CAN's finance and accounting programs are designed to to measurably improve the accuracy, consistency and clarity of financial reporting, thus reducing time and financial costs and improving accountability and public trust in California's nonprofit sector.

Another goal of this program is to promote a dialog and create a community of nonprofit finance professionals so please post questions and comments!

Tuesday, October 09, 2007

How much will an audit cost?

I get asked every once in a while how much an audit costs, and I never have an answer that is $xx,xxx. It really varies on how big you are, the complexity of your funding, the state your books are in to begin with.

But I started think about costs because there are several new audit standards coming, including this one, which will have a dramatic impact on how the audit is done and how much it will cost. I asked a few friends of CAN, folks I look up to a lot and turn to for help on many an occasion how they cost an audit. Here are some of their responses:

"It is not how much total revenue they have but how many different sources of funding that complicates an audit (for instance multiple government contracts versus one or none), also how complicated their balance sheet is (do they have split interest agreements, many notes or capital leases, deferred comp plans etc)."

"We need to know if they have affiliated organizations, a subsidiary or member of a parent organization. We need to know what the nonprofit is looking for in requesting an audit. Do their grants require special reporting even though they do not meet the threshold for a Yellow Book (compliance) audit."

"Some times there are covenants from banks or grants that must be tested. When determining whether to take on an audit, we need to know if they have books and records that are able to be audited. For example if they are a new organization, their internal controls may be lacking or their accounting staff may not have the books computerized and on an accrual basis. Not that they can’t have an audit, but they will require additional work to get ready for the audit."

"Are they in an industry that requires special reporting such as health care industry or schools?"
Some of these answers came form larger firms who can't charge much less than $20,000.00 an audit. Other larger firms can sometimes offer you a deal because they do so many audits and rely on a high volume to keep costs low. Of course you could substitute "larger firm" with "smaller firm" for the above statement, it all depends on the firm.

Those new auditing standards coming will also have an impact on price. According to the folks I have spoken with it could be anywhere from 20 to 40 percent more than prices are now.

Other bits of info I have picked up:
  • Many firms will bid on your job assuming you have clean books. If it turns out you don't then additional time (for the auditor) and money (for you) will be spent to get them into shape.
  • Initial engagements always cost more than subsequent engagements.
  • Reviews cost about half as much as audits. They cover less ground than an audit but CAN has never had anyone say, "you need to give us an audit." when we have submitted an review. Audits are they best way to go, they tell us the most about an organization, but maybe you don't need to do one every year. Unless you are subject to SB 1262, the Nonprofit Integrity Act.
  • Preparation is the key to a good audit. You will get a list of things to do, documents to fill out, reports to have ready before anyone sets foot in your office to get to work. Get it all done, and stay in contact with the firm to make sure you understand what they are asking.
  • Got a weird transaction you don't know how to handle? Got an auditor? Ask them. It will be cheaper to get guidance up front than having to fix any possible errors later on.
Finally, here is a link to CPA and Accounting referrals. Any questions / comments?

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