The Alliance for Nonprofit Management defines an audit as:

...a process for testing the accuracy and completeness of information presented in an organization's financial statements. This testing process enables an independent certified public accountant (CPA) to issue what is referred to as an opinion on how fairly the agency's financial statements represent its financial position and whether they comply with generally accepted accounting principles (GAAP).

In certain circumstances, Federal funders, state regulatory agencies, and/or foundation prospects may require nonprofit organizations to provide audited financial statements. A charity also may undergo the audit process voluntarily in an effort to ensure their constituents, board members, and other stakeholders that their financial management system is sound.

Check with the Attorney General or Secretary of State in the state(s) where your nonprofit is registered to determine if any audit requirements apply to your organization. Find your state's charity office >>

Some foundations may request audited financial statements during the grant application process. For smaller organizations that can't afford a full audit, a financial review is often a viable alternative, but confirm this with the funder before proceeding.

Selected resources below may also be helpful.