If you sit on a nonprofit board or chair the audit committee, how to prepare for a nonprofit audit is a governance job, not a last-minute staff scramble. Fieldwork goes faster when records, donor restrictions, related-party facts, and in-kind support are ready before auditors arrive. This board checklist covers the documents to confirm, the questions to ask, and the gaps that most often slow an engagement. A financial statement audit opines on whether the statements are fairly presented, not on internal control unless that is in the engagement.
Nonprofit audit checklist
Ask management “do we have this?” and expect a yes with a file location, not a promise to gather it later. A complete nonprofit audit checklist is the fastest way for a board to see whether the organization is actually ready.
Records and supporting evidence
- Closed trial balance and general ledger for the year under audit
- Bank and investment statements with reconciliations for every account
- Schedules for receivables, payables, pledges, deferred revenue, and fixed assets
- Grant agreements, gift letters, and other contracts that affect revenue, debt, or restrictions
- Board and committee minutes for the period under audit
Internal controls the board can confirm
- Documented approval of disbursements, contracts, and journal entries
- Segregation of duties over receipts, disbursements, and reconciliations, or a compensating review if the staff is small
- Bank reconciliations reviewed by someone who did not prepare them
- Written support for significant estimates, such as allowances, fair value, and useful lives
Restricted funds
Nonprofit GAAP (ASC 958) presents net assets in two classes: without donor restrictions and with donor restrictions. Purpose restrictions limit use to a program or project. Time restrictions delay use until a period or event. When the restriction is met, the amount is released to net assets without donor restrictions. Auditors will test both the original terms and the releases.
- A listing of net assets with donor restrictions and the gifts or grants that created them
- Donor letters or grant terms that show purpose or time limits
- Support for each release of restriction during the year
Related-party and in-kind support
- Completed conflict-of-interest or related-party questionnaires from board members and key management
- A list of related-party relationships and transactions for disclosure under ASC 850 (nature of the relationship, what occurred, and amounts due at year end)
- Support for contributed nonfinancial assets (in-kind): category, whether used or monetized, any donor restrictions, and how fair value was measured
Timeline before fieldwork
Work backward from the date auditors plan to start. There is no single calendar that fits every organization. The sequence below is what boards should insist is finished before fieldwork, not a set of invented deadlines.
- After year end: finish the close, reconciliations, and cutoff so the trial balance is not still moving when testing begins.
- When the auditor sends the request list: assign an owner to each item, load documents into the portal or binder, and flag anything that does not exist yet.
- Before fieldwork: the audit committee (or the full board, if there is no committee) should meet with management on open items, estimates, related parties, and any liquidity, going-concern, or subsequent-event issues.
- During fieldwork: keep the people who own the records available. Slow responses are a common cause of extra cost and a delayed report.
What the board and audit committee should ask before an audit starts
These questions belong in a committee meeting with management, and with the auditor if the committee meets them before fieldwork.
- Has the engagement letter been reviewed, including scope, timing, and any non-audit services that could affect independence?
- Which significant estimates will be tested, and where is the documentation for how management built them?
- Have related-party relationships been identified, including board members, key management, and affiliates?
- Are there liquidity concerns, going-concern questions, or events after year end that the board already knows about?
- If the organization expends federal awards, is a Single Audit a separate engagement this year? A Single Audit is not the same as the financial statement audit, and it is triggered by federal award expenditures, not by total revenue.
- Who owns the prepared-by-client list, and what is still outstanding?
Common gaps that slow an audit
Restricted funds that are not tracked
Auditors test whether donor-restricted amounts are classified and released correctly. Missing gift terms, commingled cash, and undocumented releases show up as late reclassifications. The board should be able to see restricted balances and the evidence behind each release.
Related-party transactions that surface late
ASC 850 requires disclosure of material related-party relationships and transactions. Questionnaires completed after fieldwork starts, or a transaction with a board member that never reached the conflict file, delay the report. Identification and disclosure matter even when the terms look ordinary.
In-kind gifts without valuation support
Nonprofit GAAP requires contributed nonfinancial assets as a separate line on the statement of activities, disaggregated by category. Disclosures cover whether the assets were used or monetized, any donor restrictions, and the valuation techniques and inputs. A single total with no backup is not enough.
Controls that exist only on paper
A financial statement audit is not an opinion on internal control. Auditors still walk through how cash, approvals, and reconciliations actually work so they can plan testing. Gaps here often become comments to those charged with governance, even when the numbers are otherwise clean.
After the audit
Near the end of the engagement, management signs a representation letter confirming the information provided, responsibility for the statements, and disclosure of related parties, subsequent events, and known fraud or noncompliance. Auditors also communicate internal control findings to the board or audit committee. A material weakness is a deficiency, or combination of deficiencies, such that there is a reasonable possibility a material misstatement would not be prevented or detected and corrected in time. A significant deficiency is less severe than a material weakness and still important enough to merit the board’s attention.
Assign owners to every management-letter item and report progress at the next board meeting. For how to read the opinion, the statements, and the footnotes, use our guide to the nonprofit audit report.
Temple Management Consulting helps nonprofit boards get ready for fieldwork: records, restricted funds, related-party files, and the questions an audit committee should ask. See how Temple Management can help your nonprofit, or contact us about nonprofit audit preparation.
