API’s Complete Guide to the Non-Profit Audit

By Accountants for the Public Interest (API)
Published by API [(410) 837-6533], $28, 90 pp.
Reviewed by Kenneth Cerini

With many nonprofit organizations in the United States lacking adequate resources for addressing their accounting and financial responsibilities, API’s Complete Guide to the Non-Profit Audit is a good reference for management and staff. Accountants for the Public Interest (API) is a national nonprofit association that provides volunteer assistance to tax-exempt organizations and small businesses that cannot afford accounting services.

Much of the guide is written on a very basic level, especially the “accounting information processing” section. Although the section outlines some basic concepts of nonprofit accounting, it focuses primarily on double-entry bookkeeping, an antiquated system that most nonprofits have replaced with software. The Guide also mistakenly suggests that personal financial management software is a suitable substitute for accounting software.

The Guide erroneously states that pledges receivable are deferred revenue and that cash basis reporting is an acceptable alternative to GAAP, which is not always the case. Nor does the book describe the three types of net assets, information that is integral to nonprofit accounting. And while the illustrative financial statements are helpful, they are misleading. The statements are for two years, but the older year is not in accordance with GAAP.

The Guide’s last two sections, “internal control matters” and “engaging and preparing for an audit,” are precise as well as more informative. Within its limited space, the book manages to illustrate many of the important aspects of an organization’s control environment. The engagement process and auditors’ expectations for nonprofit staffs are also aptly examined. Reading these sections will acquaint smaller organizations with their roles in the accounting and audit process, help them understand the importance of being prepared for an audit, and show how preparation impacts audit efficiencies and audit fees.

Overall, small nonprofits and staff accountants without much auditing experience will find the Guide beneficial. Readers short on time can benefit by skimming the first 30 pages and focusing on the final two sections and the appendices. The appendices include a glossary as well as samples of an accountant’s reports, request for proposal for audit services, engagement letter, and retention time for nonprofit records.

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