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Auditing Service, Audits!
An audit may include a review of the following items:
• Whether an organization timely filed all returns and forms as required under the law
• Whether all returns and forms are complete and accurate
• Whether an organization’s activities are consistent with its stated tax-exempt purpose
• Annual returns for the tax year under audit, and for prior and subsequent tax years
• Employment tax returns
• Form 1099 series information returns
• Private foundation excise taxes
• Intermediate sanctions excise taxes (Code section 4958)
• Excise tax and information returns (Forms 11-C, 730 and W-2G; for more information about gaming taxes and reporting, see Publication 3079)
• Whether any tax liabilities were properly paid (e.g., employment taxes, unrelated business income tax)
• Whether an organization complied with disclosure requirements for applications for exemption, for Form 990 series returns, and for fundraising solicitations and events.
Understanding Audits, Reviews, and Compilations
CPAs perform various services for NFPs and other entities. For example, an NFP may engage a CPA to audit, review, or compile its financial statements. The following discussion addresses the benefits of an audit and provides a general overview of audit,
review, and compilation engagements.
Here are the major differences between a compilation and a financial review or an audit:
1. During a compilation the auditor does not examine the internal controls that are used to manage the risks of embezzlement or fraud (which is part of an independent audit);
2. During a compilation the auditor will not collect and examine source documents (e.g. canceled checks or bank statements) to test the accuracy of the nonprofit’s accounting records (which would be part of the “testing” during an audit);
3. When conducting a compilation, the auditor reformats the financial statements but does not make any determination of whether the account balances are reasonable by comparing them to his or her expectations (which is part of a review).
4. In the report after conducting a compilation, the auditor will not provide any opinion or assurance that the financial statements accurately reflect the financial position of the organization – which is a normal outcome of an independent audit.