-prepared audit is not just a compliance exercise – it is an opportunity to strengthen your organization’s financial management, internal controls, and credibility with donors and stakeholders.
At Han Group, we help organizations streamline audit readiness, improve internal processes, and ensure a smooth, successful audit experience. To learn how we can support your organization in preparing for your next financial statement audit. Contact us.
