When your nonprofit's CPA sits down to prepare your Form 990, they'll need answers to dozens of detailed questions about your finances, programs, and governance. Coming unprepared costs time, delays your filing, and often means higher professional fees. Knowing what to expect—and gathering the right documents beforehand—can save weeks of back-and-forth emails and reduce your accounting costs by 15–25%.
The Core Financial Questions Your CPA Will Ask
Your CPA will start with revenue and expense data, but they'll dig deeper than a simple bank statement review. Expect questions about:
- How much revenue came from contributions, grants, program fees, and investment income?
- Were there any in-kind donations, and if so, how did you value them?
- Do you have restricted funds, and how are they tracked separately?
- What's your accounts receivable balance, and which donations or grants are still pending payment?
These aren't casual questions—your answers directly populate Part VIII (Statement of Revenue) and Part IX (Statement of Functional Expenses) on the 990. If your numbers don't align with your general ledger or bank reconciliation, the audit will stall.
Bring your 12-month trial balance, a bank reconciliation for year-end, and documentation for any unusual transactions over $5,000. Most CPAs charge $100–$250/hour for back-and-forth clarifications; having this ready upfront saves 3–5 billable hours.
Program Expense Allocation: The Question That Trips Up Most Nonprofits
Your CPA will ask you to break down expenses into three categories: program services, fundraising, and management & general. This is where many nonprofits stumble. They'll want to know:
- How do you allocate overhead (rent, utilities, insurance) between program and administrative work?
- What percentage of staff time is spent on program delivery versus fundraising?
- Do you have time tracking, or are you estimating allocations?
The IRS scrutinizes this section closely. If your nonprofit reports spending 95% on programs but only has two part-time staff members running everything, auditors will flag it. Most nonprofits should report 65–80% program expenses; anything outside this range requires solid documentation.
Your CPA will want to see your allocation methodology in writing. If you don't have one, they'll help you create one—but that's another billable hour or two. Document how you allocate salaries, rent, and shared costs before your meeting.
Governance and Compliance Questions
CPAs won't just audit your math; they'll verify that your board and management followed proper procedures. Typical questions include:
- Do you have a conflict-of-interest policy, and has it been reviewed in the last two years?
- Were Form 990 questions discussed and approved by your board before filing?
- Have you filed all required state charitable registrations and annual reports?
- Do you maintain meeting minutes that document major financial decisions?
Missing board minutes or a dated conflict-of-interest policy can delay your filing by 4–6 weeks while you scramble to get retroactive approvals. Keep board meeting minutes organized and accessible.
Program Activity and Impact Data
The 990 now requires nonprofits to describe their programs and report metrics. Your CPA will ask:
- How many people did you serve this year, and in what capacity?
- What outcome metrics do you track, and what were the results?
- Did program focus areas or beneficiary groups change during the year?
This isn't busywork—the IRS uses this data to assess whether your nonprofit is delivering on its mission. Have a one-page summary for each major program ready to share, including client numbers, activities, and outcomes.
Related Party and Compensation Questions
If your nonprofit has paid employees earning over $100,000, hired contractors, or works closely with related entities, expect detailed questions:
- What was the compensation for your top 5 employees? How was it set?
- Did you conduct a comparability study or use any benchmarking?
- Do you have any related party transactions (e.g., renting from a board member)?
- Are there any loans to officers or disqualified persons?
Reasonable compensation documentation is critical if you're audited post-filing. Keep written records of how salaries were determined.
Getting Ahead of Your 990 Preparation
The best way to avoid surprises is to organize your materials 6–8 weeks before your filing deadline and do a preliminary call with your CPA. If you're shopping for an audit and Form 990 services provider, platforms like Mercoly let you compare quotes and experience from multiple CPAs in your state, so you can find one who understands your nonprofit's structure.
Frequently Asked Questions
Q: How long does Form 990 preparation typically take from start to filing? With organized records, most nonprofits complete preparation and review in 4–6 weeks; without them, expect 8–12 weeks and higher fees.
Q: What happens if my nonprofit hasn't tracked program expenses separately from administrative costs? Your CPA will work with you to develop a retroactive allocation methodology for the current year, but you'll need to establish formal expense tracking going forward to avoid this next year.
Q: How much does a typical nonprofit 990 audit cost? Small nonprofits (under $500K revenue) generally pay $2,500–$5,000; mid-size nonprofits ($500K–$2M) pay $5,000–$12,000, depending on complexity and your location.
Start gathering your financial documents and governance records today—Mercoly can help you find and compare qualified providers to handle the rest.