Introduction: Preparing for Your First Audit
Preparing for your organization’s first financial statement audit can feel intimidating. You may not know what to expect, which documents you’ll need, or how much time it will take. But the process doesn’t have to be overwhelming.
With the right preparation and systems in place, your audit can be a manageable—and even beneficial—experience for your organization. Here’s what to expect and how to prepare for your very first financial statement audit.
1. Understand Why the Audit Is Needed
Before diving into the logistics, make sure you understand the reason behind the audit. Is it:
- Required as a condition of funding?
- Triggered by reaching a certain revenue threshold or receiving a specific grant?
- Part of your board’s commitment to transparency and accountability?
Knowing the “why” helps guide conversations with your auditor and helps them understand key areas of focus, identify potential compliance requirements, and address specific stakeholder concerns more effectively.
2. Choose the Right Auditor
Work with an auditor who has experience with nonprofit organizations. A good audit firm should:
- Understand nonprofit accounting principles and IRS requirements.
- Be familiar with the specific compliance requirements that affect your organization.
- Communicate clearly and provide a PBC (Prepared By Client) list outlining what they need.
Ask for referrals, review qualifications, and make sure the engagement letter clearly outlines the scope and timeline of the audit.
3. Get Your Books in Order
The audit process is much easier when your books are clean and complete. Close your books for the fiscal year before the audit begins. Auditors work with finalized numbers, so the audit cannot begin until your books are officially closed. While adjustments may be made during the audit, the starting point must be your final year-end balances.
- Reconcile all major accounts (bank, credit card, receivables, payables, payroll).
- Ensure that your chart of accounts and financial statements are accurate.
- Review prior-year financials and grant agreements, if applicable.
If this is your first time going through this process, a bookkeeper can help you prepare reports and documentation that are audit-ready.
4. Gather Supporting Documentation
Your auditor will ask for documents to verify your financial activity. Typical documentation includes:
- Bank statements and reconciliations
- Payroll reports and tax filings
- Grant agreements and award letters
- Invoices, receipts, and check copies for expenses
- Board-approved budgets and meeting minutes
- Documentation showing donor-imposed restrictions on contributions (if applicable)
Organize these items in one secure place to streamline the audit process and ensure your records are complete and ready for review.
5. Review Internal Controls and Policies
Even in a first-year audit, auditors will assess whether you have controls in place to protect your organization’s funds.
Prepare to explain or provide:
- Your expense approval process
- Who has authority to sign checks or approve transactions
- How you ensure segregation of duties (especially with a small team)
- Written policies for financial oversight
Auditors don’t expect perfection, but they do expect to see a structure for accountability.
6. Set Realistic Expectations and a Timeline
Audits take time and can require follow-up questions from your auditor. Plan accordingly.
- Build in time for gathering documentation and responding to requests.
- Stay in regular communication with your auditor.
- Notify your board and staff so they’re prepared to participate if needed.
Audits are collaborative, and transparency goes a long way in making the process smoother.
How a Bookkeeper Can Help
If your organization is preparing for its first audit, working with a nonprofit-focused bookkeeper can make a significant difference. A bookkeeper can:
- Help you organize financial records and reconcile accounts
- Prepare financial statements in a format the auditor expects
- Respond to audit document requests accurately and promptly
- Support post-audit cleanup and adjustments
Bookkeeping support helps your audit stay on track—and frees you up to focus on your mission.
Conclusion: Your First Audit Is a Learning Opportunity
Your first audit is a milestone. With preparation, organization, and the right support, you’ll not only meet your compliance requirements—you’ll also build stronger internal systems that serve your organization long-term.
📌 Need help getting audit-ready? Stainless Books helps nonprofits prepare for financial audits with clear books, organized records, and ongoing support. Click here to book a free consultation today.
