The need will determine the method: 3 alternatives to an audit
A nonprofit organization will often get an audit when a high level of assurance is required to build the trust and confidence of the board, donors and the community. However, an audit isn’t the only option available for giving assurance to a third party. Your organization may only need a lesser level of assurance which saves money because these options cost less than a full audit.
Here are different options available:
Review – A review provides a statement of limited assurance to banks, other creditors or stakeholders that do not require audited financial statements. The CPA performing the review affirms that the financial statements conform to an acceptable accounting methodology.
Compilation – A compilation is a collection of financial reports performed by a CPA that paints a picture of an organization’s financial condition. A compilation is the most basic level of service. A CPA reads the financial statements to assist management in presenting financial information conformance with acceptable accounting basis.
Agreed-upon-procedures – An agreed-upon-procedures engagement details specific accounting tests. All parties (nonprofit organization, CPA and requesting agency) agree on the procedures to be performed, and the CPA reports on the results of the procedures performed.
All of the above options provide alternatives to an audit. Again, the need will determine the method.