The request tends to arrive as a single line: the bank needs "audited financials" for the building loan, or the denomination's annual form asks whether the books were reviewed. The board then has to work out what was actually asked for, who can do it, and what shape the books need to be in first. This guide covers those three things at the level a board member needs.
Four things people call an "audit"
Three of these are services performed by a CPA, as the AICPA describes them. The fourth is done by the church itself.
| Who performs it | What is done | Assurance | |
|---|---|---|---|
| Audit | Independent CPA | Inquiry and analytical procedures, an understanding of internal controls, assessment of the risk of material misstatement including fraud risk, and verification of balances and transactions | High, but not absolute; the CPA issues an opinion |
| Review | Independent CPA | Inquiry and analytical procedures | Limited |
| Compilation | CPA, who need not be independent but must disclose it if not | Presents the financial statements in appropriate form | None |
| Internal (committee) review | Church members who do not handle the money | Checks that procedures were followed and that records agree with statements | No CPA assurance |
An internal review is worth doing every year even when nobody requires it. It is also not what a lender means by an audit. For who performs each kind of work, see bookkeeper, CPA or auditor.
Who typically requires one
- A lender. Loan applications and loan agreements often specify financial statements at a stated level, sometimes every year for the life of the loan.
- A denomination or association. Many have their own rules, which can range from an annual committee review to a CPA engagement above a certain size.
- The church's bylaws or policies. Some require an annual audit in words written decades ago without defining the term.
- A grant maker or major donor. Grant agreements may ask for statements at a stated level.
Read the document that creates the requirement and, if the wording is loose, ask that party what they will accept. The difference between a review and an audit is significant in both cost and effort, and choosing the level is a conversation for the board and the CPA. Whether bylaws that say "audit" can be satisfied by something less is a question for the church's attorney or denomination.
What "ready" means
Before a CPA starts, the books should be in this condition:
- Every bank, card and loan account reconciled through the end of the period
- Fund balances that add up to total net assets and agree with cash
- Giving records that agree with contribution income in the ledger
- Payroll reports that agree with payroll expense and liabilities in the books
- The year closed, with no entries still being made to it
If that is not where the books are, the first job is a cleanup, done before the CPA's work begins. Time a CPA spends sorting out the bookkeeping is time the church pays for at a CPA's rate.
Documents to prepare
The CPA will send a request list specific to the engagement. Most of it comes from this set, which overlaps with the records IRS Publication 1828 says a church is generally expected to keep:
- Financial statements for the period and the general ledger detail behind them
- Bank and investment statements with the reconciliations, including the month after year end
- Count sheets and deposit records
- Giving reports by giver and fund, and the year-end statements issued
- The fund list with the documents that restrict or designate each fund
- Payroll reports, payroll returns, Forms W-2 and any Forms 1099 issued
- The written housing allowance designation and the minutes approving compensation
- Board and congregational minutes for the period, and the approved budget
- Loan agreements, leases and significant contracts
- Invoices and approvals for expenses, and a list of property and equipment bought or sold
- Written financial policies: counting, check signing, reimbursements, card use
- Bylaws, and the prior year's audit or review report if there was one
Organize these by category in one shared folder before fieldwork starts. If retention has been uneven, see which church financial records to keep.
How a bookkeeper helps, and where that stops
A bookkeeper, whether volunteer, staff or outside, can:
- Bring reconciliations and fund balances up to date
- Prepare the schedules the CPA asks for and assemble the documents
- Answer questions about how particular transactions were recorded
- Record adjusting entries the CPA proposes and leadership approves
A bookkeeper does not perform the engagement, choose its level, or offer any assurance about the statements. The CPA's independence from the church is the point of the exercise. Danielson Bookkeeping & Consulting does not perform audits, reviews or other attest work; the scope boundaries are on the how we work page.
What the board does
The board, or its finance or audit committee, engages the CPA, receives the report directly, and follows up on any recommendations. Staff and the bookkeeper support the process, but the CPA's client is the church's governing body. Before the first year, expect questions about internal controls; having written controls in place makes those easier to answer.
If the church has never had one
A first engagement is the hardest, because opening balances have to be supported as well as the year itself. Allow time for that, tell the CPA at the outset that it is a first engagement, and get the books into shape before the engagement letter is signed. If you need help with the preparation, start with what to gather before a bookkeeping consultation, or get in touch.
