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It’s your first Audit, what do you need to file?
Published: 7 April 2022
As your charity grows in size, you may need a statutory audit on your performance report. When you meet this requirement, you must also submit the final auditor’s report along with your performance report.
This can look different depending on who performs your audit, but will always have the same core sections. Today we’ll look at what key elements need to be in the audit report, so you know you’re submitting the right document to us.
Your charity might be required by law to have its performance report audited or reviewed. If your total operating expenditure for each of the previous two accounting periods was:
Audits and Reviews have a few key differences. In general, a review is quicker to complete but gives less assurance than an audit. Our website goes into more detail about the differences between audits and reviews(external link).
Even if your charity does not have a statutory requirement for an audit or review, you might still want to get one for other benefits. Depending on your situation, you might find an audit or review gives you and your funders extra confidence in the accounts you provide them. We go into more detail about this in another blog "To audit or not to audit – that is the question…"(external link)
You’ll get the audit report at the end of the engagement, when the final accounts have been approved. An audit report should have the following sections[i]:
This needs to clearly indicate that the report is by an independent auditor, which tells the reader the Auditor is not associated with the charity.
This gives the final opinion of the auditor. The title will depend on the result of the audit (“Opinion/ Unqualified Opinion,” “Qualified Opinion,” “Adverse Opinion,” or “Disclaimer of Opinion”).
It also needs to include the legal name of the charity, the year of the financial statements, the title of the statements looked at, and will refer to the notes and the period covered by the audit. Simply put, it needs to be clear about what information the opinion covers.
This will explain why the auditor came to their conclusions and may have different titles depending on the opinion received. For example, if you receive a Qualified Opinion this heading will be “Basis for Qualified Opinion” and describe the matter that resulted in the qualification. This is important to read, as it will explain any big issues the auditor had.
To meet requirements, this section must state that the audit was conducted under the International Standards on Auditing (New Zealand) (ISAs (NZ)).
Simply put, this should describe everything they are meant to do as the auditor, including obtaining a reasonable assurance and issue an auditor’s report. This section can be long or short, and refer to an appendix or website.
This is usually referred to as “Management Responsibility” or “Trustee responsibility”, as it changes depending on the governance structure of the charity.
This section explains the responsibility of the charity. It will usually say those charged with governance are responsible for preparing the financial statements and assessing the going concern assumption. Reporting under a going concern basis means that the charity reported with the assumption they will continue to be able to operate.
The audit opinion might include “Other Information”. Content here could relate to going concern, or other matters which the Auditor believes are significant for the reader.
Finally, the audit opinion must be signed, with a location and date.
There are four types of opinions you can get. The first of which is an unmodified opinion, which some may refer to as a clean opinion.
If there are large enough issues in the accounts, the auditor may use the term modified opinion. This covers any opinion that isn’t an “Unqualified Opinion”.
Charities Services and the public need to be able to understand the report, as there are many reasons for a “modified” audit report and the auditor must explain why. Modified opinions don’t always mean your charity is doing a bad job, but you’ll want to understand the reasoning and work towards fixing any big issues. We have a guest blog on our website that covers different audit opinions, and how COVID-19 may have affected your audit report(external link).
Reporting to Charities Services achieves two goals. It showcases how your charity is going and meets your obligations under the Charities Act. Submitting the Audit Report with your compliant Performance Report shows us that you have met your requirements. It gives us, and members of the public, visibility and assurance that you’re managing your finances well.
As part of the audit process you may have other letters. You do not need to send the following to Charities Services:
If you have any questions on your audit, we suggest talking to your auditor first, as they will be able to explain their specific report. The External Reporting Board (XRB) has also published a booklet on small charities' assurance needs(external link).
[i] All of these sections are prescribed by ISA (NZ) 700 (Revised) Forming an Opinion and Reporting on Financial Statements, which is a standard set by the External Reporting Board. You can find examples at the end of the standard on their website(external link).