To audit or not to audit: That is the question for registered charities

Firstly, a full audit of your financial statements must be carried out by a qualified auditor if the operating expenditure of your charity exceeded $1.1 million for each of the past two financial years. Charities that have not met this level, but exceeded operating expenditure of $550,000 in each of the past two financial years, must have a review of their financial statements.

What is a review and how does it differ from an audit?

A review is more cost-effective than an audit, involving less extensive testing of the financial data, but offering more limited assurance. It involves simpler procedures such as enquiries of management and analytical review, and generally means the year end process is quicker and cheaper. Reviews are ideal for smaller organisations or those with simpler financial reporting needs. They can still provide some confidence in the financial statements without the thoroughness and cost of a full audit. A review is also appropriate when stakeholders don't require the higher level of assurance that an audit offers. Reviews must be carried out by qualified auditors.

My charity’s expenses are under $1.1 million. Does this mean we don’t need an audit?

Not necessarily, as there may be other requirements that necessitate an audit of a charity's financial statements. An organisation may be required to conduct an audit if specified by its governing rules or required by its funders or regulatory bodies. For example, funding agreements may mandate audits to ensure proper use of funds. Additionally, some organisations may opt for an audit to enhance credibility, particularly when seeking new or large grants. Other stakeholders, charity members for instance, may prefer that the entity undergoes audits for enhanced transparency or accountability.

Along with the increased costs, do audits come with additional benefits?

Absolutely. As part of the audit process, auditors must gain an understanding of and evaluate the entity’s systems of internal control. Through this process, audits often uncover internal control weaknesses, providing valuable insights into areas where financial management processes can be improved. This can be of particular benefit to charitable organisations where those acting in governance or management roles may be doing so in a voluntary capacity and may not be familiar with financial management best practices. Addressing risks and weaknesses in these processes can help prevent fraud and errors, protecting organisations from financial losses.

So, back to the initial question, to audit or not to audit?

If your charity’s operating expenditure exceeds $1.1 million, then the answer is yes. Internal rules or stipulations of external parties may also mean the answer is yes. If the operating expenses are more than $550,000 then you are required to, at minimum, have a review engagement conducted. However, at any level below $1.1 million serious consideration should be given as to whether the additional benefits of an audit would be of value to the organisation or its stakeholders.

At Baker Tilly Staples Rodway we offer audit, review and other assurance services. If still unsure of your requirements or if you need assurance services, get in touch with your local Baker Tilly Staples Rodway office.