Are all nonprofit organizations required to have an annual audit?
There is no legal requirement to have an audit unless your gross revenue is more than $2 million, though there are funders (including government agencies) that do require an audit as a condition for receiving funding. You should always check with your funders to determine if they require audited financial statements.
If you are an exempt organization based in California, you should be aware of the Nonprofit Integrity Act of 2004, which defines parameters under which exempt organizations are allowed to operate. Click here for a useful link to a PDF summarizing the law’s provisions.
How does a review differ from an audit?
A review is a much less intensive service than an audit. In an audit, accounting staff will visit your place of business or remotely review supporting records and paperwork as well as confirm certain items with third parties (banks, legal matters, receivables). We will spend considerable time testing your financial assertions for accuracy and support. In a review, all work is performed in our office, based on information you provide to us. Although some supporting documentation will be asked for, we do not perform the depth of testing that is standard with an audit.
Your review and audit end with financial statements signed by a CPA. However, the Independent Auditors’ Report includes an opinion on the financial statements, and you also receive an internal control management letter detailing any weaknesses we discovered in your internal controls. Since we don’t do this kind of testing in a review, the review report does not include an opinion, and we don’t issue a letter detailing the weaknesses in your internal control system.
Is my California-based exempt organization required to file annual tax returns?
Yes, though the form of the returns varies depending on the size and age of your organization. For newly formed organizations with little to no revenue, there is a simple “e-postcard” (Form 990-N) that you must file using the IRS website. Your organization will qualify for the 990-N if your annual revenues are normally $50,000 or less.
If your revenue falls between $50,000 and $200,000, you are required to file the 990-EZ (and accompanying California forms)
If your revenue is more than $200,000 you are required to file the full 990 (and accompanying California forms).