Every nonprofit finance team has experienced the same moment. The Prepared by Client list arrives. It is 40 items long. Fieldwork starts in 3 weeks. The team has no assigned coordinator, several reconciliations are still open, and no one has reviewed the grant schedules since last quarter.
The audit has not started yet, and the scramble has already begun.
Audit preparation is easier when the finance team understands the purpose behind each request, not just what the auditor is asking for, but what they are trying to verify. An auditor working through a well-organized client with clean schedules, reviewed reconciliations, and a single internal point of contact finishes faster and asks fewer follow-up questions. The inverse is equally true.
This checklist covers the 8 areas auditors request most consistently, explains why each one matters, and identifies the specific documentation that eliminates back-and-forth before fieldwork begins. Organizations preparing for their first audit or looking to strengthen their year-end process can also review SOS CPAs’ Audit & Assurance Services and accounting for Not-For-Profits to understand how a structured engagement is designed from day one.
1. Core Trial Balance and General Ledger Support: Why Auditors Start There
Auditors begin every engagement with the trial balance and general ledger because these 2 documents establish the starting point for every subsequent test. The trial balance shows the balance of every account at year-end. The general ledger shows every transaction that produced those balances. Together, they tell the auditor where to look first and how large each area of risk is.
What auditors request:
- Final trial balance as of the fiscal year-end, agreed to the financial statements.
- General ledger for the full fiscal year, exportable and searchable by account.
- Chart of accounts with account descriptions.
- Prior year trial balance for comparative testing.
Why it matters: Auditors use the trial balance to identify accounts with unusual balances, year-over-year fluctuations above materiality thresholds, and accounts that require deeper testing. An account that increased 40% year-over-year without a documented operational explanation triggers additional procedures. A trial balance that does not agree with the draft financial statements creates reconciling work that delays the entire engagement.
What you should do before fieldwork: Confirm that the trial balance ties to the draft financial statements to the penny. Document every material variance from the prior year with a brief explanation. Provide the general ledger in a format the auditor can filter and sort — not a printed PDF.
2. Bank Reconciliations, Cash Confirmations, and Investment Schedules, Proving Balances and Activity
Bank reconciliations, bank and investment confirmations, and investment schedules serve 1 primary audit purpose: independently verifying that the balances reported in the financial statements exist and are accurate. Auditors do not rely solely on the organization’s records. They confirm balances directly with third parties and reconcile those confirmations back to the general ledger.
What auditors request:
- Bank reconciliations for all accounts as of the fiscal year-end, including operating, payroll, restricted, and grant accounts.
- Bank and investment confirmations.
- Bank statements for the full fiscal year for all accounts.
- Investment account statements as of year-end with activity detail.
- Roll forward schedules for investment accounts showing beginning balance, purchases, disposals, market adjustments, and ending balance.
Why it matters: Auditors send direct confirmation requests to banks and investment custodians. If the confirmed balance differs from the reconciled balance, the difference must be explained and resolved before the audit can proceed. According to the U.S. Government Accountability Office (gov) (2001), unreconciled items, including outstanding checks over 90 days, deposits in transit without supporting documentation, and unexplained ledger differences, are among the most common preventable causes of audit fieldwork delays, as they prevent auditors from verifying cash balances and typically require management to reconstruct records mid-engagement.
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What you should do before fieldwork: Reconcile every account through year-end. Investigate and document every reconciling item. Clear outstanding checks over 90 days. Confirm that investment account statements agree with the general ledger before the auditor requests confirmations.
3. Revenue Support: Grants, Contributions, Receivables, Deferred Revenue, Donor Restrictions, and In-Kind Donations
Revenue testing is the section where nonprofit audits diverge most sharply from for-profit audits. Under FASB ASC 958, nonprofit revenue falls into 2 categories: exchange transactions and contributions.
- Exchange transactions are arrangements where both parties receive commensurate value, such as government contracts with defined deliverables, fee-for-service arrangements, and membership dues.
- Contributions are transfers where the resource provider receives no direct commensurate benefit in return.
Grants are not a separate third category. A grant’s classification depends entirely on its terms. A government grant that requires specific deliverables and allows the funder to recoup unused funds is an exchange transaction. Colinvaux’s (2023) study confirms that a charitable grant awarded at the funder’s discretion, with no return obligation, is a contribution. This distinction determines the recognition method, the net asset classification, and the supporting documentation that the auditor will test, making grant agreement review one of the most consequential steps in audit preparation.
In-kind donations are common among nonprofits and require specific audit attention. As established under Financial Accounting Standards Board (2020) Accounting Standards Update (ASU) 2020-07, Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets, nonprofits must present in-kind contributions as a separate line in the Statement of Activities, disaggregated by category, such as property, food, medical supplies, or contributed services.
What auditors request:
- Grant award letters and executed grant agreements for all active grants.
- Grant revenue recognition schedules showing award amount, amount recognized, and remaining balance by grant.
- Contribution revenue detail tied to the donor database or acknowledgment letters.
- Pledges receivable schedule with aging, allowance methodology, and collection history.
- Deferred revenue schedule showing opening balance, additions, revenue recognized, and ending balance.
- Documentation of donor restrictions for all net assets with donor restrictions balances, including the nature of each restriction and the expected release date.
- Board resolutions or gift agreements for any net assets without donor restrictions designated by the board for specific purposes.
- In-kind donation log showing description of each donated item or service, estimated fair value, valuation methodology, and date received.
- In-kind confirmations from donors for significant non-cash contributions.
Why it matters: Auditor’s test whether revenue was recognized in the correct period and in the correct net asset class. A grant recognized as unrestricted revenue when the award letter specifies restricted use is a misstatement, regardless of how the funds were spent. A pledge recorded as revenue without a probability-of-collection assessment is an unsupported balance. An in-kind donation recorded without fair value documentation or donor confirmation is an unsubstantiated balance that generates findings.
As the Office of Management and Budget (2024) confirmed in the Federal Register final rule published April 22, 2024 (89 FR 30046), the revision of the Uniform Guidance aimed specifically at improving transparency and accountability in federal financial assistance. For nonprofits receiving federal grants, this means grant revenue recognition and expenditure tracking are subject to both audit scrutiny and federal compliance review simultaneously.
What you should do before fieldwork: Prepare a grant-by-grant revenue schedule that ties to the general ledger. Confirm that every restricted contribution is coded to the correct net asset class. Review pledge receivable balances and document the collection probability assessment for each significant pledge. Prepare an in-kind donation log and obtain donor confirmations for all material non-cash contributions.
4. Expense and Payable Support: Accruals, Vendor Balances, Payroll, Credit Cards, and Allocations
Expense testing verifies that costs reported in the financial statements were incurred, properly approved, correctly classified, and recognized in the right period. For nonprofits, payroll allocations and functional expense classifications receive particular attention because they directly affect the program expense ratio, one of the primary metrics donors and watchdog organizations use to evaluate organizational efficiency.
What auditors request:
- Accounts payable aging schedule as of year-end with vendor detail.
- Accrued liabilities schedule with calculation support for each significant accrual.
- Payroll registers and payroll tax returns for the fiscal year.
- Time and effort documentation supporting salary allocations across programs, management, and fundraising.
- Credit card statements and expense reports for the fiscal year, with approval documentation
- Functional expense allocation methodology documentation.
Why it matters: Auditors test the expense cutoff, confirming that expenses recorded in the current year were incurred in the current year, and that significant expenses incurred before year-end were not delayed to the following period. Accruals without a documented calculation methodology are unsupported estimates. Payroll allocations without time documentation are assumptions that cannot be substantiated.
The Illinois CPA Society’s Not-for-Profit Symposium (2026) dedicates full sessions to financial communications with boards and organizational resiliency, reflecting the sector-wide recognition that functional expense accuracy and cost allocation discipline are governance priorities, not just accounting technicalities. Boards and funders read functional expense ratios. Auditors test the schedules that produce them.
What you should do before fieldwork: Reconcile accounts payable to vendor statements for all significant balances. Document the basis for every accrued liability. Confirm that salary allocations are supported by time records and consistent with grant budget approvals.
5. Net Assets, Board Minutes, Policies, and Governance Documents
Net asset testing and governance document review serve a purpose that finance teams sometimes underestimate. Auditors are not reviewing board minutes to assess the quality of board discussions. Auditors are searching for 4 specific items: authorization of significant transactions, approval of the annual budget and any amendments, disclosure of conflicts of interest, and evidence of board review of financial statements.
What auditors request:
- Board meeting minutes for the full fiscal year, including committee minutes for the finance and audit committees.
- Current conflict-of-interest policy and signed disclosure forms from board members and key staff.
- Current investment policy statement.
- Current whistleblower and document retention policies.
- Net asset rollforward showing opening balance, additions, releases from restriction, and ending balance for each net asset class.
- Documentation supporting all donor-imposed restrictions and board designations.
Why it matters: Board minutes authorize transactions. An investment in a new program, a significant borrowing, or a lease commitment authorized in board minutes requires corresponding financial statement disclosure. A transaction that appears in the financial statements without corresponding board authorization creates a governance finding.
What you should do before fieldwork: Confirm that board minutes are complete for all meetings held during the fiscal year. Collect signed conflict-of-interest disclosures from all board members. Prepare a net asset rollforward that ties to the trial balance and includes supporting documentation for every restriction.
6. Related Party Transactions: Identifying Undisclosed Relationships
Related party transactions are a standard, high-priority area of every nonprofit audit. Auditors test for undisclosed relationships between board members, executives, vendors, and the organization because transactions between related parties carry an inherent risk of self-dealing, favorable terms, or conflicts of interest that may not be visible in the financial statements without specific inquiry and testing.
What auditors request:
- Signed conflict-of-interest disclosure forms from all board members, officers, and key employees for the fiscal year.
- A schedule of all transactions with related parties, including vendors owned or controlled by board members, loans to or from officers, shared-service arrangements, and lease agreements with affiliated entities.
- Supporting documentation for each related party transaction, including contract terms, approval evidence, and board or committee minutes authorizing the transaction.
- Internal Revenue Service (IRS) (2016) stresses that auditors also ask for Form 990 Part IV responses and Schedule L (Transactions with Interested Persons) for cross-reference.
- Documentation confirming that related party transactions were conducted at arm’s length or that any exceptions were disclosed and approved.
Why it matters: U.S. GAAP requires disclosure of all material related party transactions in the notes to the financial statements. An undisclosed transaction between the organization and a board member’s business, even if economically reasonable, is a financial statement omission if not properly disclosed. Auditors also cross-reference related party disclosures against the organization’s conflict-of-interest policy to confirm the policy is being applied in practice, not just maintained on paper.
What you should do before fieldwork: Collect and review all conflict-of-interest disclosures before the audit begins. Prepare a written schedule of all related party transactions during the fiscal year, including the nature of the relationship, the dollar amount, and the approval process followed. Do not leave this documentation for the auditor to discover independently.
7. Functional Expense Support and Compliance-Sensitive Funding Schedules
Functional expense support and compliance schedules are the documentation category auditors test before forming conclusions. For nonprofits receiving federal awards, this section expands to include the Schedule of Expenditures of Federal Awards (SEFA) and the supporting documentation required for Single Audit procedures under 2 CFR Part 200 Subpart F.
Does this apply to you?
According to the Code of Federal Regulations (2026), single Audit requirements apply to organizations that expend $1,000,000 or more in federal awards during a fiscal year. As established in 2 CFR §200.501(a) and confirmed by the Federal Register (2024) final rule (89 FR 30046, April 22, 2024), OMB raised the threshold from $750,000 to $1,000,000 effective October 1, 2024, specifically to reduce administrative burden on smaller recipients.
If your organization expends less than $1,000,000 in federal awards annually, the Single Audit requirement under Subpart F does not apply, but your records must still remain available for federal agency review at any time per §200.501(e). If you are approaching the threshold, calculate your total federal expenditures carefully. The $1,000,000 calculation includes direct federal awards, pass-through funds received from state agencies, program income from federally funded activities, and non-cash federal assistance valued at fair market value. Each of these sources counts, not just the grant cash that arrived in your operating account.
What auditors request:
- Functional expense schedule with allocation methodology documentation.
- Support for all joint cost allocations, if applicable.
- Schedule of Expenditures of Federal Awards (SEFA) for organizations subject to Single Audit requirements.
- Grant expenditure detail by program for each federal award listed on the SEFA.
- Sub-recipient monitoring documentation for organizations that pass federal funds to other entities.
- Prior year audit findings and corrective action plan status.
Why it matters: The functional expense schedule determines how costs are presented as program services, management and general, and fundraising. Allocations not supported by a documented, consistent methodology produce a schedule that auditors cannot substantiate. For federal grant recipients, the SEFA must agree to the general ledger and to funder-submitted financial reports. Discrepancies between these 3 sources generate findings.
Andrea Wright (2024) emphasised that on audit and attest quality management, notes that 4 new quality management standards, SQMS No. 1, SQMS No. 2, SAS No. 146, and SSARS No. 26, took effect in December 2025, requiring audit firms to shift from a policies-based to a risk-based approach. For nonprofits, this means auditors now apply more structured, documented risk assessment to functional expense allocations, grant compliance, and restricted net asset classifications, precisely the areas where documentation gaps are most likely to generate findings.
What you should do before fieldwork: Prepare the functional expense schedule and document the allocation basis for every cost category. Reconcile the SEFA to the general ledger and to all funder-submitted reports. Confirm the status of every finding from the prior year audit and document corrective actions taken.
8. Common Causes of Delays and How to Avoid Them
The 4 most common causes of audit delays are incomplete schedules submitted without internal review, outdated reconciliations presented as current, no single internal point of contact to resolve auditor questions, and documentation submitted in unsearchable formats.
Don’t Submit Schedules That Haven’t Been Internally Reviewed First
Finance teams under time pressure often send the first draft of a schedule directly to the auditor. The auditor identifies errors, requests corrections, and waits for a revised version. This cycle adds days to fieldwork and signals to the auditor that internal review procedures are weak, which increases the scope of testing applied to related accounts.
Instead, You Should Designate One Reviewer to Approve Every Schedule Before It Leaves the Organization
The internal reviewer confirms that each schedule ties to the trial balance, that supporting documentation is attached, and that the format is consistent with prior year submissions. Schedules that pass internal review before submission generate fewer auditor questions.
Don’t Present Year-End Reconciliations That Were Prepared During Fieldwork
Reconciliations completed under audit deadline pressure are more likely to contain errors and are less likely to reflect the thoroughness of a properly maintained monthly close process. Auditors can identify reconciliations prepared retroactively. This observation alone increases scrutiny of the reconciled accounts.
Instead, You Should Complete All Reconciliations Before the Auditor Arrives
Bank reconciliations, grant account reconciliations, and subsidiary ledger tie-outs should all be finalized and reviewed before fieldwork begins. Reconciling items should be documented and resolved, not left open for the auditor to find.
Don’t Leave the Auditor Without a Named Internal Contact
When auditors cannot identify a single point of contact, questions get forwarded between staff, answered inconsistently, and sometimes lost entirely. Each unanswered question extends fieldwork.
Instead, You Should Assign One Internal Coordinator Before the Engagement Begins
The coordinator receives all auditor requests, routes them to the appropriate internal owner with a specific response deadline, and tracks open items to resolution. This single structural decision reduces audit duration more than any other preparation step.
Don’t Submit Documentation in Formats That Require Manual Processing
PDF printouts of the general ledger, scanned bank statements, and image-only files of grant agreements all require the auditor to manually extract information that should be directly accessible. This adds hours to fieldwork and increases the likelihood of transcription errors.
Instead, You Should Confirm Preferred File Formats With Your Auditor Before Submission
Provide general ledgers and trial balances in Excel or CSV. Provide bank statements as searchable PDFs. Provide grant agreements and board minutes as clearly labeled, individually named files, not merged into a single document.
Final Thought: Start Your Readiness Review Before the Final Request List Arrives
Nonprofit audit preparation reduces to 1 principle: the finance team that understands what auditors are verifying, and why, prepares documentation that answers those questions before being asked.
As CCS Fundraising (2026) reported in the Philanthropy Pulse, based on responses from 618 nonprofits across 47 U.S. states, 47% of organizations reported negative impacts from recent government policy changes, with 61% of those citing reduced government funding as the primary effect. In a funding environment this tight, an audit that runs long, generates findings, or delays financial statement delivery creates downstream risk for grant renewals, board confidence, and funder relationships.
A clean, timely audit with organized documentation and a structured process protects those relationships. It demonstrates to funders and boards that the organization’s financial management systems are operating as required.
Sheikh, Osher & Scott CPAs & Advisors structures every nonprofit audit engagement with a clear request list, a realistic timeline, and direct communication so management knows what is needed, when it is needed, and who needs to act. Schedule a pre-audit readiness review before your final PBC list arrives, and enter fieldwork already organized.
Is Your Organization Audit-Ready?
Most audit delays are not caused by complex accounting issues. They are caused by preparation that started two weeks too late.
If your fiscal year is closing in the next 60 to 90 days, now is the right time to run a quick internal readiness check, not to generate more work, but to confirm that the documentation your auditor will ask for is already clean, reconciled, and organized.
Sheikh, Osher & Scott CPAs & Advisors offers a pre-audit readiness conversation for nonprofits heading into fieldwork. No lengthy intake processes. Just a focused 30-minute discussion to help your finance team identify gaps before the PBC list arrives.
Fill Out the Form & Book Your Slot Today
References
CCS Fundraising. (2026). 2026 Philanthropy Pulse. https://45968711.fs1.hubspotusercontent-na1.net/hubfs/45968711/Corporate-Marketing/Publications/Philanthropy%20Pulse/2026-Philanthropy_Pulse_CCS-Fundraising.pdf
Andrea Wright (2024). Navigating the path to audit and attest quality management. Insight — Illinois CPA Society. https://www.icpas.org/information/copy-desk/insight/article/fall-2024/navigating-the-path-to-audit-and-attest-quality-management
Code of Federal Regulations (2026). 2 CFR Part 200 Subpart F — Audit Requirements. [online] Available at: https://www.ecfr.gov/current/title-2/subtitle-A/chapter-II/part-200/subpart-F
Illinois CPA Society. (2026). 2026 Not-for-Profit Symposium. https://www.icpas.org/education/in-person-learning/conferences/not-for-profit-symposium-chicago
Office of Management and Budget. (2024). Guidance for Federal Financial Assistance [Final Rule, 89 FR 30046]. Federal Register. https://www.federalregister.gov/documents/2024/04/22/2024-07496/guidance-for-federal-financial-assistance
U.S. Government Accountability Office (gov) (2001). Gao.gov. (2001). GAO-01-765G, Financial Audit Manual: Volumes 1 and 2. [online] Available at: https://www.gao.gov/assets/a76588.html
Colinvaux, R., 2023. Strings Are Attached: Shining a Spotlight on the Hidden Subsidy for Perpetual Donor Limits on Gifts. Loy. LAL Rev., 56, p.1169.
Financial Accounting Standards Board (2020) Accounting Standards Update (ASU) 2020-07, Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets. [online] Available at: https://www.fasb.org/page/ShowPdf?path=ASU_2020-07.pdf&title=ACCOUNTING%20STANDARDS%20UPDATE%202020-07%E2%80%94NOT-FOR-PROFIT%20ENTITIES%20(TOPIC%20958):%20PRESENTATION%20AND%20DISCLOSURE
Internal Revenue Service (IRS) (2016). Form 990 filing tips: Schedule L (transactions with interested persons) | Internal Revenue Service. [online] Available at: https://www.irs.gov/charities-non-profits/form-990-filing-tips-schedule-l-transactions-with-interested-persons
Federal Register (2024). Guidance for Federal Financial Assistance. [online] Available at: https://www.federalregister.gov/documents/2024/04/22/2024-07496/guidance-for-federal-financial-assistance
