When it comes to defining the term “audit,” it has several meanings. While it can mean Internal Review, External Management, or Contract Monitoring, many individuals think immediately of an IRS review. In reality, however, a financial audit most often refers to an independent review of a business or an organization’s financial books.
This is normally conducted on an annual basis, and it’s simply a part of reliable checks-and-balances to ensure everything is in order. Today, we will explore the California nonprofit audit requirements and all it entails.
Audit Requirements for Non-Profit Organizations in California
It should not surprise you that a good number of non-profit organizations in California are not aware that they’re required by law to submit an annual financial statement audit. According to California’s Nonprofit Integrity Act of 2004, Non-profit organizations that are registered with the state’s attorney general and have annual gross revenue of at least $2 million must have an Independent Audit of their annual financial statements.
If your organization is a charitable corporation, unincorporated association, or a charitable trust, then you are subject to the California nonprofit audit requirement. However, this requirement exempts organizations that are not required to file annual reports with the attorney general. They include:
- Educational institutions
- Religious organizations
Other requirements for California nonprofit audit includes the following:
- The audits must be carried out by an independent, certified accountant if your organization’s revenue is over $2 million. It is worth noting that there are certain exceptions for some government grants.
- The audited financial statements should be made available to not only the attorney general, but also the public for inspection.
- The audit must be carried out in line with the generally accepted accounting principles – GAAP
- It must be finalized within nine months of the financial year end.
Furthermore, you are required to create and maintain an independent audit committee, which should be separate from the other financial committees that may exist in your organization. You need to also ensure that the Audit Committee excludes staff members; not even the C.E.O, the treasurer or the chief financial officer should be in the committee. It can, however, include individuals who are not members of the board. It is worth noting that the Audit Committee advises the board of directors on employing and firing the auditor. It can also negotiate the auditor’s fee. Forming an audit committee may be an intimidating idea, buy you have no other way out.
An independent audit is an examination of your financial statements and accounting records by an independent auditor – usually, a certified professional accountant (CPA) hired and paid by your non-profit. The auditor will conduct an independent investigation to examine the accuracy of your accounting records as well as internal records.
Once done, the auditor will issue a report stating whether, in his professional judgment, your year-end financial statements and accounting records fairly represent your organization’s financial position with regard to generally accepted accounting principles – GAAP. The auditor report, which is in letter form, is normally attached to the front of the financial statements. With a clean bill of health from the auditor, the world will know that you are keeping your financial books in a responsible manner.
Contact Ernst Wintter & Associates LLP today to find out how we can help.