Most financial statements are created internally by the nonprofit's management to use as management tools and reporting mechanisms to the organization's board. These statements usually include a Statement of Financial Position and a Statement of Activities for the organization as a whole. Occasionally, they will also include a Statement of Cash Flows and, more rarely still, footnotes. Such internal financial statements frequently include detailed Statements of Activities for each department, and sometimes for units within departments. These statements are essential for management of the organization. They are often used in conjunction with determining where an organization stands related to its board-approved budget. Internal financial statements should be produced on a regular and timely basis so that the organization's managers can identify issues promptly after the end of the accounting period and respond accordingly. The entity will oftentimes provide internal statements to various committees of the board throughout the year as well as to outside creditors or grantors.
At year-end, many nonprofits have their financial statements audited by independent certified public accountants (CPAs), who state whether the financial statements present fairly in all material respects the financial position of the organization and its activities and cash flows for the period in question. These audited financial statements are required to provide all the basic financial statements, at a minimum, and a complete set of footnotes. The audited financial statements are required to be prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) as promulgated by the Financial Accounting Standards Board (FASB). In some instances, an organization may choose another basis of accounting. If this occurs, the entity is required to discuss the alternative basis in the footnotes and the reasons for their departure from GAAP. The key item of value in these audited financial statements is not just the figures, but that an independent third party is attesting to their reasonableness in his or her report.