Streetsmart Financial Basics for Nonprofit Managers

Chapter 10Auditing: Choosing and Using an Auditor

Time to rush into an area where angels fear to tread as we consider the role, selection, and use of outside auditors. Independent audits are ingenious transactions. Here you have one party, usually some type of funding source, requiring a second party, the nonprofit corporation, to hire outsiders to examine the organizational equivalent of personal possessions and then file a public report on their findings. What's more, the whole thing is an entirely private arrangement, with no direct government involvement in the actual inspection.

Read the opinion letter in Exhibit 10.1 carefully. It says exactly what it means, not surprisingly, since the conventional wording has been tested and revised continuously for many years. The auditor says that he or she has inspected the books and records and found them to be adequate enough to generate the financial statements that are attached to it. More important, the auditor says explicitly that those financial statements convey reliable information.

Exhibit 10.1: Sample Independent Auditors' Opinion Letter

Dear_________:

We have audited the accompanying balance sheet of __ as of June 30, 20xx, and the related statements of public support, revenue, and expenses and changes in net assets, statements of functional expenses, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these ...