Charity Audits in New Zealand: Thresholds, Rules & Reporting Obligations

NZ registered charitable organizations need to understand their charity audit requirements. The law has required registered charities to prepare financial statements under specific reporting standards since 2015. These standards and audit requirements continue to change.

Your charity’s expenditure determines its audit obligations in New Zealand. A qualified auditor must perform a full audit if your charity’s total operating expenditure has exceeded $1.1 million in each of the last two financial years. Medium-sized charities that spend between $550,000 and $1.1 million can choose between a review or an audit by a qualified auditor. The Financial Reporting (Inflation Adjustments) Regulations 2021 raised these thresholds, pushing the “large” organization threshold from $1 million to $1.1 million.

This piece explains the audit requirements for NZ charities in detail. You’ll learn about different thresholds and reporting obligations your organization must meet to stay compliant with current regulations.

Audit Thresholds for Charities in New Zealand

The New Zealand government has set clear financial thresholds that tell you if your charitable organization needs an audit or review. These rules help keep the charitable sector transparent and accountable. Donors, beneficiaries, and the public can trust these organizations’ financial reports.

Expenditure over $1.1M: Full Audit Requirement

Larger charitable organizations in New Zealand must undergo thorough financial scrutiny. Charities Services requires registered charities with total operating costs above NZ$1.88 million for the last two accounting periods to get their financial statements audited by a qualified auditor. This amount is higher than before because of inflation.

Large charities need audits to:

1. Make sure financial statements show the charity’s true financial position
2. Find weak spots in internal controls and money management
3. Keep public trust in charity fund management
4. Follow accounting standards and legal rules

The audit covers more than just money matters. Your charity’s service performance reporting needs the same careful review during the audit. This complete approach will give a true picture of your charity’s reporting standards.

The full audit threshold has changed over time. The requirement went up from NZ$1.71 million to NZ$1.88 million to match inflation since the rules started. This 10% adjustment keeps rules fair based on charity size.

Your large charity’s auditor must be “qualified” under New Zealand law. Qualified auditors must:

• Hold a chartered accountant’s practicing certificate
• Know how to audit charities
• Have no conflicts of interest with the charity
• Follow the External Reporting Board’s (XRB) auditing standards

A full audit gives you more than a review. Your qualified auditor will:

• Look closely at financial records
• Check internal controls and financial systems
• Confirm major transactions and balances
• Look at accounting policies
• Make sure financial statements follow reporting standards
• Check if management’s estimates make sense
• Give their independent opinion on financial statements

The auditor’s formal report goes with your annual return to Charities Services. This report tells everyone if your charity’s performance report shows a true picture of both financial and non-financial information.

Full audits can get pricey. The cost changes based on how big and complex your charity is. You should plan for these fees. Medium-sized charities have different rules. If your charity’s spending falls within the mid-range threshold over the last two accounting periods, you may choose between a review or a full audit conducted by a qualified auditor.

This choice works well for medium-sized groups that need professional oversight without the full audit cost. Both options help stakeholders trust your financial reporting.

Difference

Reviews and audits are different. Here’s how:

1. Review: You get basic assurance through analysis and questions. The reviewer looks for red flags without checking every transaction. It costs less but still shows nothing major is wrong.
2. Audit: This gives you complete assurance through detailed testing and verification. The auditor states if your financial statements show your true position.

Think about these things when choosing between an audit or review:

• Your charity’s structure and financial expertise
• How complex your money matters are
• What your stakeholders want
• Your budget
• Future growth plans

Conclusion

Whatever you pick, the review must cover your whole performance report. The External Reporting Board (XRB) says all parts, including the statement of service performance, need checking.

Medium-sized charities saw their thresholds change too. The range went from NZ$852,805.13-NZ$1.71 million to NZ$938,085.65-NZ$1.88 million, up 10% since 2016.

The XRB helps charities pick what’s best for them. If you’re growing fast, an audit might work better than a review to avoid changing later.

Many medium-sized charities like reviews because they balance good oversight with lower costs. But if you have complex operations or public funding, an audit might serve you better.

Both audits and reviews teach you about your financial management. Fresh eyes often spot ways to improve things you might miss.

Your agreement with the auditor or reviewer should spell out exactly what you want. This includes the work scope, timeline, fees, and who does what.

Charities with lower annual spending are not required to undergo an audit or review, although some still choose to do so to demonstrate strong financial stewardship to donors and stakeholders. Other not-for-profit organisations operate under different rules. Incorporated societies that are not registered charities are subject to audit requirements once their expenditure reaches a higher threshold over consecutive years, while friendly societies face mandatory audits at an even higher level of spending.

FAQs

Q1. What’s the difference between an audit and a review for charities? 

An audit provides a higher level of assurance and involves extensive testing of financial information. A review offers limited assurance through analytical procedures and inquiries, typically costing less than a full audit.

Q2. Who can perform audits for charities in New Zealand? 

Audits must be conducted by a “qualified auditor” as defined by New Zealand law. This includes chartered accountants with current practicing certificates, relevant expertise in charity auditing, and independence from the charity.

Q3. What information is examined during a charity audit? 

A charity audit examines both financial and non-financial information. This includes financial statements, internal controls, significant transactions, and the charity’s service performance reporting to ensure compliance with applicable standards and regulations.