div#example { text-align: center; padding-top: 70px; }

Question: Why are audit fees so expensive for Nonprofits?

Question: Why are audit fees so expensive for Nonprofits?

Generally, audit fees are expensive for any entity. Complicating this is the fact that many small organizations don’t have a full understanding of the audit process and how it differs from a preparation engagement. On the surface, the output is seemingly the same. There is not much extra “paper” you receive from an audit compared to less expensive services. All the extra work for the CPA firm goes into their documentation and remains in the audit files of the firm. Those files will be “audited” during that firm’s Peer Review. The extra piece of paper you do get, the audit opinion report, which proceeds the financial statements, has to be backed up by serious amounts of documentation . That is why it is the gold standard in the world of accounting and also why the Audit Report is relied on by your organization (i.e. your board), your donors, your grantors, your service recipients and state charity regulators. If you have not worked as an auditor for a peer reviewed CPA firm, it would be hard to understand the full audit process. For edification, I will point you to the popular blog of Charles Hall. You can read the blog here, Each entry is an education of what goes into the audit process “behind the scenes”. If you want to know more about the differences between Audit, Review and Compilation services, I will point you to this AICPA publication .

So, why are audit fees so expensive for Nonprofits?

Audits (and reviews) are subject to peer review. This means the CPA’s files and workpapers are reviewed by an AICPA approved peer reviewer. Peer review requirements have been becoming increasingly stringent for a variety of reasons. Remember, there is only one audit standard. The same rules and documentation requirements apply to auditing a small nonprofit organization as to a public entity (e.g. Microsoft). Specialized personnel are needed to work on audit documentation and are in demand. Additionally, NY has now joined every other state in the nation in requiring peer reviews for every CPA doing Audits or Reviews. Many smaller firms and sole practitioners dropped audits/reviews instead of being subject to peer review. Price is also affected by supply and demand. This is very specialized service (audits) and few people are doing it. Also, Nonprofits are a specialized industry which many accountants don't serve.

Outside of the Nonprofit world, few small entities (i.e. small businesses) ever have a CPA financial statement audit. Because of the public nature of 501(c)(3) charitable organizations, there are immense benefits for these organizations to have an audit. There are good reasons why states require audits as a tool to protect the public’s interest as they regulate charities and charitable assets in their state. Unfortunately, lack of funds , lack of experience in staff and governance and the limited amounts of CPAs actually doing Nonprofit audits, makes this a dilemma for many small organizations.