To Audit or Not to Audit
Incorporated not-for-profit and charitable organizations must comply with specific rules in their founding Act concerning financial statement reviews, including audits. For now, the Ontario Not-for-Profit Act is not yet in effect so provincially incorporated entities will default to the Canada Not-for-Profit Act until the provincial Act can be ratified. That being said, it is important to know when you need to conduct an audit, and when you may choose to avoid an audit or downgrade to a review engagement. This article summarizes key points for an organization to know when they need an audit in a given fiscal year.
The Canada Not-for-Profit Corporations Act (CNCA), enacted in 2013, categorizes corporations between soliciting and non-soliciting corporations. If a corporation receives more than $10,000 in funding from public sources within the last financial year, it is considered a soliciting corporation. These sources of public funding include: public donors, governments (federal, provincial, or municipal), and other soliciting corporations.
Generally, both soliciting and non-soliciting corporations must appoint a public accountant and audit their financial statements each fiscal year, but in consideration of smaller not-for-profit corporations, exceptions do apply. This can be determined by the gross annual revenue of the corporation, as summarized in the chart below.
|Type of Corporation||Gross Annual Revenue||May Dispense with Public Accountant||Review Engagement||Audit Requirement|
|Soliciting||$50,000 to $250,000||No||Default||Optional|
Several changes are being implemented by the Ontario government through the ONCA (Ontario Not-For-Profit Corporations Act), which is projected to come into effect early 2020. When the ONCA comes into force, corporations that would formerly have required audits may be able to use a review engagement instead, which is typically less thorough and generally less expensive than auditing.
For the time being, however, organizations should default to the above guidelines in order to navigate the uncertainty with being provincially incorporated until the Provincial Act is released.
The team at RLB will be making sure to update our subscribers when proposed changes come into effect. If you have any questions or concerns, please feel free to reach out to our NPO team!
For more information on the CNCA, please visit: https://www.ontario.ca/page/guide-not-profit-corporations-act-2010