COVID-19’s Lasting Effects on Nonprofits – Audit and Tax Issues

This article is the final installment in the series examining the COVID-19 pandemic’s lasting impact on nonprofit organizations. View the full series here. Read on to learn about some of the audit and tax issues facing nonprofit organizations in the wake of the pandemic.

For starters, financial statement auditors will of course be concerned with many of the issues discussed earlier in this series on financial reporting. Nonprofit finance professionals need to take special care with certain accounting and disclosure topics this year. Your CPA will be interested in many of the same topics. For example, subsequent events, risks and uncertainties, asset impairment, fair value measurements, modifications of debt agreements, contingent losses and going concern evaluations are all in the spotlight due to the pandemic.

Make sure you have detailed notes and working papers to support your positions on each of these areas. Remember, it is the responsibility of management to complete these analyses and make assertions about the financial statements. It is the auditor’s responsibility to express an opinion on those financial statements. COVID-19 may have further weakened organizations that were stretched thin financially before the pandemic. For this reason, expect your auditors to devote more attention to issues like going concern and liquidity analysis.

The pandemic may have also affected the operation of internal controls at your organization. For example, if staff members were laid off or terminated, controls designed for segregation of duties may not have operated effectively. Likewise, increased health and financial insecurity may have increased the motivation of some individuals to commit fraud. Expect your auditors to consider this potential increased fraud risk when planning their audit procedures and while gaining an understanding of the changes in your system of internal control.

Working with your CPA to complete your financial statement compilation, review, or audit and your organization’s Form 990 may look a little different this year. At this point, many organizations are comfortable with remote work, including sharing files and supporting documentation electronically, and video conferencing. As your engagement gets started, your CPA should stay in regular contact with you with frequent check-ins. Both you and your firm should build in additional planning and fieldwork time to ensure timely completion of the work since some personnel may be working remotely or experience other delays in providing or reviewing supporting documents. Stay vigilant regarding cybersecurity when sharing information electronically.

Schreiber Accounting and Advisory has experience working with nonprofit organizations of all sizes with financial statement services, Form 990 preparation and management advisory services. If your organization needs the assistance of a qualified CPA firm, contact the firm for more information.

Material discussed is for informational purposes only. It is not to be interpreted as investment, tax, or legal advice. Individual situations vary, and this information should only be relied upon when coordinated with individual professional advice.