Charities: when the ACNC requires a review or an audit

Three sizes, set by revenue

Section 205-25 of the ACNC Act sorts each registered entity into one of three sizes for a financial year, by its revenue, and lets the regulations prescribe the amounts. The ACNC Regulations 2022 prescribe them:

“(1) For the purposes of subsection 205-25(1) of the Act, the amount of $500,000 is prescribed.

(2) For the purposes of paragraph 205-25(2)(b) of the Act, the amount of $3,000,000 is prescribed.”

ACNC Regulations 2022, s 205.1, compilation of 1 November 2023

Section 305.15 applies those amounts to working out an entity’s size for “the 2022-23 financial year” and each later financial year. Read with the Act, the three sizes are:

• Small: revenue for the financial year less than $500,000.
• Medium: not small, and revenue for the year less than $3,000,000.
• Large: “not a small registered entity or a medium registered entity” for the year.

Where $500,000 and $3,000,000 fall

An illustration, written for this guide

Both lines are drawn with “less than”, so a charity sitting exactly on a figure goes up a size. Revenue is calculated “in accordance with accounting standards in force at the relevant time”, and the Commissioner may keep treating an entity at its previous size for a year if it was that size the year before and is likely to return to it the next (s 205-25(4), (5)).

What each size must do

Small

The ACNC says a small charity may choose whether to submit a financial report with its Annual Information Statement, so the ACNC has no requirement for that report to be reviewed or audited. Its page adds that a small charity whose governing document requires it to submit financial statements must do so.

Medium

“(1) A medium registered entity must:

(a) subject to subsection (2), do both of the following:

(i) have its financial report for a financial year reviewed in accordance with this Subdivision;

(ii) obtain a reviewer’s report; or

(b) do both of the following:

(i) have its financial report for a financial year audited in accordance with this Subdivision;

(ii) obtain an auditor’s report.

(2) The Commissioner may, by written notice given to the medium registered entity, provide that paragraph (1)(a) does not apply to the financial report.”

ACNC Act 2012, s 60-20

Subsection (2) does not use the words “require an audit”: it sets the review in paragraph (1)(a) aside for that report, which leaves paragraph (1)(b), the audit.

Large

Section 60-25: a large registered entity must “have its financial report for a financial year audited in accordance with this Subdivision” and “obtain an auditor’s report”.

Medium and large entities give the report to the Commissioner by 31 December in the following financial year, or a later time the Commissioner allows (s 60-10). The ACNC notes that other regulators, agencies or a charity’s governing document may set requirements of their own.

Who may audit or review

Section 60-30(1) names four, and the list is complete:

“(1) The audit or review must be undertaken by:

(a) a registered company auditor (within the meaning of the Corporations Act 2001); or

(b) a firm:

(i) that consents to be appointed, or is appointed, as auditor of a registered entity; and

(ii) at least one member of which is a registered company auditor (within the meaning of that Act) who is ordinarily resident in Australia; or

(c) an authorised audit company (within the meaning of that Act); or

(d) an entity prescribed by the regulations for the purposes of this paragraph.”

ACNC Act 2012, s 60-30(1)

For paragraph (d), s 60.17 of the Regulations prescribes the Auditor-General and each State and Territory Auditor-General (or a person exercising the office), and an individual to whom one of them delegates the function or power of conducting an audit. The ACNC’s own page lists the first three; the Act and the Regulations add the fourth.

A review of a medium charity

For a review only, s 60-30(2) widens the list: an individual “taken to be a registered company auditor under subsection 324BE(1) of the Corporations Act 2001” counts as one. That subsection reaches a member of a professional accounting body who holds a designation the regulations prescribe, and reg 2M.4.01A of the Corporations Regulations 2001 prescribes these, in full:

The ACNC’s page puts this more loosely, as a current member of one of those bodies who is qualified to review; the designations above are the regulation’s test. For a firm, the ACNC Act asks for a member “ordinarily resident in Australia”, in its own words.

Standards and the declaration

“An audit or review must be undertaken in accordance with the auditing standards” (s 60-35). The charity must also obtain from its auditor or reviewer a signed, written declaration that, as far as they know and believe, no applicable code of professional conduct has been breached in the audit or review, or that the only breaches are those it lists (s 60-40). A company’s auditor gives a wider declaration under the Corporations Act, set out in the guide to conflicts and rotation.

Basic religious charities

The review and audit rules in this Subdivision do not apply to a basic religious charity, unless it gives the Commissioner a financial report for the year, in which case they apply to it for that year (s 60-60).

A charity that is also an incorporated association

A state law can ask for its own review or audit, and NSW and Victoria treat registered charities differently; both are set out in the guide to incorporated associations by tier. None of the sources read for this guide says whether one review or audit can meet both a state Act and the ACNC Act, so no rule on that is given here.