Overview
Many charity managers in NZ struggle to figure out the right time to work with non-profit auditors. A key compliance requirement for New Zealand charities is that they must undergo a full audit by a qualified auditor if their total operating expenditure exceeds NZD 1.1 million.
The rules change for mid-sized charities spending between $550,000 and $1.1 million – they need either a review or an audit. These two processes serve different purposes. An audit gives you stronger assurance by taking a deeper look at your Performance Report. A review uses fewer checks and provides limited assurance. This piece will help you understand when your organization needs professional nonprofit auditors and what the requirements entail. You’ll learn about legal audit thresholds and the main differences between audits and reviews. We’ll also get into what these processes actually check. The piece also covers finding qualified auditors who know the charity sector well. Organizations like Accounting for Charities Trust offer budget-friendly, subsidized services to community groups.
Legal Thresholds for Nonprofit Audit Requirements in NZ
New Zealand law sets clear financial thresholds that determine when non-profit organizations need external financial scrutiny. These requirements help maintain transparency and accountability based on the organization’s size and complexity.
Audit required for expenditure over $1.1 million
Large, registered charities must undergo a complete audit by a qualified auditor. The law requires this higher level of scrutiny because larger organizations manage most important financial resources. Audits give stakeholders, donors, and regulatory bodies reasonable assurance that financial statements contain no material misstatement.
Review required for expenditure over $550,000
The law gives some flexibility to “medium-sized” charitable entities. These organizations must get either a review or an audit from a qualified auditor if their total operating expenditure falls between NZD 938,085.65 and NZD 1.88 million in each of the previous two accounting periods. Medium-sized nonprofits often choose a review instead of an audit. Reviews cost less while still providing limited assurance on financial statements.
No legal requirement under $550,000 unless specified by rules
Small, registered charities with annual operating expenditure below NZD 938,085.65 don’t need an audit or review by law. In spite of that, external financial scrutiny might be necessary for several reasons:
- Your charity’s trust deed, constitution, or governing rules require it
- A funder or grant provider asks for one as a condition of funding
Small organizations often choose to get audits or reviews voluntarily. These reviews are a great way to get credibility with donors and show their steadfast dedication to financial transparency.
These thresholds apply only to registered charities. Incorporated societies that aren’t registered as charities face different rules. They need audits only when operating expenses reach NZD 5.12 million or more in each of the two preceding accounting periods.
Audit vs Review: Understanding the Differences
The biggest difference between audits and reviews shows up in their scope, procedures, and level of assurance. Both verify financial statements but are nowhere near similar in their approach and results.
Level of assurance: Reasonable vs Limited
Audits give stakeholders a reasonable or high level of assurance that financial statements have no material misstatement. This builds greater confidence in the accuracy of financial information. Reviews provide only limited assurance. They deliver moderate confidence that falls short of an audit’s detailed coverage.
Audit procedures: Inspection, recalculation, confirmation
Non-profit auditors use detailed examination techniques during an audit. These include record inspections, process observations, external confirmations, recalculations, and re-performance. They also assess internal controls to manage embezzlement or fraud risks. This thorough approach explains the higher cost and assurance level of audits.
Review procedures: Inquiry and analytical review
Reviews focus on inquiry and analytical procedures. The reviewer looks at financial statements to check if they seem reasonable without deep testing of individual transactions. They maintain enough knowledge about the organization to spot potential problems that could affect financial statements.
Reporting format: Positive vs Negative assurance statements
Audit and review reports differ in how they express assurance. Audit reports provide a positive opinion, stating that the financial statements are free from material misstatement. In contrast, review reports use negative language, noting that nothing has come to the auditor’s attention that suggests the financial statements are not free from material misstatement. This difference in wording reflects the higher level of assurance provided by a full audit compared with a review.
What Gets Audited: Financial and Non-Financial Components
The audit or review process for nonprofit organizations in New Zealand goes way beyond checking financial figures. Charities need to know what auditors will examine to prepare themselves properly.
Financial data: Income, expenses, assets, liabilities
Your financial statements’ fundamental elements are at the heart of the audit. NZ non-profit auditors look into your organization’s income sources, spending patterns, asset holdings, and liability obligations. Auditors test evidence that supports the amounts in your financial statements. They review accounting principles and assess the core team’s estimates. The audit standards require them to examine if financial information aligns with the applicable financial reporting framework. They also review how financial information is presented and structured to ensure it represents underlying transactions accurately.
Non-financial data: Entity Information and Service Performance
Auditors must review non-financial information with equal attention. Entity Information and Statement of Service Performance (SSP) are the main focus here. The Entity Information shows who you are and your reason for existence – it establishes your organizational identity. The SSP tells your story throughout the year and shows your effect on the community. This statement has two essential elements:
- Outcomes: your charity’s goals for societal impact
- Outputs: goods or services you delivered during the reporting period
Auditors check if your service performance criteria meet requirements and follow applicable financial reporting frameworks.
Optional inclusion of non-financial data below threshold
Charities that spend less than NZD 938,085.65 have some flexibility in what their audit or review covers. You can choose whether to include non-financial information, but your auditor’s report must state what they examined. To cite an instance, see these factors before deciding:
- Check your governing documents for specific audit requirements
- Think over what stakeholders, especially funders or banks, expect
- Ask your auditor about the scope early, before your financial year ends
Some charities under the threshold might simplify their reporting by leaving out certain measures. This choice could reduce the SSP’s overall value and community effect.
Who Can Perform the Audit or Review
The law restricts who can perform statutory audits or reviews for charities in New Zealand. Professionals must meet specific qualifications to serve as non-profit auditors NZ.
Definition of a qualified auditor under Financial Reporting Act 2013
The Financial Reporting Act 2013 sets clear guidelines about who can audit nonprofits. Sections 35 and 36 of the Act spell out the required professional credentials. Two types of assurance practitioners can handle statutory work:
- Licensed auditors – the highest level of recognition, able to audit Financial Market Conduct reporting entities
- Qualified auditors – members of recognized professional bodies who can audit most nonprofits
Finding nonprofit auditors via CAANZ or CPA Australia
Finding the right nonprofit auditor is straightforward. Organizations that need audit services can connect with qualified professionals through:
- Chartered Accountants Australia New Zealand (CAANZ)
- CPA Australia
These professional bodies keep updated directories of their members who are qualified auditors with nonprofit sector expertise.
When internal rules override legal thresholds
Your organization’s founding documents might demand audits whatever your size. All but one of these trust deeds, constitutions, or rules require audits even for organizations below statutory thresholds. Grant funders usually want audited financial statements before they release funding.
Conclusion
Managing a charity in New Zealand means knowing how to handle audit requirements – this is a vital part of running the organization. This piece explores the tiered system that governs financial reviews for non-profits of all sizes. Organizations with expenses over $1.1 million need complete audits. Medium-sized charities with expenses between $550,000 and $1.1 million can pick between audits and reviews.
The difference between these two processes is one of the most important things to understand. Audits give reasonable assurance through detailed examination, while reviews offer limited assurance with simpler procedures. Your stakeholders’ confidence in your financial coverage depends on this choice, and it affects your organization’s time and money investment too.
These processes look at more than just simple financial data. Your auditor will examine both financial elements (income, expenses, assets, liabilities) and non-financial aspects like Entity Information and Statement of Service Performance. Organizations below threshold limits might have some wiggle room with non-financial reporting, though adding this information makes your accountability story stronger.
You’ll need to work with professionals recognized under the Financial Reporting Act 2013 to find qualified non-profit auditors. Professional groups like CAANZ and CPA Australia can link you with experts who know the charity sector’s unique needs. On top of that, check your founding documents – they might require audits whatever your size or legal thresholds.
Professional financial examination ended up building confidence among donors, members, and the broader community. This transparency meets legal requirements and shows your steadfast dedication to managing resources for your mission responsibly. Over the last several years, keeping up with audit requirements has helped charities remain competitive and credible as regulations change and organizations grow.
FAQs
Q1. What’s the difference between an audit and a review for non-profits?
An audit provides reasonable assurance through detailed examination techniques, offering higher confidence in financial accuracy. A review offers limited assurance using less rigorous procedures like inquiry and analytical review. Audits follow ISAs (NZ) standards, while reviews adhere to ISRE (NZ) 2400.
Q. What information is examined during a charity audit or review?
Auditors examine both financial and non-financial components. Financial data includes income, expenses, assets, and liabilities. Non-financial information covers Entity Information and the Statement of Service Performance, which outlines the charity’s activities and impact.
Q3. Who is qualified to perform audits for non-profits in New Zealand?
Qualified auditors must meet the criteria set by the Financial Reporting Act 2013. They are typically licensed auditors or members of recognized professional bodies like Chartered Accountants Australia New Zealand (CAANZ) or CPA Australia who specialize in the non-profit sector.
About the Author: Jonathan Maharaj
