When does an Incorporated Association require an audit?

We often receive queries regarding the criteria surrounding an audit of incorporated associations and hence we wanted to provide some information to assist.

Given we are located within South Australia, we will focus on incorporated associations registered in South Australia.

Incorporated Associations within SA are legislated under Associations Incorporation Act 1985.

Requirements contained within the Act

Financial statements:

• Financial records must be maintained – sections 35 and 39C;
• Committee’s statement and report are prepared;
• Accounts with the Committee’s statement attached are submitted to the Auditor (should an audit be required – refer below);
• The Committee is given the Audit report (where an audit is required – refer below);
• Documents listed above are presented to members at the Annual General Meeting;
• Annual return signed by the public officer, with the above documents, is lodged with Consumer and Business Services or Australian Charities and Not-for-profits Commission (where an audit is required – refer below).

Audit:

An annual audit is required where the association has gross receipts of more than $500,000 per year – not including member subscriptions.

The auditor appointed to undertake the audit must be independent of the association and one of the following:

• Registered company auditor;
• Member of the Australian Society of Certified Practising Accountants or Chartered Accountants Australian and New Zealand; or
• Someone approved by the Corporate Affairs Commission.

The audit report is required to be provided to the committee no more than five months after the end of the association’s financial year.

The auditor must advise Consumer and Business Services immediately in writing if:

• There is a deficit for activities or finances;
• The auditor has been removed – include the reason
• The association doesn’t comply with the Act – eg. AGM hasn’t been held.

Where an audit is requested but not required

We highlight there are many instances in which the Rules of the association require an audit be performed annually even although the gross receipts amount ($500,000) has not been met. It has been our experience that many incorporated associations that have been in existence for some time have continued to maintain the requirement of an audit within their Rules although it may not be required by legislation. Generally speaking we view this as good governance and provides additional comfort to members as to how their funds are being spent. We are also understanding of the cost burden that can be placed on incorporated associations where they are relatively small (ie. below the gross receipts requirement – often considerably). We have made recommendations to clients in this situation to consider amending the Rules (possible via the agreement of committee members by a special resolution or by a membership vote) to change the wording from having a requirement for an annual audit to a requirement to having an annual review.

ASRE 2400 Reviews of financial reports performed by an assurance practitioner who is not the auditor of the entity and ASRE 2410 Review of a financial report performed by the independent auditor of the entity provide guidance around the requirements of the review engagement. The scope of a review is generally limited to enquiries of management and analytical review – because of this, the review report has a conclusion that is different to that of an audit, specifically:

Review report conclusion

Based on our review, nothing has come to our attention that causes us to believe that these financial statements do not present fairly, in all material respects, the financial position of ABC as at [date], and its financial performance and cash flows for the year then ended, in accordance with Australian Accounting Standards.

Audit report opinion

We have audited the financial report of ABC, which comprises the balance sheet as at [date], and the income statement and cash flow statement for the year then ended, and notes to the financial report, including a summary of significant accounting policies, and the declaration by members of the Committee.

In our opinion, the accompanying financial report presents fairly, in all material respects, the financial position of ABC as at [date] and its financial performance for the year then ended in accordance with Australian Accounting Standards.

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While up to the discretion of the committee of each incorporated association, we have noted that while the level of assurance reduced moving from an audit to a review – the financial benefit (ie. reduction in professional fees) coupled with feedback from an independent review of the financial records provided a positive outcome for a number of our clients.

Note – once the gross receipts threshold (refer above) is exceeded, an annual audit will be required even although the Rules refer to a review (where changed).