April-May 2017

Do You Really Need That Audit?

Many charities are under the impression that for them an audit is mandatory. Unfortunately, we are coming across many cases where organisations have received incorrect advice about this from places who really should know the law.

There is no legal obligation to have an audit or any other form of assurance for any not-for-profits with three exceptions:

  1. You are a Registered Charity with operating expenditure of more than $500,000 in both the previous two years (the expenditure in the present year does not matter); or
  2. Your entity is publicly accountable within the definition of the Financial Reporting Act 2013. This applies to only a small handful of not-for-profits; or
  3. Your own constitution, Trust Deed or other Rules say you must have an audit.

Only if one of three situations applies to you is there a legal obligation to get assurance. The majority of not-for-profits does not.

There is a further misconception that funders require audited Financial Statements, or that they prefer them, or that your application is looked on more favourably if they are supported by audited accounts.

Christchurch’s three major funders, Rata Foundation, Department of Internal Affairs (Lottery/COGS) and the Christchurch City Council all say that they do not require audited accounts where you have no legal obligation to have one done. It is CCA’s experience that these three funders do not in practice favour organisations with audited Statements. Outside Christchurch we know this is true of most Community Trusts that arose from the sale of Trust Bank and the Savings banks to overseas interests in the 1990s (such as our Rata Foundation), with the notable exception of Foundation North.

The majority of gaming machine trusts or societies also do not require audited accounts.

Government Funding sometimes comes with the requirement to have Financial Statements audited. This is true notably for the Ministry of Education.  However, the Ministry of Social Welfare and Ministry of Health tend to do their own (usually non-financial) audits with the organisations they fund. If you receive government funding, you will need to check your funding agreement.