The Australian Charities and Not-for-profits Commission (ACNC) governs how not-for-profits operate financially. The ACNC has put in place specific financial reporting requirements that vary based on a charity’s size. Let’s take a closer look.
The Three Sizes of Charities
The ACNC classifies charities into three categories based on their annual revenue, and their auditing obligations differ accordingly:
Small Charities
Small charities are those with annual revenue of less than $500,000. These organisations are generally not required to have their financial statements audited or reviewed and submitting a financial report is optional. However, they still must complete an Annual Information Statement and are encouraged to submit a financial report alongside it, regardless.
Medium Charities
Medium charities have annual revenues above $500,000 and under $3 million. These entities must submit a financial report which can be reviewed or audited by a qualified person, which includes:
- a registered company auditor
- an audit firm
- an authorised audit company
A current member of a relevant professional body (CPA, IPA, or CAANZ) can also perform the review so long as they are qualified. The choice of whether to have a financial report reviewed or audited is up to the discretion of the organisation.
Large Charities
Large charities are charities that generate annual revenue above $3 million. This group must have their financial report audited by:
- a registered company auditor
- an audit firm
- an authorised audit company
The organisation must also provide a copy of the auditor’s report with their financial report when submitting their Annual Information Statement.
Failing to comply with the ACNC’s audit requirements can result in penalties or loss of charitable status. Consult the ACNC guidelines or seek professional advice if unsure about your organisation’s obligations. At Allen Audit & Advisory, we can provide both audits and financial reviews for your Annual Information Statement and we have experience in working with a range of not-for-profit organisations.
Audit vs. Review – What’s the Difference?
Let’s look at the definition of an audit and a review from the perspective of the ACNC.
Audit
An audit of your charity’s financial report provides an auditor’s opinion on whether the report:
- Has been prepared correctly in accordance with the ACNC Act
- Represents a true and fair view of your organisation’s financial position and performance
- Adheres to all applicable Australian Accounting Standards.
The primary goal of one of these audits is to identify any inconsistencies in your financial report, including those potentially caused by fraud. To achieve this, the auditor must obtain sufficient and appropriate evidence. This includes whether you’ve:
- Provided all necessary information, explanation, and assistance for the audit
- Maintained adequate financial records to prepare and audit the financial report
- Kept other records as required under the ACNC Act
An audit offers a higher level of assurance compared to a review.
Pros:
- Provides the highest level of assurance, offering stakeholders confidence.
- Thorough in identifying any material misstatements, including those caused by fraud.
- Ensures compliance with the ACNC Act and can help maintain eligibility for government grants and funding.
Cons:
- Expensive, especially for smaller charities, due to the extensive work involved in verifying every aspect of financial reporting.
- Requires significant time from both the charity’s staff and the auditors, which can divert resources from other activities.
- Can disrupt daily operations, particularly for smaller charities with limited staff.
Review
A review of your charity’s financial report is conducted by a reviewer who assesses whether there is anything that has come to their attention to suggest the financial report does not meet the requirements of the ACNC Act in all material aspects. The review process focuses on evaluating whether your charity:
- Provided all necessary information, explanation, and assistance needed to conduct the review
- Maintained adequate financial records to prepare and review the financial report
- Kept other records as required under the ACNC Act
As part of your review, the relevant legislation includes the Australian Charities and Not-for-profits Commission Act 2012 and the Australian Charities and Not-for-profits Commission Regulations 2022, you do not need to reference the Corporations Act 2001.
A review provides only limited assurance; it is less comprehensive than an audit.
Pros:
- Less expensive than audits because they are less detailed and time-consuming.
- Require less time and fewer resources.
- Less assurance than an audit but still provides a level of comfort to stakeholders.
Cons:
- Limited assurance, which might not satisfy all stakeholders.
- Less likely to find issues as they do not involve the detailed testing that audits do.
Which Is Right For You?
Audits provide the highest level of assurance in identifying any material misstatements, but are more expensive and time-consuming. Reviews are less costly and disruptive, but only offer limited assurance, making them a more suitable option for smaller charities with limited resources.
Remember, if your organisation is classified as a large charity then you need to opt for an audit regardless. The only charities that have the choice are small or medium charities.
Outcomes
The outcome of a charity’s financial report review or audit will depend on the level of compliance with ACNC requirements. If the report fully adheres to the necessary standards, it will receive an ‘unmodified’ assessment, indicating the financial information is sound.
However, the review or audit may result in a ‘modified’ report if the auditor identifies material misstatements or is unable to obtain sufficient evidence to form an opinion. There are three types of modifications:
- Qualified – The report complies with ACNC requirements except for specific aspects.
- Disclaimer – No opinion is expressed due to a lack of evidence to support one.
- Adverse – The report does not comply with ACNC requirements due to significant, pervasive issues.
The modified report will clearly state the type of modification and provide an explanation for the basis of the auditor’s assessment. For instance, a common qualified opinion may stem from the charity’s inability to maintain proper internal controls over cash donations, limiting the auditor’s ability to verify the completeness of revenue.
How Allen Audit & Advisory Can Help
Failing to comply with the ACNC’s audit requirements can result in penalties or loss of charitable status. Consult the ACNC guidelines or seek professional advice if unsure about your organisation’s obligations. At Allen Audit & Advisory, we can provide both audits and financial reviews for your Annual Information Statement and we have experience in working with a range of not-for-profit organisations. Contact us today to find out more.
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