Some entities are required by law to be audited. These include listed companies, overseas owned companies, large companies and those with 10 or more shareholders (there are provisions for opting out in some cases).
Registered charities with expenses of over $1m per annum must be audited, but charities with expenses between $500,000 and $1million may opt for a Review Engagement rather than an Audit. This provides a lesser degree of assurance than a full audit, but will often be a cheaper option (unless the records are untidy - in which case the work may well need to be extended) and be entirely adequate in most cases.
From financial years beginning 1 April 2015 and after there are new reporting requirements for charities and non-profits. Over 95% of the 27,000 NZ registered charities fall into the new "Tier 3"(expenses under $2 million) and "Tier 4" (expenses under $125,000 p.a) Public Benefit Entity reporting.
Of these, only charities with annual expenditure over $1million will be required to be audited (the larger "Tier 3" entities), and those with over $500k may opt for a Reviewor an Audit. However there are many smaller entities who, while not required by regulation to be audited or reviewed, are currently audited or reviewed because of:
- the comfort level it provides to their members
- the requirements of their funders or
- the stipulation of their founding documents
What does a Review provide?
The focus of a Review Engagement is on identifying material or potentially material items and designing appropriate tests in terms of analytical review, enquiry and substantive testing if necessary. Like an audit, the preparation of the financial statements is the responsibility of those who run the entity. Also like and Audit, risks are identified then appropriate procedures are devised to test these material or potentially material items.
These procedures include analytical review (comparing results to predictive and corroborating evidence), enquiry, confirmation letters for use where needed, and substantive (more detailed) testing tools if required.
The Review Report confirms that the financial statements have been prepared in accordance with the correct accounting framework, and that nothing has come to the attention of the reviewer that indicates a problem with the financial statements.
What does an Audit provide?
An audit provides a positive assurance that the financial statements provide a "true and fair" view. To provide this extra assurance a greater degree of understanding, analysis and testing is required than with a review.
Risk is assessed in greater detail, systems of internal control are explored in greater depth and there is a greater emphasis on external confirmations, sampling and testing of details.
Who can I get to perform an Audit or Review?
To ensure that your work is being performed to proper standards, you should seek a reputable firm that has a knowledge of the applicable standards.
There are Audit Assistant user firms throughout New Zealand, the Pacific Islands and some in Australia. We are currently compiling a list of firms who use Audit Assistant that you may contact if you require an audit or review. If no firm is listed we will be happy to pass your details on to firms in your area. Please email us and we will pass this on.