When Does a Charity Need an Audit in NZ?

Charities play a vital role in supporting communities throughout New Zealand. Whether providing social services, advancing education, supporting health initiatives, or promoting community development, charities are entrusted with managing funds responsibly and transparently. But when does a charity need an audit in NZ? This is an important question for those tasked with governance and compliance.

As charities grow, so do expectations around accountability and financial reporting. Donors, grant providers, regulators, trustees, and the public often want assurance that charitable funds are being managed appropriately. This is where audits and reviews can become important.

One of the most common questions trustees and charity administrators ask is: When does a charity need an audit in New Zealand?

The answer depends on several factors, including the charity’s size, operating expenditure, governing documents, funding agreements, and stakeholder requirements.

In this guide, we’ll explain when an audit may be required, when a review may be sufficient, and how charities can determine their reporting obligations.

Why Audits Matter for Charities

Charities are accountable to a wide range of stakeholders. Donors want confidence that their contributions are being used effectively. Funding providers often require financial transparency before awarding grants. Trustees need reliable financial information to fulfil their governance responsibilities.

An independent audit helps provide this confidence by verifying that financial statements are prepared appropriately and fairly represent the charity’s financial position and performance.

Beyond compliance, audits can help strengthen governance, improve financial reporting processes, and build trust with supporters and funding organisations.

Key Benefits of an Audit for Charities

An audit can provide:

• Greater confidence for donors and supporters
• Enhanced credibility with grant providers
• Improved governance and accountability
• Stronger financial reporting processes
• Increased transparency
• Independent verification of financial statements
• Greater stakeholder trust
• Support for funding applications

For many charities, these benefits extend well beyond regulatory requirements.

Does Every Charity Need an Audit?

No. Not every registered charity in New Zealand is required to obtain an audit.

The requirement depends on the charity’s size and financial activity. New Zealand’s charity reporting framework recognises that smaller charities often have limited resources and may not need the same level of assurance as larger organisations.

As a result, audit and review requirements are generally linked to operating expenditure thresholds.

However, even when a charity is not legally required to obtain an audit, it may still choose to do so voluntarily to meet stakeholder expectations or strengthen governance practices.

When Is an Audit Required for a Charity in New Zealand?

A registered charity is generally required to have its financial statements audited if:

• Total operating expenditure exceeds NZD 1.1 million
• The threshold is exceeded in each of the previous two accounting periods

Under New Zealand legislation, larger charities meeting this threshold must obtain an audit performed by a qualified auditor. This requirement helps ensure that charities managing significant resources are subject to independent scrutiny and accountability.

A Charity May Need an Audit If:

• Operating expenditure exceeds NZD 1.1 million in each of the previous two accounting periods
• Legislation requires an audit
• The charity’s trust deed requires an audit
• A funding agreement requires audited financial statements
• Major grant providers require an audit
• Trustees decide an audit is appropriate
• Stakeholders request independent assurance

Even if expenditure thresholds do not trigger a mandatory audit, other requirements may still apply.

When Is a Review Required Instead of an Audit?

Some charities may not require a full audit but may still be required to obtain an independent review.

Generally, a registered charity may need a review when:

• Total operating expenditure exceeds NZD 550,000
• Total operating expenditure remains below NZD 1.1 million
• The threshold is met in each of the previous two accounting periods

A review engagement provides limited assurance rather than the reasonable assurance provided by an audit. Because the scope is narrower, reviews are often less costly while still providing independent oversight of financial reporting.

Understanding Operating Expenditure

Many trustees are unsure whether their charity falls within the audit or review thresholds.

Operating expenditure generally refers to the costs incurred by the charity in carrying out its activities during the reporting period. This may include:

• Employee salaries and wages
• Programme delivery costs
• Administrative expenses
• Occupancy costs
• Professional fees
• Fundraising expenses
• Depreciation and operational costs

Because reporting requirements depend on expenditure levels, charities should regularly monitor their financial performance and seek professional advice if they are approaching a threshold.

Can Smaller Charities Choose to Have an Audit?

Yes.

Many smaller charities voluntarily obtain audits even when they are not legally required to do so.

A voluntary audit may be beneficial when:

• Trustees want additional financial oversight
• Donors seek greater transparency
• Funding providers prefer audited accounts
• The charity is preparing for growth
• Governance improvements are a priority
• Significant public funds are involved

Voluntary audits can demonstrate a commitment to accountability and responsible financial management.

Audit vs Review for Charities

Understanding the difference between an audit and a review is important when assessing reporting obligations.

Both services provide independent oversight, but audits offer a higher level of assurance.

What Does a Charity Audit Typically Involve?

During a charity audit, the auditor examines financial records and supporting information to determine whether the financial statements fairly represent the charity’s financial position.

The audit process may include:

• Reviewing accounting records
• Assessing internal controls
• Examining supporting documentation
• Testing selected transactions
• Evaluating grant income and expenditure
• Reviewing governance processes
• Confirming balances where necessary
• Assessing compliance with reporting requirements

At the end of the engagement, the auditor issues an audit opinion on the financial statements.

What Happens If a Charity Fails to Meet Its Audit Requirements?

Failure to comply with audit or review requirements can create governance and compliance risks.

Potential consequences may include:

• Difficulties with regulatory compliance
• Delays in filing financial statements
• Reduced stakeholder confidence
• Challenges securing funding
• Increased scrutiny from stakeholders
• Governance concerns for trustees

Trustees have a responsibility to understand and comply with applicable reporting obligations.

How Can Trustees Determine Their Charity’s Requirements?

Determining whether a charity requires an audit or review involves considering several factors.

Trustees should evaluate:

• Annual operating expenditure
• Reporting thresholds
• Governing document requirements
• Funding agreement obligations
• Stakeholder expectations
• Organisational complexity
• Future growth plans

Obtaining professional advice can help ensure the charity meets all applicable requirements and selects the most appropriate assurance engagement.

Key Takeaway

• Not every charity in New Zealand requires an audit, but larger charities may have mandatory audit obligations based on their operating expenditure.
• Charities with operating expenditure exceeding NZD 1.1 million in each of the previous two accounting periods generally require an audit, while charities with expenditure above NZD 550,000 but below NZD 1.1 million may require a review.
• In addition, trust deeds, funding agreements, and stakeholder expectations may create additional assurance requirements.
• Understanding these obligations helps charities maintain compliance, strengthen governance, and build trust with donors and supporters.

Frequently Asked Questions

1. Does every registered charity in New Zealand need an audit?

No. Audit requirements generally depend on the charity’s operating expenditure and other obligations. Smaller charities may not require an audit, although they may choose to obtain one voluntarily. Trust deeds, funding agreements, and stakeholder expectations can also influence whether an audit is required.

2. When is a charity audit mandatory in New Zealand?

A registered charity generally requires an audit when its total operating expenditure exceeds NZD 1.1 million in each of the previous two accounting periods. Additional requirements may also arise from governing documents, funding agreements, or other regulatory obligations. Trustees should regularly review their charity’s reporting obligations to ensure compliance.

3. What is the difference between a charity audit and a review?

An audit provides reasonable assurance through detailed testing and verification procedures. A review provides limited assurance and typically involves enquiries and analytical procedures rather than extensive testing. Audits offer a higher level of confidence but generally require more time and resources.

4. Can a charity choose to have an audit even if it is not required?

Yes. Many charities voluntarily obtain audits to improve governance, increase donor confidence, satisfy funding providers, or demonstrate accountability. A voluntary audit can provide benefits even when no legal requirement exists.

5. How do trustees know whether their charity requires an audit or review?

Trustees should consider the charity’s operating expenditure, governing documents, funding agreements, and stakeholder expectations. Because requirements can vary depending on circumstances, obtaining professional advice can help ensure compliance and identify the most appropriate assurance engagement.

Connect with Aurora Financials

Understanding charity audit and review requirements can be challenging, particularly as organisations grow and reporting obligations evolve.

At Aurora Financials, we provide professional audit and assurance services for charities, incorporated societies, and not-for-profit organisations throughout New Zealand. Our experienced team helps trustees understand their obligations, maintain compliance, strengthen governance, and build stakeholder confidence.

Contact Aurora Financials today to discuss your charity’s audit or review requirements and discover how our independent assurance services can support your organisation’s mission and long-term success.