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

Charities play a vital role in supporting communities, advancing social causes, and delivering essential services across New Zealand. While charitable organisations focus on fulfilling their missions, they must also meet important financial reporting and compliance obligations.

One of the most common questions charity trustees and managers ask is: When is an audit required for a charity?

Understanding audit requirements helps charities remain compliant, maintain public trust, and demonstrate accountability to donors, grant providers, and stakeholders. This guide explains when an audit is legally required, when a review may be sufficient, and why many charities choose independent assurance even when it is not mandatory.

Understanding Charity Audit Requirements

An audit is an independent examination of a charity’s financial information and performance reporting. The purpose of an audit is to provide assurance that the information presented is accurate, complete, and prepared in accordance with applicable reporting standards.

In New Zealand, audit and review requirements for registered charities are governed by the Charities Act and associated financial reporting regulations.

The requirements are primarily based on a charity’s annual operating expenditure over the previous two accounting periods.

When Is an Audit Legally Required?

A registered charity must obtain an audit from a qualified auditor if its total operating expenditure exceeds NZD 1.1 million in each of the previous two accounting periods. This threshold applies to the charity and any entities it controls.

If a charity meets this threshold, an independent audit becomes a statutory requirement rather than a voluntary choice.

The audit must be performed by a qualified auditor who meets the requirements established under New Zealand financial reporting legislation.

When Is a Review Required Instead?

For medium-sized charities, the law provides an alternative assurance option.

If a charity’s total operating expenditure exceeds NZD 550,000 but remains below NZD 1.1 million in each of the previous two accounting periods, it must obtain either:

• An independent audit, or
• An independent review conducted by a qualified auditor.

This allows charities to choose the level of assurance that best suits their governance and stakeholder requirements.

What Is the Difference Between an Audit and a Review?

Although both services provide independent assurance, they differ significantly in scope and depth.

Audit

An audit provides a higher level of assurance.

The auditor performs detailed testing of financial records, examines supporting documentation, assesses internal controls, and gathers sufficient evidence to form an opinion on whether the financial statements are free from material misstatement.

Review

A review provides limited assurance.

The reviewer primarily relies on enquiries, discussions with management, and analytical procedures rather than extensive testing. Reviews generally require less time and cost than a full audit.

Because of the reduced scope, a review offers a lower level of assurance than an audit.

What If a Charity Is Below the Legal Threshold?

Many charities assume that being below the statutory threshold means they never need an audit.

However, this is not always the case.

A charity with annual operating expenditure below NZD 550,000 may still require an audit or review if:

• Its trust deed requires one.
• Its constitution requires one.
• Its governing rules require one.
• A grant provider requests one.
• A funding organisation requires one as part of funding conditions.
• A lender or stakeholder requests independent financial assurance.

Therefore, charities should always review their governing documents and funding agreements before assuming that an audit is unnecessary.

Why Do Funders Often Request Audited Financial Statements?

Funding bodies want confidence that charitable funds are being managed responsibly.

Audited financial statements provide independent verification that financial information is accurate and reliable.

As a result, many grant providers and philanthropic organisations require audited or reviewed financial statements before approving funding applications.

For charities seeking significant grants or long-term funding relationships, obtaining an audit can strengthen credibility and improve stakeholder confidence.

What Information Is Audited?

Where a statutory audit or review is required, the assurance engagement generally covers both financial and non-financial information included within the charity’s reporting framework.

This may include:

• Financial statements
• Income and expenditure reporting
• Assets and liabilities
• Entity information
• Statement of service performance
• Other required performance reporting disclosures

This broader scope helps ensure that stakeholders receive a complete and reliable picture of the charity’s activities and achievements.

How Can Charities Prepare for an Audit?

Preparation can significantly improve audit efficiency and reduce disruptions.

Charities should:

• Maintain accurate financial records throughout the year.
• Reconcile bank accounts regularly.
• Retain supporting documentation for transactions.
• Review governance and financial policies.
• Ensure reporting complies with applicable accounting standards.
• Engage with auditors early in the reporting cycle.

Working proactively with experienced audit professionals can make the process smoother and more cost-effective.

Conclusion

Understanding when an audit is required is an important part of charity governance and compliance.

In New Zealand, charities with operating expenditure exceeding NZD 1.1 million in each of the previous two accounting periods must undergo a statutory audit. Charities with expenditure above NZD 550,000 in each of the previous two accounting periods must obtain either an audit or a review. Charities below these thresholds may still require assurance services due to governing documents, funding conditions, or stakeholder expectations.

Whether mandatory or voluntary, an independent audit can strengthen transparency, improve governance, and build trust among donors, regulators, and the wider community.

At Aurora Financials, we help charities navigate their reporting and compliance obligations with professional audit and assurance services tailored to the needs of not-for-profit organisations.