Nonprofits are often required to undergo financial evaluations, but not all evaluations are the same. The two most common types are audits and reviews—and while they may seem similar, they differ significantly in terms of scope, cost, and the level of assurance they provide.
A nonprofit audit is the most comprehensive financial examination available. Conducted by an independent Certified Public Accountant (CPA), an audit includes in-depth testing of financial records, internal controls, and accounting practices.
The CPA evaluates whether the nonprofit’s financial statements are presented fairly in accordance with generally accepted accounting principles (GAAP). This process typically includes:
An audit provides the highest level of assurance that a nonprofit’s financial statements are accurate and complete. For this reason, audits are often required by government agencies, major donors, and grantmakers—especially for organizations with annual revenues over a certain threshold.
A review is a more limited assessment. While it’s still conducted by a CPA, it involves inquiry and analytical procedures only, without the deep testing required in an audit.
The CPA will:
Because there’s no verification of records or internal control testing, a review provides limited assurance. It's less expensive and faster than an audit, making it a good option for smaller nonprofits or those not legally required to have a full audit.
Choosing between an audit and a review depends on your nonprofit’s size, funding requirements, and legal obligations. While an audit provides greater credibility, a review can be a cost-effective way to maintain financial transparency and oversight when full assurance isn’t needed.
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