Who needs to get an audit? Here’s the story for nonprofits in Massachusetts:

• If your organization brought in more than $500,000 in gross revenue, you must have an audit.
• If your organization brought in more than $200,000 but less than $500,000, you must have a financial review.
• If your organization brought in less than $200,000, you don’t have to do anything.

Of course, by not doing anything I really mean you have to do something. You still have to file your IRS Form 990 and Massachusetts Form PC, and if you don’t want to tackle those by yourself (which Cathy Keeps Books has done and does not advise), you would do well to hire a CPA firm anyway.

Well now, what is the difference between an audit and a financial review? Broadly speaking, the difference is one of seriousness. An audit is a more complex undertaking which is strictly governed by government rules and regulations (it’s sometimes called a “yellow-book audit,” after the publication issued by the Government Accountability Office). It involves more scrutiny, meaning that auditors ask more detailed questions, require more detail in your schedules and prep, and need to see more pieces of paper (or, these days, scans) to document transactions. A financial review does not carry the same weight, and therefore is usually both easier and cheaper.

This is the one time of the year when you will see executive directors wishing they hadn’t brought in quite as much money. If your organization earned over $500 grand this year but you feel that was an anomaly (or what I heard an auditor refer to as a “one-time skew,”) you can apply to the Massachusetts Attorney General for a waiver. Make sure the income is really anomalous, though.

You may ask: Of what does “gross revenue” consist? Very smart of you to ask. You can think of gross revenue, in this case, as “new income.” That means money that came in the door this year, though it’s still calculated on an accrual basis, not cash; in other words, revenue counts when earned, not when received in the bank. Ordinary income counts, of course, but so does restricted income that was received in the closing year, even if it was set aside for later use. In-kind income only counts if it represents donated goods. In-kind income for donated services does not count, and neither do restricted releases (because the money wasn’t “new” this year) nor unrealized investment gains.