The financial statements of nonprofit organizations need to be examined by a qualified, independent and objective professional. The purpose of doing so is to determine their accuracy and whether they fairly reflect the NPO’s financial situation. These statements must comply with the standard accounting principles. If there are any concerns regarding the financial state of the NPO then the board and its members need to undertake independent financial reviews.
There are different types of reviews that the board can undertake in order to gain that assurance that the NPO’s assets are accurate. The type of assurance conducted will depend on what is stated on their bylaws, constitution and the kind of issue that needs to be fixed. There are 4 different levels of assurance which may be provided by an independent accounting expert.
- Audit – An audit provides the client with the highest level of assurance possible. The objective is to ensure that the organization’s financial statements do not contain any discrepancies and that they are fairly stated. The entire process involves observation, confirmation, computation and detailed analysis of financial statements. In most cases an audit will be required by a third party requiring an independent auditor’s opinion on your nonprofit organization financial records. However you can request an audit yourself if you suspect fraud or you want to detect errors. Audits will also help satisfy your donors and the federal government which you are held accountable to.
- Review – Reviews offer a limited level of assurance since they are less extensive in comparison to audits. It may involve a lot of enquiries made regarding the company’s management team and analysis of financial data. However detailed testing of the company’s accounts and financial transactions will not be carried out. Usually reviews are performed when third parties want reassurance that the financial statements are not misstated. Indeed, it will ensure that no modifications need to be made to these records. A review is a great option if you want to verify your NPO’s internal finances without the lengthy process and expense of an audit
- Compilation – A compilation provides the lowest level of assurance because it does not ensure that there are no modifications that need to be made to the financial statement of your NPO. It is usually performed when no audit or review are required by a third party. This one does not involve any analytical reviews. It consists of presenting your organization’s financial information and assembling them into financial records according to the principles of accounting. The professionals conducting the compilation will not express their opinion on the financial statements, they will simply assist the management team.
- Agreed upon procedures – They are alternatives when audit, review and compilation are not necessary. In this case, the client and the accountant agree on the procedures that are going to be performed on the financial and non-financial data. The accountant is not asked to give their opinion and will only report on the results of these procedures.
ABIP performs all 4 types of assurance, giving their expertise to meet with the standards and needs of their clients. If you need more information about nonprofit assurance contact one of ABIP’s professionals today. Let them set up a consultation and determine the best course of action for your NPO to take.