Why Australian not-for-profits need audits

Audits play a crucial role in maintaining the integrity, transparency and accountability of not-for-profits (NFPs). While not all NFPs are legally required to be audited, many must comply based on their size, structure, and funding sources. 

Here’s why audits are critical for NFPs, with a closer look at audit obligations and reporting thresholds. 

Understanding the audit requirements

Charity audit requirements are determined by size, based on their annual revenue, as defined by the ACNC. 

For reporting periods starting from the 2022 Annual Information Statement, charity sizes are:

• Small charities are those with annual revenue under $500,000 - no review or audit unless specified by constitution or funders.
• Medium charities are those with annual revenue of $500,000 or more, but under $3 million. The ACNC requires an audit or review, performed by a registered company auditor.
• Large charities are those with annual revenue of $3 million or more. The ACNC requires an audit, performed by a registered company auditor.

Important note: Even if turnover thresholds are not reached, constitutions or funding agreements may impose audit obligations, meaning mandatory audits irrespective of revenue levels.

Why audits matter for NFPs

Transparency & Accountability: Audits validate that donor funds are managed ethically and effectively - reinforcing stakeholder trust and credibility.

Regulatory Compliance: Depending on an organisation’s structure and revenue, audits or reviews may be legally required - especially for medium and large charities under ACNC regulations.

Governance & Risk Management: Audits provide early warnings by identifying financial control gaps, compliance risks, or inefficiencies, enabling proactive leadership and stronger internal governance.

Funding & Growth Readiness: Audited financials are often essential for securing grants and partnerships, and they prepare organisations for expansion and external scrutiny.

Audit vs. Review: What NFP's need to know

Understanding the difference between and audit and a review helps NFP's choose their right level of assurance. 

Reviews offer limited assurance through analytical procedures and inquiries, making them quicker and more cost effective whereas audits provide reasonable assurance through comprehensive testing and verification, and are essential for large charities with complex financial risks.

What are the benefits beyond compliance? 

• Enhances public confidence and donor trust 
• Strengthens eligibility for grants and funding
• Supports financial and governance improvements
• Provides assurance to boards and stakeholders

Key audit checkpoints for NFPs

Legal structure: Identify if you're an ACNC-registered charity, incorporated association, or company limited by guarantee.

Revenue thresholds: Confirm annual revenue to determine audit or review requirements.

Constitution & agreements: Check for clauses mandating audits.

Jurisdictional obligations: Review any state-specific rules.

Auditor selection: Choose a qualified auditor familiar with NFP standards.

If you’re a not-for-profit and need help determining whether you require an audit, or would like guidance on reviews or compliance, speak to one of PKF Australia’s specialist not-for-profit auditors today.