Think of your nonprofit and its external auditor as dance partners performing a well-choreographed routine. To execute the dance properly, dancers must complete specific moves and coordinate timing with their partners. Likewise, your organization and its audit firm each have particular duties in the audit process but share the same end goal: a set of financial statements that fairly present your financial condition and operating results.

Defining Responsibilities

Your auditor is responsible for expressing an opinion on your financial statements. The opinion is based on planning and performing an audit in line with required standards to obtain reasonable assurance that your financial statements are free of material misstatement — whether from error or fraud.

Your not-for-profit, on the other hand, is responsible for preparing financial statements and for related tasks, such as developing estimates (for example, an allowance for bad debts) and adopting accounting policies. It’s also your job to establish, maintain and monitor effective internal controls over financial statement reporting and to prevent and detect fraud.

Keep in mind that when designing an audit plan, the auditor considers your organization’s internal controls. But, in the audit opinion, the auditor provides no assurance on the effectiveness of those controls.

The auditor may advise on appropriate accounting principles and their application, and may even assist in preparing financial statements at your request outside of the audit. However, before doing so, the auditor must determine that your nonprofit is able to understand and approve those statements.

Independence Is Critical

The responsibility for the financial statements remains with your organization. You’re also responsible for adjusting financial statements to correct material misstatements.

Your auditor must maintain independence, in both fact and appearance. Although he or she can provide suggestions to help your not-for-profit develop policies, your auditor can’t assist in selecting and implementing those policies.

The auditor also can’t make the adjusting journal entries that might be required to close your books. Your nonprofit is responsible for maintaining, adjusting and closing financial records before the audit.

Well Worth It

The time your not-for-profit spends preparing for an audit can be significant, and coordinating the roles of your auditor and your staff may be somewhat challenging. But the end results — a fair assessment of your nonprofit’s financial health, options to address any vulnerabilities and transparency for your public — make it well worth the effort.