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Beyond Audits: How CPA Reviews and Other Attest Services Can Strengthen Your Nonprofit
Eric German
Partner | Audit & Assurance
Bober Markey Fedorovich
For many nonprofit organizations, an annual financial statement audit is either not required or not a good use of funds given the organization’s size, complexity and resources. But that does not mean the only alternative is doing nothing.
A financial statement review or another CPA attest service can offer nonprofits a valuable middle ground—providing independent CPA involvement in the organization’s financial reporting with a price tag that can range 30-50% less than that of a full audit.
A review provides a lower level of assurance than an audit and generally relies on analytical procedures and inquiries rather than the more extensive testing performed in an audit. But for many organizations, the benefits of the process can extend well beyond the final financial statements.
It creates financial reporting discipline
Knowing that an outside CPA will review the organization’s financial information creates a natural level of discipline around the financial reporting process.
Accounts need to be reconciled. Unusual balances need to be understood. Supporting schedules need to be maintained. Questions that might otherwise be put off tend to get addressed.
For nonprofits with limited accounting and finance resources, that annual discipline can be particularly valuable. It creates a checkpoint that helps keep financial reporting organized and current.
It creates accountability
Even strong finance teams benefit from accountability.
When an organization knows that an independent third party will be reviewing its financial information and asking questions about significant balances, trends and transactions, it creates another layer of accountability for those responsible for the financial reporting process.
That accountability is not about finding fault. It is about encouraging organizations to stay current, investigate unexpected items and address issues before they become larger problems.
It helps develop the internal team
A review can also be a valuable learning opportunity for the people responsible for an organization’s finances.
Interaction with an outside CPA often exposes staff to questions they may not otherwise consider: Why did this balance change? Is this transaction recorded appropriately? Are financial statement classifications consistent? Is there sufficient documentation supporting a significant estimate?
Over time, those conversations can help strengthen the capabilities of the internal finance team and improve the organization’s overall financial reporting process.
It provides an outside perspective
When you work with the same information and processes every day, it can be difficult to see potential issues or opportunities for improvement.
An outside CPA brings a different perspective and could be used as a sounding board as transactions arise during the year.
Sometimes simply having an experienced third party ask, “Why do you do it this way?” can lead to a valuable conversation.
It adds credibility to financial information
Nonprofits have a wide range of stakeholders—including board members, donors, grantmakers, lenders and others—who may rely on financial information when making decisions.
Having an independent CPA perform a review adds an additional level of credibility to that information.
For organizations that do not need the level of assurance provided by an audit, a review may provide an appropriate balance among credibility, cost and organizational effort.
It provides peace of mind for leadership and the board
Not every nonprofit executive director comes from a finance or accounting background, and many board members are volunteers with limited visibility into the organization’s day-to-day financial processes.
Independent CPA involvement can provide an additional level of comfort that someone outside the organization is periodically looking at the financial information, asking questions and challenging items that may warrant further discussion.
That can be especially valuable for executive directors who rely heavily on their finance team and for volunteer board members who have fiduciary responsibilities but are not involved in the accounting function every day.
A review does not replace management’s responsibilities or the board’s oversight role. But having an experienced, independent CPA involved can provide leadership and the board with greater confidence—and some additional peace of mind—that the organization’s financial reporting is receiving an outside look.
Finding the Right Level of Assurance
An audit remains appropriate—and in some situations required—for many nonprofit organizations. But it should not be viewed as the only way to involve an independent CPA in the financial reporting process.
For smaller organizations in particular, a financial statement review can often be completed at substantially less cost than a full audit while still providing meaningful independent involvement and limited assurance on the financial statements.
For nonprofit leaders and boards, the question does not always have to be:
“Do we need an audit?”
A better question may be:
“What level of independent CPA involvement would help make our organization stronger?”
If your organization is evaluating whether an audit, review or another type of CPA service may be appropriate, Bober Markey & Fedorovich would be happy to help you evaluate the options.
Eric German is Partner-in-Charge of Bober Markey Fedorovich’s Audit and Assurance Services practice and a member of the firm’s Executive Committee. Since joining BMF in 2014, he has helped shape the firm’s strategic growth and innovation while advising clients on complex accounting and business matters. With experience in Big Four accounting and private equity, Eric brings technical expertise and practical business insight to his work with business owners, executives and financial leaders.
This content is the opinion of the author. GAR Foundation draws on a range of perspectives from our regional community to share insights on nonprofit capacity building. We understand that organizations are unique and require different strategies for success.
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