Publication Date

Spring 2017

School

School of Business

Major

Accounting

Keywords

Audit, Nonprofit, Cost-Benefit Analysis, Financial Statement Audits, Small Nonprofits

Disciplines

Accounting | Business Administration, Management, and Operations | Finance and Financial Management | Nonprofit Administration and Management

Abstract

External audits are conducted by Certified Public Accountants (CPAs) and ensure the reliability of financial reporting and internal controls of a given organization. Publicly traded corporations are required by the Securities and Exchange Commission (SEC) to conduct a yearly external audit. In addition, some large or government funded not-for-profits must produce audited financial statements upon request. If an organization is not required to conduct an audit, it may still choose to undergo an independent audit. Among those that may voluntarily conduct an audit are small nonprofit organizations. Due to the unique characteristics of small nonprofits, some elements of an external audit may not be feasible; however, there are still advantages provided by this independent evaluation. The decision to conduct or not conduct a voluntary external audit requires the analysis of the engagement’s costs and benefits. The intent of this paper is to present a cost-benefit analysis related to the observable costs, expenses and advantages of conducting an audit within a nonprofit organization.

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