If you’re running a not-for-profit organization, you may be wondering if you are required to obtain an audit of its financial statements. To determine if your not-for-profit organization needs an audit, a review, or no assurance engagement at all, you must first identify the jurisdiction where it is incorporated, as different jurisdictions have different rules and thresholds.
In this blog post, we break down the various audit requirements for not-for-profit organizations incorporated federally or provincially, in Ontario.
Federally incorporated not-for-profit
Federally incorporated not-for-profit organizations established or continued under the Canada Not-for-Profit Corporations Act (“CNCA”) first need to establish whether they are a “soliciting” corporation as defined within the CNCA.
An organization is a soliciting corporation if it receives income during a single financial year in excess of $10,000 in the form of:
- donations or gifts or, in Quebec, gifts or legacies of money or other property requested from any person who is not:
- a member, director, officer, or employee of the corporation at the time of the request,
- the spouse of a person referred to in subparagraph (i) or an individual who is cohabiting with that person in a conjugal relationship, having cohabited for a period of at least one year, or
- a child, parent, brother, sister, grandparent, uncle, aunt, nephew, or niece of a person referred to in subparagraph (i) or of the spouse or individual referred to in subparagraph (ii);
- grants or similar financial assistance received from the federal government or a provincial or municipal government, or an agency of such government; or
- donations or gifts or, in Quebec, gifts or legacies of money or other property from a corporation or other entity that has, during the most recent financial year, received income in excess of $10,000 in the form of donations, gifts or legacies referred to in paragraph (a) or grants or similar financial assistance referred to in paragraph (b).
Financial audit and review requirements for soliciting and non-soliciting corporations are set out in the table below.
| Type of Corporation | Gross Annual Revenues | Financial Review Requirements |
|---|---|---|
| Soliciting Corporation | Over $250,000 | Must have an audit. |
| Between $50,000 and $250,000 | Default is an audit, but possible to have a review engagement.1 | |
| Under $50,000 | Default is a review engagement, but possible to have no assurance engagement. 2 | |
| Non-Soliciting Corporation | Over $1 million | Must have an audit. |
| Under $1 million | Default is a review engagement, but possible to waive the need for an assurance engagement altogether. 2 |
2 Members of the not-for-profit organization may waive appointment of a public accountant by an annual unanimous resolution by all the members entitled to vote at an annual meeting.
Not-for-profit incorporated in Ontario
Under the Not-for-Profit Corporations Act, 2010 (“ONCA”) in Ontario, a similar distinction is made for corporations that receive a certain amount of public funds, which are referred to as public benefit corporations.
A public benefit corporation is a charitable corporation or a non-charitable corporation that receives more than $10,000 per financial year in either:
- donations or gifts from people who are not members, directors, officers, or employees of the corporation; and/or
- grants or similar financial assistance from federal, provincial, or municipal governments or a government agency.
Financial review requirements for public benefit corporations and non-public benefit corporations are set out in the table below.
| Type of Corporation | Gross Annual Revenues | Financial Review Requirements |
|---|---|---|
| Public Benefit Corporation | $500,000 or more | Must have an audit. |
| More than $100,000, but less than $500,000 | Default is an audit, but possible to have a review engagement.3 | |
| $100,000 or less | Default is an audit, but possible to have a review engagement or to waive the need for an assurance engagement altogether. 3 | |
| Non-Public Benefit Corporation | More than $500,000 | Default is an audit, but possible to have a review engagement. 3 |
| $500,000 or less | Default is an audit, but possible to have a review engagement or to waive the need for an assurance engagement altogether. 3 |
Not-for-profit incorporated in other jurisdictions
While these are the main jurisdictions where we see our clients incorporated, if your not-for-profit organization is incorporated elsewhere, it’s important to understand your reporting and financial review requirements under the applicable legislation governing it.
Other considerations
Sometimes not-for-profit organizations find themselves in the awkward position of hovering just below a threshold or bouncing back-and-forth across the categories in the charts above. In such cases, organizations may be questioning the need for an engagement that provides higher levels of assurance and may consider decreasing the level of financial review they currently obtain.
Each case is unique, and decreasing the level of assurance obtained may be the right call for your organization, but there are other considerations to keep in mind besides just what is legislatively required by the Act you may be incorporated under, such as:
- The costs savings could be minimal if you are bouncing back-and-forth over the threshold too frequently, as there is additional work on opening balances each time the engagement moves from a review to an audit (or a compilation to a review).
- Are there other oversight bodies that your not-for-profit organization is specifically regulated by? If so, there could be requirements from those institutions that require an audit be obtained.
- Certain funding agreements require that annual audited financial statements be provided, so you may be bound by these terms if they form part of your reporting requirements. In addition, some granting organizations may want to see audited financial statements accompanying funding applications, therefore you could be limiting funding options.
- Cost of fees compared to annual revenues may be a factor driving your organization to investigate these options as well.
Key Takeaways
For some not-for-profit organizations, it’s cut-and-dry what level of financial review is required. For others, that answer might not be as clear.
For assistance determining your not-for-profit organization’s assurance needs or for more information on how the team at Armstrong Jones LLP can help you in meeting those needs, speak to one of our expert advisors by calling (613) 695-9087 or contact us online and we will get back to you promptly.
