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For many California nonprofits, reaching $2 million in gross annual revenue marks more than a period of organizational growth—it also triggers important financial reporting and governance responsibilities under state law.

California’s Nonprofit Integrity Act of 2004 requires charitable corporations, unincorporated associations, and trustees that are required to file reports with the Attorney General and that receive or accrue $2 million or more in gross annual revenue to obtain an independent financial statement audit performed by a Certified Public Accountant (CPA). (California Government Code § 12586(e)) The law is intended to promote transparency and accountability for organizations entrusted with significant charitable assets.

California also establishes governance requirements for charitable corporations subject to the audit requirement. The board must appoint an audit committee, and that committee has responsibilities for selecting and communicating with the independent auditor, reviewing the audit, and overseeing auditor independence. (California Government Code § 12586(e)(2))

Whether your organization serves Los Angeles, San Diego, San Jose, Sacramento, Fresno, Oakland, San Francisco, or communities throughout California, understanding these audit requirements before reaching the statutory threshold can help your nonprofit remain compliant and avoid unnecessary surprises.

California Audit Requirements at a Glance

Quick Answer

If your California nonprofit receives or accrues $2 million or more in gross annual revenue, California generally requires an independent financial statement audit performed by a CPA. The audit requirement is established under the Nonprofit Integrity Act of 2004 and is separate from the organization’s IRS reporting obligations. Certain government grants and contracts are excluded when calculating the $2 million threshold.¹

When Does California Require a Nonprofit Audit?

California bases its audit requirement on an organization’s gross annual revenue, rather than charitable contributions.

Once a qualifying charitable organization reaches $2 million in gross annual revenue, it generally must obtain audited financial statements prepared by an independent CPA.

California law excludes grants from governmental entities and contracts for services with governmental entities from the threshold when the governmental entity requires an accounting of the funds received. Because this exclusion can significantly affect whether an audit is required, organizations with substantial government funding should carefully evaluate how the statute applies to their specific circumstances. (California Government Code § 12586(e)(1))

Why California’s Audit Law Is Different

California’s nonprofit audit requirements extend beyond simply obtaining audited financial statements.

For charitable corporations subject to the audit requirement, the board must appoint an audit committee. The committee may include non-board members, but it may not include members of the corporation’s staff. If the corporation has a finance committee, it must be separate from the audit committee, and additional limits apply to overlapping membership. (California Government Code § 12586(e)(2))

These governance provisions are intended to strengthen board oversight, improve financial accountability, and reduce conflicts of interest within nonprofit organizations.

Because of these additional governance requirements, organizations approaching the audit threshold should prepare both their accounting records and their board’s audit oversight process.

California Law at a Glance

California’s audit requirement is administered within the California Attorney General’s charitable oversight framework through the Registry of Charities and Fundraisers. (California Attorney General, Registry of Charities and Fundraisers)

Unlike many states where audit thresholds appear within charitable solicitation statutes, California established its requirements through the Nonprofit Integrity Act of 2004, legislation designed to improve governance and financial transparency among larger charitable organizations.

As organizations grow, annual revenue—not charitable contributions—determines whether the audit requirement applies. Nonprofits experiencing rapid growth should evaluate their projected revenue before year-end so they can begin audit planning early if necessary.

Preparing for a California Nonprofit Audit

Organizations preparing for their first required audit often benefit from planning several months before the fiscal year ends.

Your CPA will commonly request:

• General ledger
• Trial balance
• Bank reconciliations
• Revenue schedules
• Grant agreements
• Government contract schedules
• Board and audit committee minutes
• Investment statements
• Fixed asset schedules
• Internal control documentation
• IRS Form 990
• Prior-year financial statements

California charitable corporations subject to the audit requirement should also ensure their governing board and audit committee are prepared to fulfill their responsibilities for selecting the auditor, reviewing the completed audit, and overseeing auditor independence. (California Government Code § 12586(e)(2)).

Common Reasons California Nonprofits Cross the Audit Threshold

Many organizations exceed the $2 million threshold because of significant organizational growth rather than gradual increases in donations.

Examples include:

• Expansion of statewide programs
• Major fundraising campaigns
• Growth in fee-for-service revenue
• New foundation funding
• Increased program service revenue
• Multi-year philanthropic initiatives

Monitoring projected annual revenue throughout the year allows nonprofit leadership to begin audit planning before compliance deadlines become urgent.

Benefits Beyond Compliance

California law requires an audit when a covered organization reaches the statutory $2 million gross-revenue threshold, but an independent audit can also provide substantial organizational benefits. (California Government Code § 12586(e)(1)).

Many nonprofits use audited financial statements to:

• Demonstrate financial accountability
• Improve board oversight
• Strengthen internal controls
• Support grant applications
• Meet lender requirements
• Increase donor confidence
• Enhance long-term organizational credibility

For growing California nonprofits, these advantages often extend well beyond satisfying legal requirements.

Why Choose ELT CPA LLC?

ELT CPA LLC provides independent nonprofit financial statement audits for charitable organizations throughout California.

Our professionals understand nonprofit accounting standards, GAAP reporting requirements, and the unique governance obligations created by California’s Nonprofit Integrity Act. We work closely with nonprofit leadership and governing boards to complete efficient audit engagements while minimizing disruption to day-to-day operations.

Whether your organization is preparing for its first required audit or has undergone audits for many years, ELT CPA LLC can help you meet California’s nonprofit reporting requirements with confidence.

Frequently Asked Questions

Does California use contributions or revenue?

California’s audit threshold is based on gross annual revenue, not charitable contributions. (California Government Code § 12586(e)).

Are government grants included in the $2 million calculation?

Not always. California law excludes grants from governmental entities and contracts for services with governmental entities when the governmental entity requires an accounting of the funds received. (California Government Code § 12586(e)(1)).

Who oversees nonprofit audit compliance?

The California Attorney General’s Registry of Charities and Fundraisers administers charitable registration and reporting requirements, while the audit requirement itself is established in California Government Code § 12586(e). (California Attorney General, Registry of Charities and Fundraisers).

Does California require anything besides an audit?

Yes. Charitable corporations subject to the audit requirement must also maintain an audit committee with responsibilities related to the independent auditor and the audit process. (California Government Code § 12586(e)(2)).