An organization that does not function for profit or the personal gain of its members is a not-for-profit organization, which is related to but distinct from a charity. A larger common goal of the members serves as the foundation for the management of the not-for-profit organization. They are, nevertheless, bound by strict rules. A not-for-profit organization’s audit focuses on confirming conformity with the guiding principles that led to the establishment of the organization in the first place.
Not for profits are governed by their governing principles and subject to ASIC, the ATO, and the ACNC regulation just like any other organization. These guiding principles and the regulations’ requirements form the basis for auditing not-for-profit organizations.
Given their name, many people believe that non-profit organizations (non-profits) are not profitable, however this is not always the case. The phrase “not for profit” actually refers to the fact that in this context, making a profit is not the primary goal and that the organization’s management is ultimately focused on serving the greater good through the services it offers. Given this, it is safe to conclude that most non-profits (not for profits) will still make a profit at the end of the fiscal year in accounting terms, but those gains must only be applied to furthering the organization’s goals. Such goals can include holding onto profits for a future expansion, saving money to be able to operate in the coming years, or purchasing real estate for the organization.
Australian Charities and Not-for-profits Commission, or ACNC for short, regulates non-profit (not for profit) organizations. In order to maintain their position as a Non-Profit Organization, they must also adhere to strict governing standards and be able to prove their non-profit status upon request. More information regarding the requirements can be found on the ACNC website or by contacting the ATO.
Regarding the ACNC’s yearly reporting standards, there is also stringent compliance. Not-for-profit organizations must first disclose their annual revenue, after which compliance requirements are determined by the size of the organization. Starting January 2014, businesses that fall under the medium and large categories—those with revenues of $250,000 and up to $1,000,000, respectively—must have their financial reports reviewed or audited.
The objective of an audit is to obtain an opinion from a registered auditor as to whether the financial reports of the not-for-profit organization have been prepared in accordance with the rules and regulations of the ACNC, represent a true and fair view of the financial position and performance, and comply with all applicable Australian Accounting Standards (AAS).
In order for the auditor or reviewer to complete their report and offer an opinion, they will ask for information related to the financial reports. An auditor’s opinion will state whether or not the auditor thinks the not-for-profit has been handled in accordance with the standards set forth by the ACNC. Greater assurance is offered by an auditor’s opinion than by a review. The findings of the audit must also be presented to the board or the committee, as appropriate, for their assessment and review in light of upcoming activities.