Financial transparency is incredibly important for Alberta charities. As a registered not-for-profit organization, you’re likely wondering if you are required to have audited financial statements. If you’re an Alberta Registered charity, you’re required to have financial statements audited annually. In this blog we’ll cover which charities need to have audited financial statements, which charities need financial statements reviews, and what the differences and benefits are between an audit versus a review for charities.
Which Charities are Required to Have Audited Financial Statements?
In Alberta, registered charities are required to have audited financial statements every year. This is to ensure transparency and accountability in their financial practices. This audit can be conducted either by a professional accountant or by members of the organization itself. If a charity decides to have an internal audit performed by its members, anyone who holds an accounting designation is prohibited from participating without registering with their respective professional bodies. While charities are allowed to choose an internal audit, we would always recommend a professional accountant to perform all financial audits to ensure that nothing is missed and the audit is performed correctly in the case of an additional audit from the CRA. The CRA recommends always having a professional accountant perform your annual audits if you have a gross income of over $250,000 annually.
Choosing a professional accountant for your audit brings several advantages, from being able to answer your questions, offer recommendations for your financial planning, and their training to thoroughly examine all financial documents. Furthermore, having a professional accountant who is independent from your charity ensures an unbiased evaluation that both shows a higher level of transparency to your board and stakeholders, contributing to the overall integrity and effectiveness of your charity’s financial management.
Read more about the difference between Audited and Unaudited Financial Statements.
Financial Reviews for Charities
A financial review is a less formal and less complex process compared to an audit. It involves an accountant’s thorough examination of an organization’s financial statements, focusing on ensuring accuracy without expressing an opinion on whether the financial statements are free of material misstatements.
Unlike audits, financial reviews do not include the testing of an organization’s internal controls. This makes reviews considerably less intricate and more accessible for organizations seeking a credible but less intensive financial examination.
Assurance Level
A financial review provides limited assurance. This means the accountant will ascertain whether the financial statements are credible, offering a fair representation of the organization’s financial position and adherence to generally accepted accounting principles (GAAP).
One of the primary benefits of a financial review is its ability to set the organization on the path to becoming audit-ready. It demonstrates a commitment to financial transparency and accountability, reassuring stakeholders and key decision-makers.
Cost-Effectiveness of Financial Reviews
Financial reviews are often more cost-effective compared to audits, making them an attractive option for organizations seeking financial scrutiny within budget constraints.
Financial Audits for Charities
A financial audit, on the other hand, is a more comprehensive and rigorous examination of an organization’s financial statements. It involves an independent examination by an objective third-party auditor who provides a conclusive opinion on the fairness of the financial statements.
Unlike reviews, audits encompass a detailed assessment of an organization’s internal controls, compliance with accounting principles, and a deeper dive into financial transactions. The goal is to provide “reasonable assurance” (as absolute assurance is not possible) that the financial statements are free of material misstatements and adhere to accounting standards.
Assurance Levels
Audits offer a higher level of assurance compared to reviews. An unqualified opinion indicates that the auditor concluded the financial statements fairly represent the organization’s financial position, internal controls, and compliance with GAAP.
Donor Trust and Funding Eligibility with Audits
For many organizations, audited financial statements are a mark of credibility that build donor trust. In some cases, they are a requirement for eligibility for specific types of funding.
Detailed Reporting
Audit reporting includes various outcomes, such as unqualified opinions (optimal), qualified opinions (indicating minor non-compliance), adverse opinions (indicating significant issues), or disclaimers of opinion (when forming an opinion is not possible).
Cost Considerations of Financial Audits for Charities
The cost of an audit can vary based on the size of your charity; however, this will vary based on organization size, typically around $10,000 for a small nonprofit. Reviews, on the other hand, usually cost about half that of an audit. While audits are more expensive than reviews, as a registered charity it’s important to provide detailed financial records.
The Canada Revenue Agency provides official guidance on financial statements and the specific requirements and expectations for charities to operate transparently and comply with regulatory standards. Check out their resources or contact us for more information.
Trust Gallo LLP With Your Non-Profit Financial Audits and Reviews
As an Alberta charity, it’s important to have a trusted CPA on your side. Gallo LLP offers registered non-profits financial advice, audit planning, and review assistance to ensure that each year your Board and stakeholders will trust your financial records. Stop worrying about your charity’s audited financial records and leave it up to the experts! We know your business so you can focus on the work you do best. Contact us to get the process started