Audit & assurance

    Our funder requires audited financial statements. What now?

    A new grant or foundation application asks for audited financial statements, and you have never had an audit. Here is how to read the request, how to ask whether a review will do, and what drives cost and timing.

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    • Last reviewed October 10, 2026
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    Our funder requires audited financial statements. What do we do now?

    First, ask the funder in writing exactly which report it needs and when, and whether a review is acceptable. Audits are usually required by the grant terms, a state rule or $1,000,000 or more in federal awards (2 CFR 200.501). Your Virtual CPA, a licensed CPA firm, performs nonprofit audits and reviews. Request a free consultation to share the funder’s request.

    When funders ask for an audit and when a review will do

    Funders ask for CPA-issued financial statements to see that you can account for their money. The level they want usually depends on the grant size, your total revenue and their own policy.

    • Audit (AU-C 700). Reasonable assurance. The CPA tests your records, confirms balances with outside parties and issues an opinion. Funders often ask for this on larger grants and from larger organizations.
    • Review (AR-C 90). Limited assurance, based mainly on inquiry and analytical procedures. Many foundations accept a review from smaller nonprofits.
    • Compilation (AR-C 80). No assurance. Some funders accept it, or your Form 990, for small grants.

    Your state may also require an audit or review when you register to solicit donations. See nonprofit audit requirements by state. For a side-by-side view, see audit vs review vs compilation.

    How to ask your funder in writing

    Do not guess. Email your program officer and keep the reply. Here is a short sample you can adapt:

    Subject: Financial statement requirement for [grant name] Hello [name], Thank you for considering [organization]. Your application asks for audited financial statements. Our annual revenue is about [amount] and we have not been audited before. Could you confirm: 1. Whether reviewed financial statements prepared by an independent CPA would be acceptable for this grant. 2. Which fiscal year the statements should cover, and the date you need them. 3. Whether audit costs may be included in the grant budget. Thank you, [name, title]

    If the funder says an audit is required, ask whether you can submit your most recent Form 990 now and the audit report later.

    What drives audit cost and timing

    We quote fees upfront, in writing, after we understand your organization. These factors drive the work:

    • State of your books. Reconciled bank accounts and a closed year mean fewer adjustments.
    • First audit. The auditor must also test opening balances. See what to expect in a first audit.
    • Revenue streams. Restricted grants, in-kind gifts, events and program fees each need testing.
    • Federal awards. A single audit adds compliance testing of major programs.
    • Your response time. How quickly you answer requests drives the timeline as much as anything.

    Timing also depends on your year end and when you engage the auditor. Engage early if your funder’s due date is close.

    The Uniform Guidance rule for federal money

    Under 2 CFR 200.501, a nonprofit that spends $1,000,000 or more in federal awards in its fiscal year must have a single audit or, in limited cases, a program-specific audit. This threshold applies to fiscal years beginning on or after October 1, 2024. Federal funds passed through a state agency or another nonprofit count toward the total.

    Below the threshold, you are exempt from the federal audit requirement for that year. Your records must still be available for review by the awarding agency, and private funders can still ask for an audit. See our single audit checklist.

    How it works with us

    Best for: nonprofits whose foundation, government funder or grant agreement now asks for audited or reviewed financial statements.

    1. Free initial consultation. Share the funder’s request, your year end, your revenue sources and your due date.
    2. Fees quoted upfront, in writing. Transparent, fair fees in an engagement letter that states the report type and scope.
    3. Independence check. We confirm we are independent of your organization before we accept an audit or review.
    4. One request list. A single list tailored to your funding sources.
    5. Remote fieldwork. We perform the procedures the standards require.
    6. Report. We discuss any findings with your board or finance lead, then issue the report for your funder.

    What your funder’s wording usually means

    Funder request wordingWhat it usually meansWhat to ask
    "Audited financial statements"An audit with an opinion from an independent CPAWould reviewed statements be acceptable? Which year? What due date?
    "Independent audit" or "audit report"An audit. Some funders also want the management letter.Do you also need the management letter or board-approved statements?
    "Reviewed financial statements" or "CPA review"A review under AR-C 90 by an independent CPAIs the most recent year enough, or do you need two years?
    "Financial statements prepared by a CPA"Often a compilation, sometimes a reviewIs a compilation acceptable, or do you need a review?
    "Most recent Form 990"Your filed tax return, not a CPA reportIs the 990 enough on its own?
    "Single audit" or "Uniform Guidance audit"An audit under 2 CFR 200 Subpart F, triggered by federal spendingIs this award federal money, and what is the federal assistance listing number?

    Expert CPAs. Personal attention.

    Your funder asked for audited financial statements? Send us the request in a free initial consultation and we'll help you confirm which report you need.

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    Frequently asked questions

    Some will. Many foundations accept reviewed financial statements from smaller nonprofits, and some accept a compilation or your Form 990. The only way to know is to ask the program officer in writing. Keep the reply with your grant file.

    There is no general federal rule that every charity must be audited. An audit is usually required by a funder, a grant agreement, a state charity registration rule or federal awards above the Uniform Guidance threshold. Check each source that applies to you.

    Not unless the funder agrees. A Form 990 is a tax return, not an audit report. If you cannot get an audit in time, ask the funder in writing whether it will accept a review, a 990 or a later delivery date.

    Often, yes, if the funder allows it. Many private funders let you budget a share of audit cost as an administrative expense. For federal awards, audit costs are allowable under the Uniform Guidance cost rules within limits. Ask the funder and read your award terms.

    Ask the funder whether a review or compilation is acceptable. Ask whether the requirement can wait until your next fiscal year. Ask whether the audit cost can be included in the grant. Clean, reconciled books also reduce the work an auditor has to do.

    It depends on how clean your books are, how quickly you answer requests, your year end and how busy the auditor is. A first audit takes more work because the auditor also tests your opening balances. Start as soon as you know the funder’s due date.

    Only if you spend $1,000,000 or more in federal awards in your fiscal year, under 2 CFR 200.501, for fiscal years beginning on or after October 1, 2024. Federal money passed through a state or another nonprofit counts. Below that threshold you are exempt from the federal audit requirement, though funders can still ask for an audit.
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