Audit vs. Review vs. Compilation: Which Does Your NFP Need?

Depending on the size of your not-for-profit (NFP) organisation, its funding arrangements, and regulatory obligations, you may be required or may choose to undertake an audit, review, or compilation of your financial statements. Each of these engagements provides a different level of assurance and serves a distinct purpose. The following overview outlines their key differences to help your NFP determine the most suitable level of financial reporting engagement.

One of the simplest ways to assess whether your not-for-profit association requires an audit is by understanding your annual revenue. The Australian Charities and Not-for-profits Commission (ACNC) classifies associations into three tiers based on total annual revenue:

Audit – High Level of Assurance

An audit provides the highest level of assurance. Auditors perform a comprehensive evaluation of your financial statements, including an assessment of internal controls and verification of financial transactions. The objective is to express an independent opinion on whether the financial statements present a true and fair view in accordance with Australian Accounting Standards and relevant legislation, such as:

• Associations Incorporation Act 2015 (WA)
• Australian Charities and Not-for-profits Commission Act 2012 (ACNC Act)

Under ACNC guidelines:

• Medium NFPs ($500,000 to under $3 million in annual revenue) are recommended to undertake an audit.
• Large NFPs (over $3 million) are required to be audited.

Review – Moderate Level of Assurance

A review provides a moderate level of assurance at a lower cost than an audit. This process involves enquiries and analytical procedures to determine whether the financial statements contain any material misstatements. While less extensive than an audit, a review still helps maintain financial accountability.

According to the ACNC:

• Small NFPs (under $500,000 in annual revenue) are generally not required to be audited. A financial review is typically sufficient to meet regulatory requirements and provide reasonable oversight.

Compilation – No Assurance Provided

A compilation involves the preparation of financial statements based solely on information provided by the organisation’s management. It does not include any verification, analysis, or assurance by the preparer. While compilations may be suitable for internal or informal purposes, they do not meet regulatory assurance standards and are typically used in limited circumstances.