Within IRS Form 990
, there is Part XII for financial statements and reporting. In this section, exempt organizations need to indicate whether their financial statements were compiled, reviewed, or audited by an independent accountant. And if so, whether the process was complete on a separate or consolidated basis, or both.
An audit from an independent accountant is a thorough survey of a tax-exempt organization’s financial records, accounting practices, business transactions, internal controls, and accounts. The auditor or accountant cannot be a member or a regular employee of the organization but hired through a service contract.
Important: The auditor must also receive certification from either the American Institute of Certified Public Accountants (AICPA), the Public Company Accounting Oversight Board (PCAOB), or similar groups for accounting professions.
While conducting the independent audit, the accountant determines whether your organization’s financial statements follow “generally accepted accounting principles” (GAAP). These are established principles from the Financial Accounting Standards Board (FASB) – and if your exempt group doesn’t follow these guidelines, the audit will report it.
Costs and Alternatives
The location and size of your tax-exempt group determine the expense of your independent audit. Fees are typically more than $20,000 for large organizations in metro areas and can even cost small nonprofits up towards $10,000.
Accountants can also provide a financial statement review or compilation instead of a routine audit. But if a third party, usually a donor, requires an examination, then a review or compilation may not suffice. Because most exempt organizations conduct audits every few years, it’s not entirely uncommon for a third party to accept just a review of financial statements.
Reporting to the IRS
As mentioned earlier, you simply need to indicate on your 990 form whether your organization had its statements reviewed, compiled, or audited during the tax year. With ExpressTaxExempt.com, it’s as easy as selecting either “Yes” or “No.” If yes, then choose the basis of the auditing process.
Our U.S. – based customer service team is available to answer any technical questions you have about e-filing with our cloud-based service – contact us at 704.839.2321, Monday through Friday from 9 a.m. to 6 p.m. EST, or send an email at your earliest convenience with [email protected].