Navigating Your First NFP Audit or Review: What to Know, How to Prepare, and Why It Matters

For many Not-for-Profit (NFP) organizations, undergoing a financial audit or review for the first time can feel overwhelming. However, with the right preparation, tools, and understanding of the process, this milestone can become a valuable opportunity to enhance financial transparency, accountability, and organizational trust.

Whether you’re preparing for your first audit or exploring the differences between a financial review and a full audit, this guide will walk you through what to expect and how to be audit-ready year-round.

Understanding the Purpose of an Audit

At its core, an audit is an independent and objective examination of an organization’s financial statements. But for Not-for-Profit (NFP) organizations, the purpose extends far beyond numbers and compliance checklists.

Financial Transparency and Accountability

An audit validates that the financial information reported by the organization is complete, accurate, and in accordance with applicable accounting standards (such as Canadian Accounting Standards for Not-for-Profit Organizations). This helps establish a strong foundation of transparency, which is especially vital in the NFP sector where funds often come from public or charitable sources.

Building Stakeholder Confidence

Stakeholders, whether they are donors, grantors, members, or board directors, depend on accurate financial reporting to:

• Evaluate how responsibly the organization is managing its resources
• Determine whether funding is being used as intended
• Make informed decisions about future support or involvement

An unqualified (clean) audit opinion offers credibility to the organization’s operations and finances, signaling that the entity is well-managed and trustworthy.

Supporting Informed Decision-Making

Audited financials aren’t just useful externally. Internally, they provide the leadership team and board of directors with a reliable basis for:

• Budgeting and forecasting
• Assessing program efficiency and sustainability
• Planning long-term strategy

Regulatory and Legal Compliance

In many cases, an audit is required by law or funder agreements. For example:

• Government funders may mandate audited financials for grants above a certain threshold.
• Some provinces require registered charities or large NFPs to conduct annual audits, especially if revenues exceed a specified amount.

Failing to comply can jeopardize the organization’s charitable status or funding eligibility.

Encouraging Operational Improvements

Auditors don’t just examine the numbers, they often review internal controls, policies, and processes, offering insights and recommendations for improved efficiency, risk mitigation, and governance.

In summary, a financial audit helps NFPs demonstrate integrity, secure stakeholder trust, and operate more effectively. It is a valuable tool for both accountability and continuous improvement, ensuring the organization can continue fulfilling its mission with confidence and credibility.

What to Expect from Your First-Time Audit

Audits typically unfold in three key phases:

1. Planning Phase

• Initial discussions and setting timelines
• Assessing risk and identifying significant areas
• Outlining expectations and required documentation

2. Fieldwork (Performance)

• Substantive Testing of account balances and transactions
• Analytical Procedures to identify variances and trends
• Internal Control Review to evaluate safeguards and reliability

3. Audit Opinion

• Unqualified Opinion: Clean bill of health, statements fairly presented
• Qualified Opinion: Certain exceptions or limitations noted

Read more: What to Expect in a Financial Statement Audit – Clearline CPA

Common Documents Requested

Auditors often request the following documentation:

• Trial balance and general ledger
• Bank statements and reconciliations
• Board and committee meeting minutes
• Grant agreements and donation records
• Payroll records and employment contracts
• Internal policies, especially surrounding financial controls

Educating your staff on why these documents are needed fosters collaboration and makes the audit more efficient.

Timelines and Team Responsibilities

NFPs must be aware of:

• Government and funder filing deadlines
• Board meeting schedules for financial statement approval
• Internal deadlines for gathering and preparing documents

It’s essential to treat the audit as a partnership, not a test. A proactive approach and open communication will yield smoother outcomes.

Explore further: Cohen & Co. – First-Time Audit Process

Year-Round Audit Readiness: Monthly & Quarterly Tasks

Avoid the last-minute rush by performing these key tasks:

• Monthly bank and credit card reconciliations
• Timely posting of accruals and adjustments
• Consistent documentation of board meetings

Use tools like this Monthly Close Checklist to stay organized.

Audit Preparation Best Practices

• Centralize documents in a shared, secure location
• Prepare year-end schedules for:
  • Prepaid expenses
  • Fixed assets
  • Accrued liabilities
• Ensure all board and committee minutes are complete and signed

More tips: Embark’s Financial Audit Prep Guide

Special Areas of Audit Focus for NFPs

Restricted Funds

Ensure funds earmarked for specific purposes are properly tracked and spent. Noncompliance can lead to funding issues or reputational damage.
Learn more: Jitasa – Understanding Restricted Funds

Donor Contributions & Receipts

Ensure charitable receipts comply with CRA guidelines. Accuracy and transparency are critical.
Read: Charity Law Group Guidelines

Related Party Transactions

Transactions involving board members or close affiliates must be disclosed to ensure transparency and meet governance standards.

Audit vs. Review: What’s the Difference?

Feature	Audit	Review
Scope	Extensive testing and verification	Limited analysis and inquiry
Assurance Level	High	Moderate
When Needed	Funders, compliance, internal policy	Budget-conscious or internal use
Output	Auditor’s report + opinion	Review engagement report

Use this Clearline guide to determine what’s best for your NFP.

Embracing Technology: Best Practices for Virtual Audit Success

1. Use Cloud-Based Document Storage

Adopting platforms like Google Drive, Microsoft SharePoint, or Dropbox ensures your documents are:

• Accessible by your team and auditors from anywhere
• Version-controlled, avoiding confusion from outdated files
• Backed up and secure, minimizing the risk of data loss

Organize folders by audit categories (e.g., payroll, donations, bank reconciliations) to make file retrieval seamless.

2. Adopt Secure Document Sharing Tools

Confidentiality is critical when handling financial and donor data. Using secure portals or encrypted file-sharing solutions helps protect sensitive information during transmission.

Tools like TitanFile are specifically designed for accounting and legal environments, offering:

• End-to-end encryption
• Secure access controls
• Audit trails and compliance with privacy regulations

Explore: TitanFile’s Guide to Secure File Sharing

3. Scan, Archive, and Organize Supporting Documents Year-Round

Instead of scrambling during audit season:

• Scan all original documents upon receipt (invoices, receipts, contracts)
• Label and categorize files consistently (e.g., “2025_Q1_Bank_Statement.pdf”)
• Archive documents in a shared location with appropriate access permissions

This habit not only supports audit readiness but improves day-to-day financial governance.

Virtual audits demand strong digital organization, but when approached thoughtfully, they can streamline the entire audit experience for both your team and the auditors. By integrating secure technology, maintaining clear folder structures, and scanning documents throughout the year, NFPs can ensure they’re always audit-ready, no matter where the audit takes place.

In Conclusion

Preparing for a Not-for-Profit (NFP) audit or financial review isn’t something that should begin only weeks before year-end, it’s an ongoing commitment to good governance, financial stewardship, and operational transparency.

Start Early, Stay Consistent

Building audit readiness into your monthly and quarterly workflows – through regular reconciliations, document archiving, and internal controls, prevents last-minute stress and fosters confidence when it’s time to engage auditors.

Communicate Openly

An audit is not just a compliance measure; it’s a collaborative process. Maintaining open and respectful communication with your auditors can lead to:

• Better understanding of what they need and why
• Faster turnaround times
• Opportunities to improve financial operations

Educating your staff on the audit process also promotes a culture of transparency and accountability within your organization.

Use the Right Tools

In today’s digital world, leveraging cloud-based solutions and secure file-sharing platforms isn’t just a convenience, it’s a necessity. The right technology ensures that your data is accessible, secure, and audit-ready from anywhere, supporting both in-person and virtual engagements.

More Than a Checklist

Ultimately, a successful audit should not be viewed as a hurdle, but as a strategic tool that can:

• Strengthen relationships with funders and donors
• Highlight areas of operational improvement
• Reinforce your organization’s commitment to integrity and trust

Whether you’re about to embark on your first audit or looking to refine your financial review process, the pillars of success remain the same: Preparation. Transparency. Collaboration.

Let’s Talk Audit Readiness

Need help getting your NFP audit-ready? Whether you’re preparing for your first engagement, need tools like a month/year end checklist to stay organized, or want to streamline your existing processes, our team at DDL Accounting is here to support you every step of the way.

Contact us today to schedule a consultation and discover how we can help your organization build financial clarity and confidence all year long.