If you’re leading a nonprofit, you already know how critical financial transparency is to sustaining trust. Donors, grant makers, board members, and even the public want reassurance that funds are being managed responsibly. One of the best ways to demonstrate transparency is through assurance services, which help to:
- Provide credibility to financial statements
- Satisfy grant makers, lenders, and state or federal regulators
- Support the board in fulfilling fiduciary responsibilities
- Strengthen confidence among donors and the community
In short, assurance services validate that your organization is using resources wisely and aligning with its mission.
What level of assurance does my organization need?
Assurance services for financial statements are available in three categories: audit, review, and compilation. Each provides a different level of complexity and cost. Understanding the differences can help you best meet your organization’s requirements and choose the best fit for your organization’s needs.
Audit: Reasonable Assurance
An audit is the most detailed and provides the highest level of confidence. A CPA tests transactions, confirms balances, and reviews internal controls to ensure accuracy. The CPA then issues an opinion stating reasonable assurance (defined as high, but not absolute) about whether the financial statements are free of material misstatements. The CPA is required to be independent of the organization.
Typical reasons an audit may be desired or required by an organization:
- Required by funders, the federal government, contracts, lenders, or your state
- Pennsylvania requires audits for nonprofits with $750,000 or more in annual contributions
- By laws of the organization may require a certain level of assurance
- Timeframe: 6 weeks to several months
- Audits are thorough and time-intensive but offer the strongest assurance to donors and regulators
Review: Limited Assurance
A review provides limited assurance that there are no material modifications that should be made to the financial statements. The CPA performs analytical procedures and inquiries but does not test transactions or review internal controls. The CPA is required to be independent of the organization.
Typical features of a review include:
- For mid-sized nonprofits or when required for grants, lenders or filings
- Pennsylvania requires reviews for organizations with $250,000–$750,000 in annual contributions
- By laws of the organization may require a certain level of assurance
- Timeframe: 1–4 weeks
- A review offers a balance of credibility and cost, making it ideal for growing nonprofits
Compilation: No Assurance Provided
A compilation is the most basic option. The CPA prepares financial statements from your data without verifying accuracy or providing assurance. Independence is not required of the CPA to issue a compiled set of financial statements.
Typical features of a compilation include:
- Smaller nonprofits that don’t need a higher level of assurance
- Pennsylvania requires compilations for organizations with $100,000–$250,000 in annual contributions
- By laws of the organization may require a certain level of assurance
- Timeframe: 1–3 weeks
- A compilation is affordable and meets minimal filing needs but provides the least stakeholder confidence
Quick comparison of assurance levels
| Service | Assurance Level | PA Requirement | Timing |
| Audit | Reasonable | $750k+ | 6 weeks – several months |
| Review | Limited | $250k – $750k | 1 – 4 weeks |
| Compilation | None | $100k – $250k | 1 – 3 weeks |
Key considerations for choosing the right level of assurance
When deciding which assurance level to choose, it is important to consider:
- Legal or grant requirements — Some funders, lenders or states require specific assurance levels
- Board expectations — Leadership may request a certain level of oversight
- By laws of the organization may require a certain level of assurance
- Budget — Choose the level that meets your obligations without overextending your resources
In summary, the right assurance service strengthens a nonprofit organization’s credibility and ensures compliance.
- Audit = Highest confidence and accountability, reasonable assurance
- Review = Limited assurance, more affordable
- Compilation = Basic financial preparation, least costly
Reach Out to Learn More
Choosing the most efficient level of assurance service can make a significant difference for nonprofits, while helping to improve transparency, meet regulatory needs, and enhance trust with donors and the community. H2R CPA’s Nonprofit Services team can assist you in determining the appropriate level of assurance for your organization, as well as work with you to ensure compliance with all regulatory requirements. Reach out to H2R’s Nonprofit Services team if you need guidance in finding the level of assurance that best fits your organization’s goals and needs.
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