The nonprofit financial audit process is not complete with the preparation and actual audit alone. The conclusions that result from a nonprofit financial audit are some of the most important parts of the process for nonprofits and should not be overlooked. The auditor’s conclusions may be confusing, so let’s take a closer look at what they mean. It is important to note that understanding what the auditor was looking for and communicating well with the auditor can help in understanding the audit conclusions. To learn more about effectively communicating with your auditor and what the auditor will need from you to complete the audit, visit here.
Beck and Company’s Certified Public Accountants and Business Advisors are auditors themselves and can help you with the entire process. Learn more about our audit services by visiting here. We would consider it a privilege to be the auditor for your nonprofit audit. We are happy to give you some insight into what the auditor’s conclusions mean and what is necessitated by the government, and the information below should do just that.
During the Audit:
The process leading to the audit conclusions starts during the audit process. This is when you issue your financial statements, and the auditor tests them to determine whether the statements are materially correct. The auditor also looks at the systems and procedures used to generate the financial information to determine if they are free from obvious design deficiencies. After sufficient evidence has been gathered that your financial statements have been fairly stated, the auditor gives an opinion on those statements.
Auditor Unqualified and Qualified Opinions upon Conclusion of the Audit:
Ideally, auditors will provide an unqualified, or “clean,” opinion on the organization’s financial statements. An unqualified opinion will contain language such as “the financial statements present fairly in all material respects” and “in conformity with accounting principles generally accepted (GAAP) in the United States.” If an auditor is unable to render an unqualified opinion, a qualified opinion may be issued. The reason might be a departure from generally accepted accounting principles or a scope limitation. A scope limitation means that, except for the matter to which the qualification relates, the financial statements present the nonprofit’s financial position fairly in all material respects.
When an auditor issues a qualified opinion, the auditor believes the financial statements are fairly stated in all respects except for a material departure from GAAP, and the auditor has decided not to express an adverse opinion. If the scope limitation is severe enough, the auditor may disclaim an opinion on the overall financial statements.
If the auditor decides that the departures from GAAP are so significant that the financial statements as a whole are not fairly stated, an adverse opinion must be issued. An adverse opinion will include language describing what the auditor believes is materially misstated in the financial statements, and the effects of the misstatements. If the effects are not reasonably determinable, the auditors will state that.
In Conclusion:
Your nonprofit staff and the outside auditor should work together to ensure that financial statements are usable, accurate, and timely. Meeting these goals gives users greater confidence in the statements and helps you recognize opportunities for improvement. Stay in contact with the auditor throughout the year about matters such as changes in entity, personnel, industry, debt, ownership, direction of the nonprofit, and chart of accounts. Even though auditors must remain independent and objective, they are still a trusted advisor and resource throughout the process.
All of what goes into and results from an audit can be confusing. Contact Beck and Company CPAs to learn more and to find an auditor that is the right fit for you and your organization.