Does Your Nonprofit Need an Audit?

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David Luc, MSA

Senior Auditor, Schools and Nonprofits

Does Your Nonprofit Really Need an Audit? Or Will a Review or Compilation Do?
Ever wondered if your nonprofit really needs a full audit or if there is a simpler and less expensive option? You are not alone. Many nonprofit leaders start asking this question as their organization grows and begins attracting more funding.

The truth is, not every nonprofit requires an audit. In some cases, a review or compilation is the better fit. Knowing the difference can save you time, money, and stress.

So how do you figure out what is right for your organization? Let’s break it down.

Audit: The Deep Dive
An audit is the gold standard. It is the most thorough and the most demanding level of assurance. Auditors examine your financial statements, test transactions, confirm balances with outside parties, and evaluate your internal controls.

You will likely need an audit if:

• You spend $1,000,000 or more in federal funds, which triggers a Single Audit requirement
  
• Your state or local laws require it once your revenue or contributions reach certain thresholds
  
• A major funder or foundation makes it a condition of support
  
• Your board wants the highest level of transparency
  
  

Audits require more time and resources, but they give your stakeholders the greatest confidence in your financial health.

Review: The Middle Ground
A review is less involved than an audit but still adds credibility. Instead of testing transactions, auditors use analysis and ask questions to make sure your numbers make sense.

A review may be the right fit if:

• Your state requires one once you reach a certain size but not enough to trigger an audit
  
• Your board or donors want more assurance than a compilation but not a full audit
  
• You want to prepare for larger grants and strengthen your financial reputation
  
  

Reviews are quicker, more affordable, and less disruptive than audits while still providing external validation.

Compilation: The Basics
A compilation is the simplest option. A CPA takes the financial data you provide and organizes it into financial statements. There is no testing or assurance, just a professional presentation of your numbers.

Compilations are a good choice when:

• Your nonprofit is small or just getting started
  
• You do not have donor or legal requirements for higher assurance
  
• You need financial statements for internal planning, budgeting, or a bank loan
  
  

It is often the first step for organizations that later grow into needing reviews or audits.

Massachusetts’ New Thresholds
If your nonprofit operates in Massachusetts, the rules changed recently. As of November 20, 2024:

• If your gross support and revenue exceed $500,000, you must submit financial statements that are either reviewed or audited.
  
• If your gross support and revenue exceed $1,000,000, your statements must be audited.
  
• If your revenue is under $500,000, neither a review nor an audit is required by the Massachusetts Attorney General’s Office.
  
  

These changes give smaller and mid-sized Massachusetts nonprofits more flexibility while maintaining oversight for larger ones.

Moving Forward
Choosing between an audit, review, or compilation is not just about compliance. It is about building trust with the people who support your mission. Many nonprofits start with compilations, move to reviews as they grow, and eventually need full audits once operations expand.

If you are not sure what makes the most sense, we can guide you to the right balance of compliance, cost, and credibility.