An organization that does not function for profit or the personal gain of its members is a not-for-profit organization, which is related to but distinct from a charity. A larger common goal of the members serves as the foundation for the management of the not-for-profit organization. They are, nevertheless, bound by strict rules. A not-for-profit organization’s audit focuses on confirming conformity with the guiding principles that led to the establishment of the organization in the first place.
Not for profits are governed by their governing principles and subject to ASIC, the ATO, and the ACNC regulation just like any other organization. These guiding principles and the regulations’ requirements form the basis for auditing not-for-profit organizations.
Given their name, many people believe that non-profit organizations (non-profits) are not profitable, however this is not always the case. The phrase “not for profit” means that making a profit is not the primary goal. Instead, the organization’s management focuses on serving the greater good through its services. Most non-profits will still make a profit at the end of the fiscal year in accounting terms. However, those gains must only apply to furthering the organization’s goals. Such goals include holding onto profits for future expansion, saving money to operate in coming years, or purchasing real estate for the organization.
The Australian Charities and Not‑for‑profits Commission (ACNC) regulates non‑profit organizations. To maintain non‑profit status, organizations must adhere to strict governing standards. They must also prove their non‑profit status upon request. You can find more information on the ACNC website or by contacting the ATO.
The ACNC’s yearly reporting standards require stringent compliance. Non‑profit organizations must first disclose their annual revenue. The size of the organization then determines the compliance requirements. From January 2014, medium and large businesses must have their financial reports reviewed or audited. Medium organizations have revenues from 250,000upto500,000 (or up to 1millionunderpreviousrules).Largeorganizationshaverevenuesof1 million or more.
An audit obtains an opinion from a registered auditor. The auditor assesses whether the financial reports comply with ACNC rules and regulations. The reports must also represent a true and fair view of the financial position and performance. Finally, they must comply with all applicable Australian Accounting Standards (AAS).
The auditor or reviewer will ask for information related to the financial reports. This allows them to complete their report and offer an opinion. An auditor’s opinion states whether the auditor thinks the non‑profit has followed ACNC standards. An auditor’s opinion offers greater assurance than a review. The organization must present the audit findings to the board or committee. This allows for their assessment and review in light of upcoming activities.
Frequently Asked Questions
Does every not-for-profit organisation need an audit?
Not necessarily – the requirement depends on your organisation’s size, revenue, incorporation type (association vs company limited by guarantee), and any conditions attached to funding or grants. Many smaller not-for-profits only need a review rather than a full audit. We check what your organisation’s governing rules and funding conditions actually require.
What’s the difference between an audit and a review for a not-for-profit?
An audit provides a higher level of assurance through detailed testing of transactions and controls, while a review offers limited assurance based mainly on inquiry and analytical procedures. Reviews are generally quicker and less costly, and are often sufficient for smaller organisations unless their constitution or a funding body requires a full audit.
What records does our not-for-profit need to have ready for an audit?
Bank statements and reconciliations, financial statements, minutes of committee or board meetings, grant agreements and acquittals, membership records, and supporting documentation for income and expenses. Having these organised in advance makes the audit process considerably faster.
Who is responsible for engaging the auditor?
Typically the management committee or board is responsible for engaging an independent auditor, and many constitutions require the auditor to be appointed at the annual general meeting. We can work with your committee to make sure the appointment and audit timeline align with your reporting deadlines.
What happens if the audit identifies an issue?
We discuss any issues with your committee as they arise rather than saving them for the final report, so there are no surprises. Depending on the nature of the issue, this might mean a qualified audit opinion, recommendations for improved financial controls, or simply a note for the committee’s records.
How much does a not-for-profit audit cost?
Cost depends on your organisation’s size, complexity and record-keeping quality. We agree a fixed fee upfront so your committee can budget for it as part of your annual reporting cycle.
Related Audit & Compliance Services
If your not-for-profit organisation also operates as an incorporated association, see our incorporated association audit page for the specific state legislation requirements that apply. We also provide body corporate audits and rental trust account audits, so if your organisation or its members are involved with any of these other entity types, we can coordinate the audits together.
Not-for-profit audit requirements and the cost of a not-for-profit audit depend on your organisation’s revenue, asset levels, and any conditions in your constitution or from funding bodies – our checklist approach at the start of every engagement confirms exactly what level of assurance your organisation actually needs.