Sassetti LLC
For most not-for-profit organizations, the annual financial statement audit is an important part of maintaining transparency, accountability, and confidence among boards, donors, grantors, lenders, and other stakeholders. That does not mean the process has to disrupt your finance team for weeks.
Organizations that treat audit readiness as a year-round responsibility are often better positioned to respond to auditor requests, reduce last-minute adjustments, and keep the engagement moving according to schedule.
As your organization prepares for its 2026 audit, here are seven areas that can help make the process more efficient.
Audit preparation should begin well before year-end.
Key balance sheet and activity accounts should be reconciled monthly whenever possible, or at minimum quarterly. This includes cash, investments, accounts receivable, contributions receivable, accounts payable, accrued expenses, deferred revenue, fixed assets, debt, leases, and net assets.
General ledger balances should agree to supporting schedules such as bank reconciliations, investment statements, receivable aging reports, payable listings, fixed asset schedules, and other documentation.
Not-for-profits should also pay particular attention to information originating outside the accounting department. Contribution records maintained by development teams, event revenue, membership information, grant activity, program registrations, sponsorships, and donor restrictions should ultimately reconcile to the accounting records.
Finding discrepancies throughout the year gives your team time to investigate them. Discovering those same discrepancies during fieldwork can slow the audit considerably.
One of the easiest ways to improve audit efficiency is to make sure supporting documentation is complete and accessible before your auditors begin testing.
Review major transactions and account balances to confirm that invoices, contracts, grant agreements, donor correspondence, bank statements, investment statements, payroll records, leases, debt agreements, board minutes, and other supporting documents are available.
Pay particular attention to documentation surrounding contributions with donor restrictions, conditional grants, large or unusual transactions, new financing arrangements, major purchases, and significant contracts.
If something is missing, begin obtaining replacement documentation early. Waiting until an auditor selects the transaction for testing can create unnecessary delays.
For organizations maintaining electronic records, establishing consistent file naming conventions and centralized folders can also make responding to audit requests considerably easier.
At the beginning of an engagement, Sassetti will generally provide a request list identifying the schedules, reconciliations, reports, and supporting documentation needed for the audit.
Treat this list as part of your audit project plan rather than something to address immediately before fieldwork.
Assign responsibility for each request, establish internal due dates, and identify information that may need to come from other departments. Development, human resources, payroll, program leadership, information technology, and executive management may all have information needed during an audit.
Before submitting schedules to your auditors, perform an internal review. Confirm totals agree to the general ledger, formulas are working properly, reporting periods are correct, and supporting documentation agrees with the schedules being provided.
Accurate information provided the first time can significantly reduce follow-up questions and repeated requests.
Your auditors will want to understand what changed during the year and why.
Before the audit begins, review the current year’s financial results against both the prior year and your organization’s budget. Identify significant increases or decreases in revenue, expenses, assets, liabilities, and net asset categories.
The explanation may be straightforward. Your organization may have received a major grant, launched a new program, experienced staffing changes, relocated, purchased equipment, changed investment strategies, or experienced an unusual fundraising year.
The important part is being prepared to explain the business reason behind significant changes and provide supporting documentation when necessary.
This review can also benefit management and the board. Unexpected variances sometimes identify accounting errors, operational changes, or emerging financial trends that deserve attention beyond the audit itself.
Audit risk assessment increasingly includes an organization’s information systems and the controls surrounding financial reporting. Under current AICPA auditing guidance, auditors obtain an understanding of the entity’s internal controls and relevant information systems, including certain general information technology controls.
Before your audit, consider whether there have been changes to accounting software, donor management platforms, payroll systems, banking access, approval workflows, or other applications that affect financial information.
Organizations should also review who has access to financial systems and banking platforms, who can approve transactions, who can enter or modify accounting information, and whether appropriate segregation of duties exists.
For smaller not-for-profits, perfect segregation of duties may not always be practical. In those situations, documented review and oversight procedures can become especially important.
If your organization implemented a new financial system, changed service providers, experienced turnover in key accounting positions, or modified approval processes during the year, discuss those changes with your audit team early.
Your prior audit can be an excellent roadmap for preparing for the next one.
Review previous audit adjustments, management letter comments, internal control recommendations, and other issues identified during the engagement.
Confirm that prior-year audit entries were properly posted to your accounting system and that beginning balances agree to the final audited financial statements.
More importantly, determine whether the underlying issues that led to prior adjustments have been addressed.
If your organization repeatedly records the same audit adjustment each year, that may indicate an opportunity to improve your monthly or year-end closing process.
Addressing these matters before the current audit can improve the quality of your financial reporting and reduce the number of adjustments required during fieldwork.
Your relationship with your auditors should not begin and end with fieldwork.
Significant accounting questions are often easier to address when a transaction occurs rather than several months later during the audit.
If your organization receives an unusual grant, enters into a significant contract, signs a new lease, restructures debt, receives a substantial contribution, makes a major investment, launches a new program, or encounters another complex accounting matter, consider discussing it with your Sassetti team at the time it happens.
Early conversations provide an opportunity to evaluate the accounting treatment, determine what documentation should be retained, and address potential financial reporting considerations before year-end.
A smoother audit is usually the result of what happens during the other eleven months of the year.
Consistent reconciliations, organized documentation, strong internal controls, timely financial reporting, and regular communication can help your organization spend less time responding to audit requests and more time focused on its mission.
At Sassetti, we work with not-for-profit organizations throughout the audit process to help make engagements efficient, collaborative, and valuable. Our goal is not simply to complete the audit, but to help organizations strengthen their financial reporting processes and better understand the financial information they use to make decisions.
If your not-for-profit organization is preparing for an upcoming audit or has questions about its accounting and financial reporting processes, contact the Sassetti team to discuss how we can help.
7 Ways Not-for-Profit Organizations Can Prepare for a Smoother Audit For most not-for-profit organizations, the annual financial statement audit is
Tax Committee Unveils New Crypto Tax Legislation Facebook Twitter LinkedIn House Ways and Means Committee Chair Jason Smith, R-Mo., has
IRS Issues Relief for Exempt Organization Executive Compensation Excise Tax Facebook Twitter LinkedIn The Internal Revenue Service (IRS) released Notice 2026-36 on
Countdown to Retirement: A Dentist’s Guide If you’re a dentist and retirement is on the horizon, the five-year mark is your
Illinois Enacts Potentially Wide-Reaching Digital Asset Tax Illinois Gov. JB Pritzker has signed a $55.9 billion budget that includes a
Manufacturing Tax Outlook: Tariffs, Federal Incentives, and SALT Complexity Table of Contents Key Manufacturing Findings from the 2026 BDO Tax
