The requirement for a nonprofit organization to have an annual audit of their financial statements varies from state to state. The State of Michigan requires any charitable organization that solicits or receives, or intends to solicit or receive, contributions to register with the attorney general. The State requires the organization to have an audit of its financial statements performed by an independent certified public accountant if the organization receives $525,000 or more of contributions during its fiscal year. Organizations receiving between $275,000 and $525,000 are required to have financial statements either reviewed or audited by an independent certified public accountant.
Selecting the right auditor is an important decision for a nonprofit organization. The firm you choose should have a reputation for quality and experience in performing audits of nonprofit organizations. Firm’s registered with the American Institute of Certified Public Accountants (AICPA) are required to undergo a peer review every three years. The results of those peer reviews, including the grade (possible ratings include Pass, Pass With Deficiency(ies), or Fail) and a copy of the peer review report, are made public via The AICPA’s Public File Search. Reviewing those results can help provide information as to the quality of any firm you’re considering.
In considering an audit firm, it’s helpful to request references from the firm to ensure the firm has experience in auditing your type of organization. Additionally, reaching out to other professional service providers and organizations such as your own can provide you with recommendations for audit firms or information on firms you may be considering.
Other factors to consider in choosing an audit firm include the experience and qualifications of the individuals within the firm who will be performing the audit, the audit firm’s expected approach to the audit, the level of, nature, and quality of communication between the firm and you and others within your organization, and, of course, the expected fee for the audit.
In choosing a firm to perform your audit, you should be aware of any potential conflicts of interest between your organization and the firm and any relationships which would impair the firm’s independence. For instance, in the case of a member of your organization’s board who is also a partner or an employee of a public accounting firm, that firm would not be independent with respect to your organization and could not perform the audit. A public accounting firm employing a family member of a board member would likewise not be independent.
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If your nonprofit organization is in need of an audit or if you have questions on any part of the audit process, contact Edwards, Ellis & Associates.
