So you think you need an audit? Maybe a grantor has requested GAAP financial statements from you or your board of directors wants assurance that the financial records have been accounted for properly. An Audit could help fulfill these requests but perhaps they could also be fulfilled via a Review, a Compilation, or an Agreed-Upon Procedures engagement.
In determining which service best suits your organization's needs, factors such as intended users and level of desired assurance will be key.
External Users
External users of financial statements will often specify what level of assurance they need. For example, annual state reporting is determined by income level.
Minnesota Annual Report filed with the MN Attorney General's Office:
- Audited financial statements must be submitted by MN nonprofit organizations with at least $750,000 in Total Revenue.
Wisconsin Charitable Organization Report filed with the WI Department of Financial Information:
- Audited financial statements must be submitted if the WI nonprofit organization received Contributions of at least $500,000.
- Reviewed financial statements must be submitted if the WI nonprofit organization received at least $300,000 but not greater than $500,000 in Contributions.
Internal Users
Internal users (such as management and the board) will have much more flexibility in determining which engagement best suits their needs:
Audit: In an audit, the CPA provides the highest level of assurance regarding the financial statements' accuracy. Procedures such as analytics, inquiries, physical inspection, observations, and third-party confirmations are performed. Audits provide reasonable assurance. The CPA will arrive at an opinion, included within their report, which will state if the financial statements present fairly in accordance within the specified basis of accounting (such as generally accepted accounting principles or GAAP).
Review: In a review, the CPA gathers information about the accounting principles and practices used within the organization and the industry in which it operates. The CPA comes to an expectation based upon that information gathering and performs analytical procedures with those expectations in mind. Reviews provide limited assurance. The CPA will arrive at a conclusion, included within their report, which will state whether the CPA is aware of any material modifications that should be made to the financial statements.
Compilation: In a compilation, the accountant's report will detail the basis of accounting used by the organization, explain the responsibility of management to the financial statements, and indicate if key financial information has been omitted from the statements. Compilations provide no assurance. In other words, the CPA will not verify the accuracy or completeness of the financial data within the financial statements.
Agreed-Upon Procedures: The CPA performs specific procedures set forth by the user and reports the findings of those procedures, sometimes with a recommendation on how to correct the finding or prevent future findings. An agreed-upon procedure report is not tied to a set of financial statements. Rather the engagement is often performed to determine if established internal controls or accounting procedures are being followed by the organization. The factual findings will be reported without an opinion or conclusion.
Your organization may in fact need an audit, but it may also have more options available to it. If you have any questions in regards to which service is best for your organization, please contact your Hawkins Ash CPAs representative.