Financial Statement Requirements for Not-for-Profits

Financial Statement Requirements for Not-for-Profits

In several states across the United States, non-profit organizations are required to provide annual financial statements or undergo independent audits as mandated by state agencies. The nature of these financial reports varies; some states require a comprehensive independent audit, while others may specify only a compilation or review of financial statements which are scaled-down attest services. Most states’ regulations highlight the significance placed on transparency and accountability within the non-profit sector. The purpose of these requirements is to ensure the prudent and effective use of non-profit funds, especially those derived from state or federal sources. By imposing these distinct reporting standards, states seek to uphold the integrity of non-profit entities and safeguard the public trust in their financial operations.

Federal Financial Statement Requirements for Non-Profits

A pivotal federal mandate comes into effect when a non-profit organization expends $750,000 or more in federal funds within a single year. A nonprofit crossing that threshold, means a Single Audit will be required. This specialized audit surpasses the depth of a standard independent audit by comprehensively evaluating the financial operations of the organization’s relevant program, administrative, and fundraising departments within the organization to determine its capability of capturing and reporting transactions properly.  Ultimately, the Single Audit provides assurance that the financial statements are accurately and fairly presented, in accordance with federal cost principles and shows the type and amount of federal awards received.

Beyond validating financial accuracy, the Single Audit serves as a comprehensive examination of the organization’s internal control structure. This involves an evaluation of the set of controls in place to manage and safeguard financial resources as well as deter fraud. Additionally, the audit verifies the organization’s compliance with any unique government laws or regulations pertinent to the specific federal funding source which might include testing nonfinancial data.

It is crucial to note that some states also have threshold requirements for Single Audits related to the amount that an organization receives in state governmental financial assistance.  Threshold requirements at the state level may be lower than the federal $750,000 and vary from state to state.

State Financial Statement Requirements for Non-Profits

Each state has an agency that regulates charitable organizations and specifies the required financial statements needed to operate as a charitable organization within the state’s applicable laws.

A sample of a few states and their threshold requirements is shown below.  However, our firm staff can retrieve similar information for organizations domiciled in other states as well.

StateAuditReviewCompilation
ConnecticutRevenue > $1,000,000Revenue $500,000 to $1,000,000N/A
FloridaContributions > $1,000,000Contributions $500,000 to $1,000,000Contributions > $500,000
IllinoisContributions > $500,000N/AN/A
MassachusettsSupport/Revenue > $500,000Revenue $200,000 to $500,000N/A
New YorkRevenue > $1,000,000 or uses professional solicitorRevenue $250,000 to $1,000,000N/A
PennsylvaniaContributions > $750,000Contributions $250,000 to $750,000Contributions $100,000 to $250,000

Most states are happy to accept a higher-level service than what is required.  For example, an audit could be submitted even if the requirement only calls for a review. Don’t see your state on the list? Inquire with us and we will work with you to determine your state’s threshold requirements.

Typically, non-profits are only required to file a charitable solicitation registration if they plan to undertake fundraising activities. This registration allows the organization to legally participate in fundraising in the state where it is seeking donations. In most instances, the non-profit must complete registration before engaging in any fundraising or solicitation activities.

 

Audit, Review, or Compilation Financial Statement: Which One Do You Need?

Audits, reviews, and compilations are distinct services provided by certified public accountants (CPAs) to prepare financial statements. Your selection among these depends on the regulatory requirements of the state or states in which your non-profit operates. Here is a brief overview of the different types of financial statements:

Audits

Audits represent the highest level of service, wherein the CPA issues an opinion on the fairness and absence of material misstatements in your financial statements. This opinion offers reasonable, though not absolute, assurance and is tailored based on the CPA’s risk assessment and understanding of your non-profit’s business environment, including internal controls. Audit procedures involve selectively examining evidence, and upon completion, the CPA issues an opinion that can be categorized as “unqualified,” “qualified,” “disclaimer of opinion,” or “adverse,” depending on the findings.

Reviews

Reviews are more limited in scope compared to audits, encompassing analytical procedures and inquiries to determine whether the CPA is aware of any material modifications required in your non-profit’s financial statements. The CPA issues a conclusion, not an opinion, indicating either the absence of material modifications or, if issues are identified, a “qualified” conclusion with an additional paragraph explaining the basis for the qualification.

Compilations

Compilations involve the preparation of financial statements based on your non-profit’s accounting records and provided information, with the CPA offering no assurance regarding the amounts or disclosures.

Expert Guidance from Certified Public Accountants for Non-Profit Organizations

As experienced CPAs specializing in non-profit organizations, we can guide you in evaluating your organization’s compliance with federal and state audit/attest services. Our CPAs can work with you to navigate the financial statement preparation process, whether it involves an audit, review, or compilation, ensuring the timely and efficient delivery of the required financial statements.

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Whether you need audited, reviewed, or compiled financial statements for your non-profit organization in any U.S. state or territory, our team of CPAs is ready to assist you.

Please contact us if you have any questions or require further information. We are here to assist you in navigating the reporting process.

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2024-02-14T17:36:18+00:00February 14th, 2024|Business, Not-for-Profit|

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