When does a Registered Charity require an Audit?

We often receive queries regarding the criteria surrounding an audit / review of registered charities under the Australian Charities and Not-for-profits Commission Act 2012 and Australian Charities and Not-for-profits Commission Regulation 2013 and hence we wanted to provide some information to assist.

Financial reporting (and other) obligations to Australian Charities and Not-for-profits Commission (ACNC) depend on whether your charity is considered small, medium or large with reference to guidance provided.

Small

Total annual revenue*: <$250,000

Annual information statement: Must submit annually

Financial reporting: Have the option to submit a financial report – can be special purpose or general purpose financial statement. Can elect to use cash or accrual accounting.

Audit or review: No audit or review required for ACNC purposes (consider any other legislation).

Medium

Total annual revenue*: $250,000 – <$1,000,000

Annual information statement: Must submit annually

Financial reporting: Required to submit a financial report – can be special purpose or general purpose financial statement. May use transitional reporting arrangements. Must use accrual accounting.

Audit or review: ACNC requires your financial report be either reviewed or audited.

Large

Total annual revenue*: $1,000,000 >

Annual information statement: Must submit annually

Financial reporting: Required to submit a financial report – can be special purpose or general purpose financial statement. May use transitional reporting arrangements. Must use accrual accounting.

Audit or review: ACNC requires your financial report be either reviewed or audited.

*Total annual revenue is derived through the undertaking of ordinary activities of your charity and does not include other income. Some common examples of revenue for a charity include:

• Grants from government, foundations, private or any other sources;
• Donations, bequests or legacies;
• Fees for provision of services;
• Sale of goods;
• Inflows from fundraising activities or sponsorship;
• interest earned on investments
• Royalties and licence fees;
• In-kind donations

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We highlight, based on our experience, that should your registered charity be just below $250,000 in annual revenue – or you are likely to be above some years and slightly below in other years – the most appropriate approach would be to treat your charity as being medium in size rather than small.

Review vs Audit?

We have highlighted below some of the positives and negatives associated with a review compared with an audit (not exhaustive).

Review

• Generally lower in cost than an audit;
• Less time required to complete; and
• Easier to locate a professional to complete a review compared with an audit.

But:

• Lower level of assurance – generally limited to enquiry and analytical procedures; and
• Likely to be less value provided in respect to process improvement initiatives.

Audit

• Higher level of assurance – opinion provided over report being prepared in accordance with Division 60 of the ACNC Act and ACNC Regs; and
• Greater level of source documentation required and obtained leads to more value add in respect to process improvements suggested from auditor.

However:

• Likely to have a higher cost than a review;
• Likely to take additional time; and
• Can be more difficult to find an auditor.

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Are there any penalties for late lodgement of documents with ACNC?

The ACNC has published information* that highlights the following penalties where documents in the required form are not lodged by the due date:

• Small charities:
  • Minimum penalty: $210
  • Maximum penalty: $1,050
• Medium charities:
  • Minimum penalty: $420
  • Maximum penalty: $2,100
• Large charities:
  • Minimum penalty: $1,050
  • Maximum penalty: $5250

*Current as at December 2018.

The ACNC states that a registered charity that fails to provide a document in the approved form by its due date is liable to pay the administration penalty.

It should be noted that in some circumstances, the responsible persons of a charity could be held responsible for meeting the charity’s liabilities under Division 180 of the ACNC Act.

We highlight the ACNC has powers to remit all or part of an administrative penalty that arises due to a failure to lodge documents on time under section 175-60 of the ACNC Act. That is, the Commissioner can remove or reduce the penalty.

Our experience suggests the ACNC is more concerned with the timely lodgement of documents rather than imposing administrative penalties and hence they are willing to work with charities to bring their reporting up to date.

Overall, we have had significant experience in providing the following services to registered charities:

• Audit and review engagements;
• Financial statement preparation;
• Preparation and lodgement of Annual information statement.