So you decided to take get a financial statement audit done for your organization. Sure, it’s a big–and sometimes stressful–decision, but it’s an investment that will serve your organization well.
However, having the audit done is just a part of the process. Once your auditors have completed their review, they’ll provide you with their findings. This will attest to the accuracy of your organization’s financial statements, and will highlight areas for improvement.
If you’re about to navigate the next steps in the financial audit process, we’ve put together this guide to help you interpret your audit report and get your financial statements up to standard.
What will I receive from my auditor?
Typically, your auditor will provide you with three things:
- An audit package, which includes your audited financial statement, balance sheet, profit and loss statements, cash flow statement, notes that explain both usual and unusual balances or activities, and your audit report.
- A board communication letter. This provides your board of directors with a summary of any significant audit findings, lets them know if there were any issues in conducting the audit, and whether they encountered any corrected or uncorrected mistakes in the process.
- An internal control letter, which details internal controls to guard against fraud and rate deficiencies, significant deficiencies, and material weaknesses.
How do I read my audit?
The most important part of any audit is the audit report, which is included in your audit package. This document gives the auditor’s opinion of your organization’s financial statements.
You’ll find this information under the “opinion” section, and there’s some specific language that you should be looking for. Ideally, this section of your audit report will declare all financial statements and materials as of year end are in accordance with the accounting principles generally accepted in the United States.
Alternatively, you may find your auditors have determined they cannot express an opinion, or that there are qualifications on the audit. When there are qualifications on the audit, this means the auditors either can’t say the financial statements are correct, or that there’s been a difference of opinion within the team on the accuracy of statements. Regardless, both of these outcomes are considered negative.
Which figures should I pay attention to?
The number one thing that leads to questions are changes in numbers. These changes aren’t always a bad thing, but without context, it can look that way. An audit will help explain the discrepancies.
Here are some places you should focus your attention, and questions you should ask, when reviewing your audit:
- Did your cash flow decrease?
- Did your liability change?
- Did your net assets increase or decrease?
- Do you have enough for the organization to remain sustainable?
Statement of activities
- What is your change in net assets for the year?
- Where did the change come from? (i.e. increased revenue, different revenue source, more expenses, etc?)
What are the next steps?
Regardless of whether your auditor identified any recommendations for you, there are some standard immediate actions you should take after receiving your audit:
- Present and distribute the audit to the entire board of directors.
- Enter any adjusting entries associated with the audit. (Tip: this allows your audited financial statements to match your accounting system and ensures you present accurate information to your board.)
- Determine whether your organization needs to file a tax return. (Tip: if the answer is yes, use the audit to compile the return.)
- If a tax return is necessary, U.S. nonprofits are required to file by May 15th. (Tip: if you miss that deadline you can get a 6 month extension.)
- If there are any internal control deficiencies listed in your audit report, you will need to take the recommended steps to correct them.
How do I present the audit information to my board?
We recommend working with your auditor to present the audit findings to your board of directors. Having the auditor make the presentation ensures the information comes from an unbiased third party.
Generally, this presentation can wait until your next regular board meeting. However, if there were significant findings, it would be a good idea to call a special meeting asap. And, if you’re working with us, we can attend that meeting too.
Is there any reason to maintain a relationship with my auditor moving forward?
Technically, there is no hard and fast rule as to whether you should continue on with your auditor. That said, if the relationship is working well for you, we recommend sticking with them. This can be especially helpful for smaller organizations. In these relationships, an auditor tends to get to know the organization quite well, and can often identify blind spots that others might miss.
What’s the value of completing this process correctly?
The audit process can be long and intensive. It’s easy to feel overwhelmed and lose confidence as you move through each step. But there’s a lot of value in ensuring you complete your audit process correctly. Doing it right will save you time and money, allowing you to maintain your grants and the confidence of your board.
If you’re still finding the process daunting, Trestle is here to help. Not only can we help get you a clean audit from the beginning, but we can also do all the hard work of facilitating the audit itself.
Don’t wait: schedule a call and find out how we can help with your financial audit process today.