How to prepare your not-for-profit for an audit (without a last-minute scramble)

Whether your organisation is a charity, community group such as a sporting club, or other service provider, an audit is an important part of ensuring accurate financial reporting and maintaining public confidence.

For many NFPs, the process can feel overwhelming, especially when teams are small or supported primarily by volunteers.

This guide sets out a practical approach to preparing for an audit with a focus on the essentials.

Steps:

• Confirm what level of assurance you need
• Appoint the right auditor
• Get your accounting software audit-ready
• Assemble a core document pack – Preparing for the RFI
• Use a simple timeline

Confirm what level of assurance you need

Before you start preparing files, confirm whether you need a full audit or a review. Requirements can come from multiple sources, including:

1. ACNC reporting requirements (for registered charities) and the size tier your organisation falls into
2. Your constitution or governing rules (including any member reporting requirements)
3. Funding agreements and acquittal conditions – grants
4. State/territory or other Commonwealth regulator requirements. For associations In Western Australia, this would be the Associations Incorporation Act 2015.

For more information on audits vs reviews, I recommend checking out a prior FAJ Blog Post on that topic: https://faj.com.au/insights/audit-vs-review-vs-compilation-which-does-your-nfp-need

Appoint the right auditor early

Engaging an auditor early is one of the best ways to avoid time pressure. Early engagement allows you to agree on the scope and timing of the audit.

When selecting an auditor, consider:

1. Experience with not-for-profits and charities (including ACNC reporting expectations)
2. Independence and any potential conflicts of interest
3. Capacity and timing (can they meet your board and lodgement deadlines?)
4. Clarity on fees and what is included (audit only vs audit plus financial statements)

It is recommended if this is your first audit (or you have changed auditors), to ask for a meeting to walk through your accounting system, key accounts and personnel, and any other key pieces of information, queries, or concerns.

Get your accounting file audit-ready

Your records need to produce reliable reports and allow an auditor to trace each transaction back to source documents and approvals. This applies whether you use software, spreadsheets, or physical files.

Core checks:

• Keep income/expense categories consistent year to year (note any changes clearly).
• Reconcile all bank accounts regularly, including term deposits and online payment platforms.
• File supporting documents so they’re easy to match to transactions (invoices, receipts, contracts, grant agreements).
• Evidence approvals (e.g. signed invoice, payment authorisation, or committee minutes).
• Control prior-period changes:
• Software: lock periods once finalised.
• Paper/spreadsheets: keep a final signed set of reports and document any later adjustments.

If your current method can’t produce clear reports and reconciliations, or the audit trail is hard to follow, address this before year end.

Auditors will be looking for a clean trail from bank transactions to documents and reporting.

Assemble a core document pack – Preparing for the RFI

Most audits run smoothly when the essentials are ready and easy to access.

The auditor typically starts their audit testing by issuing a Request for Information (RFI), outlining the documents needed for the initial tests. It's most efficient to address these requests by having the necessary documentation prepared in advance.

Create a single folder (digital is ideal) and include the following core documents.

Financial reports and reconciliations

1. Year-end trial balance and general ledger
2. Financial statements (draft is fine for fieldwork)
3. Bank statements for all accounts for the year
4. Bank reconciliations as at year end (and a list of any unreconciled items with explanations)

Key schedules

1. Fixed asset register and depreciation schedule (or a summary of major assets and purchases)
2. Payroll summaries (if applicable) and evidence of PAYG and super payments
3. A schedule of accruals and prepayments (if used)
4. Lease agreements and significant contracts

Income support (common focus areas)

1. Donations: platform reports and bank support (including any fundraising events)
2. Grants: funding agreements, key correspondence, and acquittal reports (where applicable)
3. Membership or service income: summaries and supporting reports

Governance documents

Auditors commonly request evidence of key decisions and oversight. Ensure you can provide:

1. Board or committee minutes (especially approvals for budgets, major spending, and contracts)
2. Delegations/authorisations (who can approve what)
3. Key finance policies (even if brief) - for example, spending approvals and reimbursement procedures
4. Constitution or governing rules

Use a simple timeline

A straightforward timeline works well for most small to mid-sized NFPs:

1. 6-8 weeks before year end: Confirm audit or review requirements, appoint the auditor, and obtain the PBC list
2. 0-4 weeks after year end: Finalise reconciliations, prepare the core document pack, and draft the financial statements (if required)
3. 4-8 weeks after year end: Audit/review testing and follow-up queries
4. After testing: Finalise financial statements, board approval, and any ACNC lodgements (if applicable)

Summary

It's important to remember that auditors aren't there to catch you out. They should be aligned with managements overall intentions – ensuring accurate financial reporting and reducing any actual or potential regulatory issues.

Being audit-ready isn't about having perfect paperwork. It’s about having clear, consistent records that show what your organisation did and why.

By appointing your auditor early, keeping your records up to date, and preparing a practical document pack, the audit process becomes much easier, leading to more confidence in your financial reports and less headaches.

While these steps are a good starting point, communicating directly with your auditor will help make the preparation process smoother and more effective.

If you need help selecting an auditor, confirming ACNC requirements, or getting your files ready, contact FAJ for personalised advice.