There are three main types of financial reports that a CPA firm like Altruic Advisors can provide to our nonprofit clients: audits, reviews, and compilations. At some point, almost every nonprofit organization will require at least one of these reports. They all provide independent insight into your organization’s finances, but they greatly differ on the level of detail and assurance provided.
What Is an Audit?
An audit is a detailed, lengthy investigation that provides the highest level of assurance on the accuracy of your financial statements. During an audit, Altruic Advisors will collect evidence, conduct tests, and perform other procedures that allow us to offer an expert opinion on your finances. Audits include internal control testing, walk-throughs, confirmations with outside parties, and a management letter detailing any internal control deficiencies.
Audited financial statements are a common stipulation of large grant funding, and organizations that receive state or federal awards are often required to undergo an audit. Even when it’s not required, an audit is a valuable way to demonstrate financial transparency and accountability to your donors.
Due to the time and personnel required, an audit can often cost anywhere from $12,000 to $25,000 or more. The exact cost will depend on your organization’s size, complexity, and level of preparedness. You can reduce costs by providing prompt responses to your auditor’s inquiries and making sure that all of your financial documentation - bills, bank statements, receipts, payroll records, lease agreements - are organized and easily accessible.
What Is a Review?
A review is less detailed than an audit, and provides a limited level of assurance. During a review, Altruic Advisors will assess your financial records and limited supporting evidence, but will not perform any stringent tests. A review may still catch major errors or deficiencies, but it does not include an in-depth investigation or analysis.
Reviews are useful for small- to mid-sized organizations looking to provide some assurance to their donors, grantors, or financial institutions. Many of these institutions will accept a review in place of an audit if your organization meets certain income thresholds or other conditions.
Since reviews take less time to complete, they typically cost half as much as an audit. Some budget-conscious nonprofits choose to undergo a full audit only every other year, with a review in the alternate years.
What Is a Compilation?
A compilation is the least detailed type of financial report. A compilation will provide you with professionally prepared financial statements, but it does not provide any assurance. During a compilation, Altruic Advisors will compile your financial data into a standardized format, but we will not conduct any tests, review any evidence, or provide any opinion about your finances.
A compilation can be helpful for nonprofits who do not require either an audit or a review. Compilations are cost-effective ways to generate professional financial statements that can be easily reviewed by outside parties such as donors or lenders.
Which Should We Choose?
There’s no single answer to the question of whether your nonprofit should choose an audit, a review, or a compilation. Every organization has different needs, which can fluctuate from year to year. If you’re uncertain about choosing between an audit, review, or compilation, we suggest reaching out to your accounting firm to discuss the best fit.