Auditors starting to ask whether nonprofits use AI to prepare statements, FASB panel says

Auditors have started to ask not-for-profit organizations whether they used Artificial Intelligence (AI) to prepare their financial statements, according to recent FASB advisory discussions.

There are both opportunities and risks that come with the use of AI and the need for transparency has surfaced, members on the board’s Not-for-Profit Advisory Committee (NAC) said on March 26, 2024. More disclosures might prove useful.

“What would be interesting is if there are potential disclosures related to the AI design and process, the data being used and collected, organizational governance over its use as well as potentially how that data is being monitored as well as any type of cybersecurity surrounding that information as well,” Sheryl Madden, deputy chief financial officer and controller at The Kresge Foundation, said. “So those would be some interesting things — all very new but a lot of things to come.”

The remarks were part of discussions about emerging trends in the sector which has been struggling with staff shortages and backlog. The question of AI usage surfaced in management representation letters, the discussion revealed. This is a form letter written by an organization’s external auditors and signed by senior management. The letter is a declaration of the accuracy of the financial statements that the entity has submitted to the auditors for their analysis.

“I recently saw a management rep letter for a board that I sit on — that the management had to rep whether they used AI to prepare financial statements and the auditors specifically requested that,” Mai-Anh Fox, chief financial officer at The Ford Foundation, said. “I hadn’t seen that before so I would imagine we’d probably see more of that in the coming future,” she said. “Just to be clear they do not use AI to prepare the financial statements.”

The NAC is a standing committee that works closely with the FASB in an advisory capacity to ensure that perspectives from the not-for-profit sector are effectively communicated to the FASB on a timely basis in connection with the development of financial accounting and reporting standards. The committee is composed of 18 members who work as financial statement users, preparers, auditors, and investors.

AI impacting cancer therapies

The discussions also pointed to the efficiencies that AI is bringing to nonprofits in the healthcare space as it relates to the programmatic side of the business as well as to fundraising.

“From a programmatic perspective especially seen in the health sector space, AI having an impact on drug discovery and development, new therapies— not yet been proven in the full development stage but I think things are going to be there soon,” Anat Kendal, chief financial and business operations officer at Pancreatic Cancer Action Network, said. “And then looking at different types of programmatic arrangements potentially being made in the future to partner or to invest to help accelerate disease solutions,” she said.

On the revenue and in relation to fundraising, there are many uses of AI from a donor perspective – similar to how it’s been used in customers and sales applications to scale up donor involvement as well as messaging to donors, Kendal also said. “But the big question remains is ‘how is that going to impact revenue?’ because much of donor stewardship is a one-on-one relationship right now and so how is AI going to impact that,” she said. “And then just from a data privacy and constituent privacy concern having to evaluate all of that at we look at AI and these various – both programmatic and revenue – pieces of the sector.”

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