Independent Audit

An independent audit is a formal examination of a nonprofit organization's financial statements conducted by an external certified public accountant (CPA) or accounting firm that has no financial relationship with the organization. The auditor issues an opinion on whether the financial statements present fairly, in all material respects, the organization's financial position in accordance with generally accepted accounting principles (GAAP). Audit opinions range from "unqualified" (clean — the best result) to "qualified" (with exceptions), "adverse" (financial statements are materially misstated), or "disclaimer" (the auditor cannot form an opinion). Form 990 Part XII asks whether the organization had its financial statements compiled, reviewed, or audited, and whether the audit revealed any material findings. While the IRS does not universally require nonprofits to undergo independent audits, many states require them for organizations above certain revenue thresholds (typically $500,000 to $2 million in annual revenue), and most grantmakers require audited financials as a condition of funding. The Single Audit Act requires organizations that expend $750,000 or more in federal funds to undergo an additional audit (the "single audit" or A-133 audit). For donors, the presence of an independent audit is a strong indicator of financial accountability. NonprofitTruth's data comes from Form 990 filings, which are separate from audited financial statements, but organizations that undergo audits typically produce more reliable 990 data.