Nonprofit Accounting Basics

Preparing for the Audit

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To prepare for an audit, your organization will need to gather information for the auditor. The auditor will need this information before and during fieldwork.  “Fieldwork” is when the auditor comes to your office, usually for a few days, to examine your records.  The auditor may provide your organization with a list of items he or she will examine and items you will need to prepare and complete.  This list is sometimes referred to as a “PBC” (Prepared by Client) list. The following are items the auditor will most likely request:

Schedules (Listing) of Information and Reconciliations

  • Cash (Checking & Savings Accounts)
  • Copies of bank reconciliations as of the fiscal year end
  • Bank statements for the month of and month after the fiscal year end
  • Cancelled checks, check register, deposits
  • Investments
  • Copies of investment reconciliation as of the fiscal year end
  • Investment statements for the month of and month after the fiscal year end
  • Schedule of realized gains/losses
  • Accounts Receivable
  • Detailed list of money owed to your organization such as contributions or grants receivable reconciled to general ledger (ex. aged accounts receivable report)
  • Details of the allowance for doubtful accounts
  • Policy for collection and write-offs
  • Prepaid Expenses
  • Schedule of prepaid items, prepaid rent, and prepaid insurance reconciled to general ledger
  • Copies of lease agreements and insurance policies
  • Fixed Assets (Property & Equipment)
  • Schedule of fixed assets showing current year additions and disposals, acquisition date, purchase price, life of fixed asset, depreciation calculated for the current fiscal year, and accumulated depreciation to date
  • Schedule of any gains/losses for disposal of fixed assets
  • Copy of capitalization and depreciation policy
  • Detailed list of all repairs and maintenance expenses for the fiscal year
  • Accounts Payable
  • Detailed list of vendors you owe money to as of the fiscal year end (ex. aged accounts payable report) reconciled to the general ledger
  • Access to all invoices not paid as of the fiscal year end
  • Check register for months subsequent to the fiscal year end
  • Accrued Expenses
  • Schedule of accrued wages as of the fiscal year end (last pay period of the fiscal year that was paid after the fiscal year ended) reconciled to the general ledger
  • chedule of accrued vacation as of the fiscal year end reconciled to the general ledger
  • Deferred Revenue
  • Schedule of deferred contributions or membership fees as of the fiscal year end reconciled to the general ledger
  • Debt
  • Amortization schedule which shows principal and interest
  • Copies of loan, notes payable, and line of credit agreements
  • Net Assets
  • Schedule of net assets rolled forward by classification (Unrestricted, Temporarily Restricted, and Permanently Restricted)
  • Details for restrictions of net assets
  • Revenue
  • Details of contributions received (provide contributor names and restrictions, if any)
  • Details of grants received (provide copy of grant agreement, grant period, and restrictions, if any)
  • List of donated services and/or materials
  • Schedule of revenue and expenses for special events
  • Details for unrelated business income
  • Expenses
  • Reconciliation of salary/wage expense per 941 returns to the general ledger
  • Copies of payroll journals and employee timesheets
  • Listing of employees
  • Schedule of legal expense and copies of related invoices
  • Schedule of functional expenses