What is an Independent Audit or “Audited Financial Statements?”
An independent audit of financial statements is an examination of the financial records, accounts, business transactions, accounting practices, and internal controls of an organization by a licensed certified public accountant who is not an employee of the organization.
The auditor will review the organization’s financial statements to determine whether they adhere to “generally accepted accounting principles” (“GAAP”), created by the “Financial Accounting Standards Board” (“FASB”).
The FASB principles require the auditors to issue one of four types of reports to the organization’s board of directors expressing a professional opinion about the organization’s financial practices:
- “Unmodified Opinion” (this is the best an organization can receive)
- “Qualified Opinion” (the auditors found one or two situations where the nonprofit is not following GAAP)
- “Adverse Opinion” (the auditors found a material misstatement or non-compliance with GAAP)
- “Disclaimer of Opinion” (the auditor refused to express an opinion)
The results of the audited financial statements can have a significant impact on an organization’s ability to obtain funding.