Audit, Review, or Compilation: What Does Your Nonprofit Actually Need?

Most nonprofits need a full audit only when a funder, their own bylaws, a state charity regulator, or federal spending rules require one. An organization that expends $1 million or more in federal awards in a fiscal year must complete a Single Audit. A state or a major grantmaker may trigger an audit or review once revenue or contributions cross a set amount, even when federal rules do not apply. Below those triggers, a review or a compilation usually gives your board and donors the financial confidence they want at a lower cost. The right choice depends on who is asking, how much you spend, and where your organization sits in its growth.

The Three Levels of Assurance Explained

Audits, reviews, and compilations fall on a scale of assurance, from highest to lowest.

Audits

An audit delivers the highest level of assurance. An independent accountant examines your financial statements, tests transactions, confirms balances, and evaluates internal controls, then issues an opinion on whether the statements are fairly presented in accordance with generally accepted accounting principles (GAAP).

Reviews

A review provides limited assurance. The accountant relies mainly on analytical procedures and inquiries of management, without the detailed testing an audit requires. The result is a statement that nothing came to the accountant’s attention suggesting a material misstatement.

Compilations

A compilation offers no assurance. The accountant helps present your financial data in a recognized format, checking for obvious errors but performing no testing and expressing no opinion. Smaller organizations with straightforward finances commonly start here.

Nonprofit Audit Requirements: When an Audit Is Necessary

Federal Funding

Several situations make a nonprofit audit non-negotiable. Federal funding is the clearest one. Any nonprofit that spends $1 million or more in federal awards during its fiscal year must obtain a Single Audit, a combined audit of financial statements and compliance with federal program rules. The threshold rose from $750,000 to $1 million for fiscal years beginning on or after October 1, 2024.

State Law

State law is the second trigger. Many states require charitable organizations to file audited financial statements once revenue or contributions cross a set amount, typically as part of charitable solicitation registration. New York, for example, requires an audit for nonprofits with more than $1 million in gross annual revenue.

Major Funders

Major funders make up the third. Banks, foundations, and government agencies regularly ask for audited statements before approving a loan or grant, regardless of what the law requires.

Organizational Bylaws

An audit can also be self-imposed. Some nonprofits build an annual audit requirement into their own bylaws or board policies, which makes the engagement mandatory no matter the organization’s size or funding. Check your governing documents before assuming an audit is optional.

When a Review or Compilation May Be Enough

A review works well for organizations that need outside credibility but face no audit mandate. Mid-size nonprofits use reviews to satisfy smaller grantmakers, reassure boards, and demonstrate sound financial practices without the cost of a full audit.

A compilation fits newer or smaller organizations with uncomplicated finances and no external audit requirement. A compilation produces clean, properly formatted statements for internal use, board meetings, or modest funding relationships. As contributions grow and funders ask for more, many groups move up to a review, then an audit.

A narrower engagement exists for specific needs. In an agreed upon procedures (AUP) engagement, you and the accountant agree on a specific scope, and the accountant tests only the items you name, then reports the findings without issuing an opinion. Funders sometimes request AUP when they want a closer look at particular grant expenditures or account balances rather than the full financial statements.

How to Decide Which Engagement Is Right

Three practical questions point most organizations toward the right level.

Check Your State and Funder Requirements

Start with the mandates you already face. Review your state’s rules through the National Council of Nonprofits’ state law audit requirements guide, then read your grant agreements and loan covenants. A single large grant can carry its own audit clause.

Consider Your Budget and Organizational Stage

Match the engagement to your size and resources. An audit costs more and asks more of your staff, so a young organization with simple books may be better served by a review or compilation until its funding and complexity grow.

Plan Ahead for Federal Funding

Watch your federal spending closely if you accept government grants. Crossing the $1 million mark in a fiscal year triggers a Single Audit, so track expenditures by award and forecast early to avoid a last-minute scramble. Remember that pass-through funds from state agencies count toward the federal total, too.

How Insero Helps Nonprofits Choose the Right Engagement

Picking the right engagement gets much easier with an experienced team in your corner. At Insero, we work alongside executive directors, finance leaders, and boards to match the level of assurance to your funding, your regulators, and your stage of growth. Our nonprofit accounting and advisory services bring together audit and assurance, agreed upon procedures, tax, and outsourced accounting under one responsive team, backed by more than 40 years of experience with mission-driven organizations. We help you read funder agreements, monitor federal spending, strengthen internal controls, and prepare so the engagement runs efficiently from start to finish. Every recommendation keeps your mission and long-term sustainability in view.

Schedule an appointment with our nonprofit team to talk through the right fit for your organization.

Resources:

• oig.hhs.gov/compliance/single-audits/
• https://oig.hhs.gov/compliance/single-audits/frequently-asked-questions-faqs/single-audits-faqs/
• ag.ny.gov/resources/government-organizations/charities-nonprofits-fundraisers/charities-annual-filing-char500
• www.councilofnonprofits.org/running-nonprofit/nonprofit-audit-guidec/state-law-nonprofit-audit-requirements