Audit preparation for US nonprofits

A nonprofit's first independent audit usually arrives when annual receipts cross a threshold imposed by state law, a major funder, or a federal grant. The audit itself is rarely the problem — preparation is. The audit team is paid to find issues; the preparation team's job is to leave nothing easy to find.

The 8-step cycle

1. 1Confirm the fiscal year-end and the audit timeline. Most US nonprofits run a June 30 or December 31 fiscal year. Audit fieldwork starts 60–90 days after year-end.
2. 2Pull the year-end trial balance and reconcile it to the prior year's audited statements. Any unexplained variance flags here, not in the audit.
3. 3Reconcile every bank and brokerage account to the year-end statement, with reconciliation documents saved.
4. 4Document every grant received in the year — funder name, amount, restriction class, period of performance, supporting agreement.
5. 5Document every grant made — recipient, amount, purpose, supporting documentation.
6. 6Prepare schedules for fixed assets, depreciation, accrued expenses, deferred revenue, and any long-term commitments.
7. 7Pull functional expense allocations — program, management, fundraising — at the GL detail level so the breakdown can be audit-walked.
8. 8Assemble the audit-request response pack before the first PBC list arrives. Most of the items will be the same.

Run this cycle once and the second audit is dramatically easier. The audit firm builds workpapers off the prior year, and the prep gets reused. The hardest year is year one.