Many nonprofit leaders are unaware that California law requires certain nonprofits to obtain an independent financial audit once they reach a specific revenue level.
Under the California Nonprofit Integrity Act of 2004, charitable organizations that generate $2 million or more in annual gross revenue must obtain an independent audit of their financial statements performed by a Certified Public Accountant (CPA).
Understanding this requirement is essential for maintaining compliance and ensuring financial transparency with donors, board members, and regulators.
What the Law Requires
California Government Code §12586 requires that nonprofits exceeding the $2 million threshold:
* Obtain an annual independent audit of their financial statements
* Have the audit performed by a licensed CPA following accepted auditing standards
* Prepare financial statements using generally accepted accounting principles (GAAP)
Audited financial statements must be made available for inspection by the California Attorney General and the public within nine months after the end of the fiscal year.
Government Grants May Be Excluded
When calculating the $2 million threshold, certain government grants may be excluded if the nonprofit is required to provide a separate accounting of how those funds are used.
Because revenue calculations can vary, organizations approaching the threshold should consult with an experienced CPA.
Nonprofits Must Establish an Audit Committee
Nonprofits that meet the $2 million threshold must also create an independent audit committee to oversee the audit process.
The committee is responsible for recommending the auditor, reviewing the audit, and reporting its findings to the board of directors.
Why This Requirement Matters
Independent audits help ensure:
* Accurate financial reporting
* Strong internal controls
* Greater transparency with donors and funders
* Compliance with California regulations
For many nonprofits, the audit process also strengthens financial management and governance.
How Gerber & Company Can Help
Gerber & Company has decades of experience working with nonprofit organizations across California. Our CPA team helps nonprofits understand audit requirements, prepare financial records, and complete audits efficiently and in full compliance with state law.
📞 Phone: (310) 552-1600
📧 Email: info@gerberco.com
Contact us to learn whether your nonprofit may be subject to California’s audit requirement.