New York External Audit Laws and Regulations

Publicly traded companies in New York are mandated to have an annual external audit. This is a federal requirement under the Securities Exchange Act of 1934 and is overseen by the Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB). The audit ensures compliance with GAAP and provides a basis for investor confidence, serving as a critical safeguard for the public capital markets. This annual process is vital for maintaining the integrity and fairness of financial reporting for all stakeholders.

New York State has specific audit requirements for non-profit organizations that are based on their annual revenue. The thresholds, which are designed to ensure accountability and proper use of public funds, are defined by the New York State Charities Bureau. Organizations that exceed certain financial benchmarks must have their financial statements audited or reviewed by an independent CPA to ensure their financial practices are transparent and sound.

• Audit Requirement: Non-profit organizations with annual gross revenue and support exceeding $1 million must undergo an independent audit. This comprehensive review provides the highest level of assurance to donors and regulators regarding the organization's financial health.
• Review Requirement: Non-profits with annual revenue between $250,000 and $1 million are required to have their financial statements reviewed by a CPA. A review is less extensive than an audit but still provides a degree of assurance that no material modifications are needed to the financial statements.
• No CPA Requirement: Non-profits with annual revenue below $250,000 do not need a CPA audit or review but must still file a financial report. This tier is designed to reduce the financial burden on smaller charities while still requiring them to provide some level of financial disclosure.

The audit process can be broken down into three main phases: planning, fieldwork, and reporting. During the planning phase, the auditor assesses the company's internal controls and risks, including inherent risks and control risks, to develop a tailored audit plan and strategy. Fieldwork involves testing financial transactions, balances, and internal controls through procedures such as sampling, confirmation, and analytical review. The final stage is reporting, where the auditor issues a formal report containing their opinion on the financial statements, summarizing the findings of the engagement.

The selection of an independent auditor is a crucial step that must be handled with care to ensure impartiality and expertise. For public companies, the audit committee is responsible for appointing, compensating, and overseeing the auditor, a role that reinforces auditor independence and governance. The auditor must be a CPA firm registered with the PCAOB. For private entities, the selection is typically made by the board of directors or management, often based on factors such as experience in the company’s industry, fee structure, and the firm’s reputation for quality.

The most favorable outcome is an unqualified opinion, also known as a "clean" opinion. This indicates that the financial statements are presented fairly, in all material respects, and are in accordance with GAAP. A qualified opinion is issued when the auditor finds a material misstatement that is not pervasive to the financial statements as a whole, or if there is a limitation in the scope of the audit. While a qualified opinion is not as severe as an adverse opinion, it still alerts users to specific issues with the financial reporting.

An adverse opinion is the most severe type of opinion, stating that the financial statements are materially misstated and do not present a fair view of the company's financial position. This is a strong negative signal that can severely damage the company's reputation and access to capital. A disclaimer of opinion is issued when the auditor is unable to obtain sufficient appropriate audit evidence to form an opinion. This occurs when the scope of the audit is so limited that the auditor cannot express a judgment, often due to a lack of access to key records or a significant uncertainty.

For public companies, a key element of governance is the audit committee. This committee, composed of independent directors, is responsible for overseeing the company's accounting and financial reporting processes, as well as the audits of its financial statements. The audit committee plays a vital role in ensuring auditor independence and the integrity of financial reporting by acting as a liaison between the board, management, and the external auditor. They review the audit plan, discuss findings, and ensure that management is responsive to auditor recommendations.

Preparation is key to a smooth audit. Management and staff should ensure all financial records and supporting documentation are well-organized and readily accessible. This includes preparing a list of key accounts, providing detailed reconciliations, and being ready to discuss accounting policies and significant estimates. A cooperative attitude and clear communication with the auditors can make the process more efficient, reducing the time and cost involved. Proactive steps, such as a pre-audit review of financial statements and a robust internal control environment, can also help identify and resolve potential issues before the auditors arrive.