Understanding the Role of an Independent Auditor for Not-for-Profit Organisations

A practical guide for Australian not-for-profit organisations|Reviewed and updated 14 July 2026

For not-for-profit (NFP) organisations, sound financial reporting supports public trust and good governance. Independent assurance can give members, donors, funders and regulators greater confidence in the financial information they use to make decisions. However, not every NFP is legally required to have an audit. The requirement depends on the organisation's legal structure, annual revenue, governing document, funding arrangements and any directions from a regulator.

What is an independent auditor?

An independent auditor is an appropriately qualified external assurance practitioner who must comply with applicable ethical and independence requirements. The auditor is separate from management and from those responsible for preparing the financial report. This independence enables the auditor to objectively assess the financial report and express an opinion based on the audit evidence obtained.

Management and the governing body remain responsible for the organisation's financial records, internal controls and the preparation of the financial report. Management remains responsible for preparing the report. Any assistance from the audit firm must comply with independence requirements and must not involve assuming management responsibility.

When is an audit or review required?

The following summary below outlines the main ACNC and Western Australian incorporated association requirements. Other obligations may still apply under an organisation's governing document, grant or funding agreement, licence, constitution or a regulator's direction.

ACNC-registered charity

• Small (annual revenue under $500,000): No ACNC requirement for a review or audit of an annual financial report.
• Medium (annual revenue $500,000 to under $3 million): Annual financial report must be reviewed or audited.
• Large (annual revenue $3 million or more): Annual financial report must be audited.

WA incorporated association

• Tier 1 (annual revenue under $500,000): No statutory review or audit unless required by members, the Commissioner, or another obligation.
• Tier 2 (annual revenue $500,000 to under $3 million): Annual financial report must be reviewed. An audit may be required in specified circumstances.
• Tier 3 (annual revenue $3 million or more): Annual financial report must be audited.

Important: an organisation may be subject to both ACNC and state requirements. Where requirements overlap, the organisation should identify and comply with the applicable reporting and assurance obligations.

What does an auditor actually do?

An audit is not a check of every transaction. The auditor plans and performs procedures to obtain sufficient appropriate evidence about whether the financial report is free from material misstatement, whether caused by fraud or error. The work is risk-based and may include:

• understanding the organisation, its activities, governance and financial reporting processes

• identifying and assessing risks of material misstatement

• considering internal controls when designing audit procedures

• testing selected transactions, account balances, estimates and disclosures

• obtaining confirmations or other evidence from third parties where appropriate

• assessing whether the applicable financial reporting framework has been followed

• considering going concern and relevant events occurring after year end

• considering grant or restricted-fund requirements where they are relevant to the financial report or the agreed scope.

At the end of the audit, the auditor issues an independent auditor's report. An unmodified audit opinion means the auditor concluded that the financial report is prepared, in all material respects, in accordance with the applicable reporting framework and, where relevant, gives a true and fair view. It does not mean that the records are perfect, that every error or fraud has been detected, or that the organisation is guaranteed to remain financially viable.

Audit versus review: what is the difference?

An audit provides reasonable assurance, which is a high but not absolute level of assurance. It involves more extensive procedures and results in a positively expressed audit opinion.

A review provides limited assurance. It is less extensive than an audit and ordinarily relies mainly on enquiries and analytical procedures, with additional work performed where necessary. The review conclusion is expressed in a different form and provides a lower level of assurance than an audit.

The appropriate service depends on the organisation's regulatory obligations and the needs of its members, board, funders and other stakeholders. A voluntary audit may still be worthwhile where stronger assurance is expected or where the organisation has complex operations, significant grants or heightened governance risks.

The auditor's relationship with the board and management

The auditor works with management to obtain records, explanations and access to information, but remains independent of management. The auditor communicates significant audit matters and findings to the governing body and reports to the intended users identified in the auditor's report, commonly the organisation's members.

A constructive relationship is important, but it must not compromise the auditor's objectivity. The board should oversee the audit, support timely access to information, consider the auditor's findings and ensure that agreed improvements are addressed.

Key takeaway

Independent assurance is an important part of financial accountability, but the required level is not the same for every NFP. Before appointing an auditor or reviewer, an organisation should confirm the requirements arising from its legal structure, annual revenue, regulator, governing document and funding arrangements.

Sources checked

• Australian Charities and Not-for-profits Commission - Charity size

• Australian Charities and Not-for-profits Commission - Reviewing and auditing financial reports

• Consumer Protection WA - Tiered financial reporting

• Western Australian Legislation - Associations Incorporation Act 2015

This article is general information only and is current as at 14 July 2026. It does not replace advice based on an organisation's specific circumstances. Regulatory thresholds and requirements may change.