Why a first audit takes more work
In later years, the auditor starts from balances that were already audited. In a first audit, nobody has checked your opening balances. AU-C 510 requires the auditor to get evidence that those balances don’t contain material errors that affect the current year, and that your accounting policies were applied the same way.
- If you had a prior auditor, the new auditor may review the prior auditor’s workpapers, with your permission.
- If you were never audited, the auditor tests beginning balances directly. Receivables, inventory, fixed assets, debt and net assets or equity usually need the most work.
If enough evidence isn’t available, the auditor may have to modify the opinion. Clean prior-year records reduce that risk.
Common reasons for a first audit
- A funder or grant agreement requires audited financial statements.
- A lender or loan covenant requires an audit, often by a set number of days after year end.
- A state charitable registration threshold requires an audit or review once revenue passes a set amount. Thresholds differ by state.
- A Single Audit. Under 2 CFR 200.501, spending $1,000,000 or more in federal awards in a fiscal year beginning on or after October 1, 2024 requires a Single Audit. See Single Audit.
- Investors, a buyer or your board ask for audited statements.
Start with the exact wording in the agreement or letter that requires the audit. It sets the report type and the due date.
Choosing an auditor
- Licensed CPA firm. Only a licensed CPA firm can issue an audit report.
- Independence. The firm can’t audit work it controls. A firm that keeps your books can audit you only if strict AICPA conditions are met.
- Peer review. CPA firms that perform audits go through peer review. Look up any firm in the AICPA peer review public file.
- Relevant experience. Ask how many audits like yours the firm performs, and whether it performs Single Audits if you need one.
What happens, step by step
- Engagement letter. AU-C 210 requires written terms before work starts: scope, your responsibilities and the expected report.
- Planning. The auditor learns your organization, assesses risks and sets materiality.
- Request list. You receive a list of schedules and documents to provide. See the nonprofit audit checklist.
- Opening balance work. The extra first-year step under AU-C 510.
- Fieldwork. Testing, confirmations with banks and others, and questions for your team.
- Draft and review. The auditor shares draft statements and any adjustments with you.
- Report. The auditor issues the opinion and communicates any significant findings to management and your board.
How it works with us
Best for: nonprofits and businesses facing their first audit because of a funder, lender, state threshold or federal awards.
- Free initial consultation. Share who requires the audit, your year end and your due date.
- Fees quoted upfront, in writing. Transparent, fair fees in an engagement letter that sets the scope.
- Readiness review. We tell you which records need work before fieldwork starts.
- One request list. A single list built for your organization.
- Fieldwork, done remotely, including the opening balance work a first audit needs.
- Report. We walk you and your board through the results before you send the report on.
First audit readiness checklist
| Readiness item | Why auditors need it |
|---|---|
| Closed books and trial balance for the audit year | Starting point for every audit procedure |
| Prior-year financial statements and tax return or Form 990 | Supports opening balances, the extra first-year work under AU-C 510 |
| Bank and loan reconciliations for every account | Supports cash and debt; the auditor confirms balances with banks |
| Receivable and payable detail that ties to the ledger | Supports year-end balances and cutoff |
| Fixed asset schedule with purchase support | Opening and ending balances for long-lived assets |
| Grant, loan and major contracts | Shows restrictions, covenants and revenue terms |
| Payroll records and board minutes | Supports the largest expense and major decisions |
| Schedule of federal awards, if you have federal grants | Needed to test the Single Audit threshold and scope |
Expert CPAs. Personal attention.
Facing your first audit? Tell us who requires it and when it's due in a free initial consultation, and we'll walk you through what to prepare.
Frequently asked questions
In a first audit, the auditor has to get evidence that your opening balances are right, not just your year-end balances. AU-C 510 sets out that work. If a prior auditor exists, the new auditor may review their workpapers. If you were never audited, the auditor tests beginning balances directly.
If the auditor can’t get enough evidence on opening balances, the opinion may be modified, for example on the statement of activities or income statement and cash flows. Clean records for the prior year help, especially for receivables, inventory, fixed assets and net assets or equity.
AU-C 210 requires the auditor and management to agree on the terms in writing before the audit starts. The letter states the objective and scope, management’s responsibilities, the expected report and the fee arrangement.
Pick a licensed CPA firm that is independent of you, has a current peer review and has audited organizations like yours. You can look up a firm’s peer review in the AICPA public file. If you need a Single Audit, confirm the firm performs Government Auditing Standards audits.
Only if independence rules allow it. AICPA rules let a firm provide bookkeeping to an audit client only if you take on all management responsibilities and name a qualified person to oversee the work. Many organizations use a separate firm for the audit.
Under 2 CFR 200.501, an organization that spends $1,000,000 or more in federal awards in a fiscal year must have a Single Audit or program-specific audit. That threshold applies to fiscal years beginning on or after October 1, 2024.
Sources
- AICPA: Audit and assurance standards (AU-C 210, AU-C 510)
- AICPA Peer Review public file search
- 2 CFR 200.501: Audit requirements (Single Audit threshold)
- Journal of Accountancy (AICPA): Maintaining independence with nonattest services
General information as of October 10, 2026. Tax rules change; talk to a CPA about your situation.