Nonprofit corporations exist to serve the public good and are often held to higher standards than other corporations. Although privately held corporations do not have to publicly reveal their financial performance or make tax returns or financial statements available, nonprofit corporations do. Although the Internal Revenue Service does not require audited financial statements by external, independent auditors, many states do have such requirements for nonprofits that surpass certain contribution or revenue thresholds.

Nonprofit Financials

The IRS requires that nonprofits organize and operate as separate legal entities, typically corporations but occasionally trusts, governed by a board of directors. Nonprofits exist to serve a target need, community or individuals; therefore, when filing for exempt status, they must clearly communicate these targets. A nonprofit must also specify its mission, purpose and the types of services it will provide. Nonprofits have no owners because all benefits go to their constituents. Therefore, the IRS requires that nonprofits make their financials publicly available for constituents, donors and grantors to view at any time.

Form 990

All nonprofits must file Form 990, Return of Organization Exempt From Income Tax, which is an annual information report required by the IRS. Form 990 provides information regarding a not-for-profit's overall finances, financial performance, mission adherence and programs. Organizations often post these on their websites for interested parties to view. In addition, the IRS sends these reports to Guidestar, which compiles information about every IRS-registered nonprofit in the United States.

Internal Revenue Service

Although the IRS does not require audited financial statements, Form 990 asks if the included financial statements are compiled, reviewed or audited. The IRS does not govern entities, including nonprofits. Nor does it mandate specific policy adherence or similar requirements. The IRS solely focuses on tax-related concerns. Therefore, the only audits required by the IRS are IRS audits to uncover the source of discrepancies or to verify the accuracy of information reports.

State Audits

In general, state governments are the primary demanders of audited financial statements and do so based on income levels. For example, nonprofits based in California must file audited financial statements if their gross receipts exceed $2 million. For Georgia, gross receipts must surpass $1 million. Some states do not require audited financials at any level, while other states require them at levels as low as $100,000 in contributions. Nonprofits should confirm the requirements relevant to their particular state.

Federal and Other Audits

The federal government does mandate audited financials for those nonprofits that receive more than $500,000 in grants or awards from federal agencies in a given fiscal year. Audits are only required for that year. However, if a nonprofit consistently surpasses the $500,000 annually, it must obtain annual audits. In addition, nonprofits that receive large funding amounts from a single source, including private foundations, may be required by that source to provide audited financials.