Your Charity’s Guide to Australian Charities and Not-for-profits Commission Annual Financial Report & Audit Requirements for All Sizes

Introduction

Meeting the Australian Charities and Not-for-profits Commission (ACNC) reporting obligations is a fundamental responsibility for every Australian charity. The requirement to report annually to the ACNC, as mandated by the Australian Charities and Not-for-profits Commission Act 2012 (Cth), plays a vital role in promoting transparency, accountability, and public confidence in the charitable sector.

This guide provides essential information on the ACNC’s annual financial report and audit requirements, which are significantly influenced by a charity size. Understanding these distinct duties, including the preparation of a financial report that meets relevant standards and financial reporting, is crucial for maintaining your charity’s registration and fulfilling its commitments.

Understanding Your Charity’s Australian Charities and Not-for-profits Commission Reporting Obligations

Why Your Charity Must Report Annually to the Australian Charities and Not-for-profits Commission

Registered charities in Australia have a legal requirement to report annually to the ACNC. This obligation is established in the Australian Charities and Not-for-profits Commission Act 2012 (Cth) and the Australian Charities and Not-for-profits Commission Regulation 2022 (Cth).

The primary purpose of this annual reporting is to promote transparency and accountability within the charity sector. Fulfilling these reporting obligations is crucial and includes:

• Submitting an Annual Information Statement (AIS)
• For medium and large charities, providing an annual financial report

These submissions support the ACNC’s key objectives to:

• Maintain, protect, and enhance public trust and confidence in charities through increased accountability
• Promote the reduction of unnecessary regulatory burdens on the charity sector

It’s important to note that failure to meet these reporting requirements can have serious consequences for a charity, potentially leading to the revocation of its registration with the ACNC.

The Annual Information Statement Explained for Your Charity

The AIS is a fundamental component of a charity’s yearly reporting duties to the ACNC. All charities registered with the ACNC must submit an AIS each year, with the exception of those registered with the Office of the Registrar of Indigenous Corporations (ORIC).

This statement is an online form, accessible via the ACNC charity portal, and it gathers information about a charity’s operations, activities, and finances over a 12-month reporting period. The AIS includes a range of questions, some mandatory and others optional, designed to provide the ACNC with a clear picture of the charity’s work and financial standing.

The information collected in the AIS includes:

• Details about the charity itself
• Information about its activities
• Any related party transactions
• Basic financial information

This collected data helps the ACNC to understand the sector better, publish information on the Charity Register for public transparency, and reduce the overall reporting load for charities by sharing information with other government agencies where authorised.

For many charities, particularly those of medium and large charity size, an annual financial report must also be submitted alongside the AIS.

How Charity Size Determines Australian Charities and Not-for-profits Commission Financial Reporting Requirements

Defining Charity Sizes Small Medium & Large for Australian Charities and Not-for-profits Commission Reporting

A charity’s classification as small, medium, or large by the ACNC is determined by its annual revenue for a specific reporting period. These size classifications are crucial as they dictate the charity’s financial reporting obligations.

For reporting periods from the 2022 AIS onwards, the ACNC defines charity sizes based on the following annual revenue thresholds:

• Small charities: Annual revenue under $500,000
• Medium charities: Annual revenue of $500,000 or more, but under $3 million
• Large charities: Annual revenue of $3 million or more

It is important for a charity to correctly identify its size to understand its specific requirements to report annually to the ACNC. Revenue, for these purposes, is generally income arising from a charity’s ordinary activities, such as:

• Donations
• Government grants
• Sales of goods or services

Impact of Charity Size on Annual Financial Report & Other Reporting Obligations

The size of a charity directly influences its annual reporting requirements to the ACNC, particularly concerning the submission of an annual financial report and the associated audit or review obligations. While all registered charities must submit an AIS each year, the obligations for a financial report differ.

The specific reporting obligations based on charity size are as follows:

Small Charities	Medium Charities	Large Charities
Must submit an AIS Submitting an annual financial report is optional, though encouraged by the ACNC If a small charity’s governing document mandates a financial report, it must be submitted If a financial report is submitted, it can be prepared on either a cash or accrual basis There is no ACNC obligation for a small charity’s financial report to be reviewed or audited	Must submit an AIS Must submit an annual financial report, unless the charity is a Basic Religious Charity or other transitional reporting arrangements apply The financial report must be prepared on an accrual basis The annual financial report must be either reviewed or audited, with the choice between them depending on factors such as cost and the level of assurance desired	Must submit an AIS Must submit an annual financial report, unless the charity is a Basic Religious Charity or other transitional reporting arrangements apply The financial report must be prepared on an accrual basis The annual financial report must be audited

These varying requirements ensure that the level of scrutiny applied to a charity’s financial affairs is proportionate to its size and complexity, ultimately impacting how each charity must prepare its financial report and comply with ACNC standards and financial reporting guidelines.

Key Components of an Annual Financial Report for Your Charity

Financial Statements & Notes in Your Charity’s Annual Financial Report

An ACNC annual financial report for a medium or large charity is a comprehensive document. According to the Australian Charities and Not-for-profits Commission Act 2012 (Cth), a registered charity’s financial report for a financial year comprises several key elements.

The financial statements and notes are crucial for transparency and must provide a true and fair view of the charity’s financial position and performance. Additionally, these documents must comply with the Australian Accounting Standards.

The specific financial statements that your charity must include in its annual financial report are:

A statement of profit or loss and other comprehensive income, detailing financial performance

A statement of financial position, which shows the charity’s assets and liabilities

A statement of changes in equity, tracking changes in the charity’s net assets

A statement of cash flows, outlining the movement of cash

The notes to the financial statements are also a mandatory component. These notes must include:

Disclosures required by the accounting standards

Any other information necessary to give a true and fair view of the financial position and performance of the registered charity

Adherence to these standards and financial reporting requirements is essential when a charity prepares its annual financial report.

The Responsible Persons’ Declaration for Your Charity’s Financial Report

A critical part of your charity’s annual financial report submitted to the ACNC is the responsible persons’ declaration. This declaration is made by the responsible persons of the charity, such as company directors, committee members of an incorporated association, or trustees. It must be signed by a responsible entity who is authorised to do so.

The responsible persons’ declaration must explicitly state two key opinions:

Whether there are reasonable grounds to believe that the registered charity is able to pay all of its debts as and when they become due and payable

Whether the financial statements and notes satisfy the requirements of the Australian Charities and Not-for-profits Commission Act 2012 (Cth)

This declaration underscores the accountability of the charity’s leadership for the accuracy and compliance of the financial report.

Choosing Between Special Purpose & General Purpose Financial Statements for Your Charity

What is a Reporting Entity for a Charity & Its Financial Statement Implications

The decision of whether your charity needs to prepare general purpose financial statements (GPFS) or can opt for special purpose financial statements (SPFS) hinges on whether it is classified as a ‘reporting entity’. Generally, if individuals rely on your registered charity’s financial statements to make informed decisions, such as how to allocate funds, your charity is likely considered a reporting entity. This classification has significant implications for your annual financial report obligations to the ACNC.

Several factors help determine if your charity is a reporting entity. Your charity is more likely to be a reporting entity if:

There is a significant separation between the management and the members of the charity, or others who have an interest in the charity’s finances.

The charity wields a high level of influence, meaning it can make a substantial impact on other individuals or organisations, perhaps due to political importance or economic influence.

The charity is large, possesses substantial sales, assets, debt, or funding from government or other external parties, or has a considerable number of employees.

It is important to consider all these factors, as the determination of whether a charity is a reporting entity depends on its specific circumstances. If you are uncertain about your charity’s status as a reporting entity, it is advisable to consult with an auditor, reviewer, or financial advisor. This classification is crucial because it dictates the type of financial statement your charity must prepare for its ACNC annual reporting.

General Purpose Financial Statements Requirements for Your Reporting Entity Charity

If your registered charity is classified as a reporting entity, it is required to submit GPFS. These statements must comply with all applicable Australian Accounting Standards, ensuring a comprehensive and transparent view of the charity’s financial position and performance. This requirement is a key part of the standards and financial reporting framework overseen by the ACNC.

Most charities that are reporting entities have a choice in the level of detail for their GPFS. They can opt to prepare:

A full GPFS (Tier 1): This involves compliance with all Australian Accounting Standards.

A GPFS under a simplified disclosure framework (Tier 2): This option, often referred to as General Purpose Financial Statements – Simplified Disclosure Requirements, allows for reduced disclosures compared to Tier 1, while still adhering to the core principles of Australian Accounting Standards.

The choice between Tier 1 and Tier 2 GPFS depends on the specific circumstances and complexity of the charity. Regardless of the tier chosen, the financial report must provide a true and fair view, supporting the ACNC’s objective of accountability.

Special Purpose Financial Statement Requirements for Your Non-Reporting Entity Charity –  Preparing Special Purpose Financial Reports

If your registered charity is not a reporting entity, it has more flexibility in its financial reporting. Such charities can choose to submit either GPFS or SPFS as part of their annual financial report to the ACNC. This option allows charities preparing SPFS to tailor their reporting to their specific needs and user base, provided they meet minimum requirements.

When a non-reporting entity charity opts for preparing SPFS, these SPFS must, at a minimum, comply with the following six Australian Accounting Standards, to the extent they are relevant to the charity’s operations:

AASB 101, Presentation of Financial Statements

AASB 107, Statement of Cash Flows

AASB 108, Accounting Policies, Changes in Accounting Estimates and Errors

AASB 124, Related Party Disclosures

AASB 1048, Interpretation of Standards

AASB 1054, Australian Additional Disclosures

Even for small charities where submitting an annual financial report is optional, if they choose to submit one, they can prepare either SPFS or GPFS. This ensures that even charities with simpler structures can provide meaningful financial information if they decide it’s appropriate, contributing to transparency within the sector. The key is that the chosen financial statement type accurately reflects the charity’s financial activities and complies with ACNC standards and financial reporting obligations for its charity size.

Understanding Audit & Review Requirements for Your Charity’s Financial Report

Financial Report Assurance for Small Charities

Small charities are not mandated by the ACNC to have their annual financial report audited or reviewed. While the ACNC encourages the submission of a financial report for transparency, it remains an optional undertaking for small charities.

However, it’s important to check your charity’s governing document. If your own rules stipulate that a financial report must be prepared and audited or reviewed, then you must comply with this internal requirement, even though the ACNC does not impose it for a charity of this size.

Medium Charity Financial Report Review or Audit Obligations

For medium charities, the ACNC requires that their annual financial report undergoes a level of external scrutiny. This means the financial report must be either reviewed or audited before submission with the AIS.

The choice between a review and an audit offers flexibility, considering factors such as:

Cost considerations

Level of assurance desired

A review provides a lower level of assurance compared to an audit. For instance, a review involves the practitioner stating they are not aware of any material modifications needed for the financial report to be in accordance with the applicable financial reporting framework. In contrast, an audit provides a positive opinion on the truth and fairness of the financial report.

Regardless of your choice, the reviewer’s or auditor’s report must be submitted to the ACNC as part of your charity’s annual reporting obligations.

Large Charity Financial Report Audit Obligations

Large charities face the most stringent assurance requirements for their annual financial report. The ACNC mandates that large charities must have their financial report audited. This audit must be conducted, and the resulting auditor’s report must be submitted with the charity’s AIS.

An audit offers the highest level of assurance, involving a thorough examination of the charity’s financial records and statements. This requirement reflects the increased public interest and accountability expected from larger organisations with significant revenue and complex operations, ensuring compliance with standards and financial reporting.

Auditor & Reviewer Qualifications & Independence for Your Charity’s Financial Report

The individuals or firms conducting an audit or review for a charity’s financial report must meet specific qualifications. For both medium and large charities requiring an audit, this must be performed by:

A registered company auditor (as defined by the Corporations Act 2001 (Cth))

An audit firm

An authorised audit company

For a medium charity opting for a review, the review can also be conducted by a current member of a relevant professional body, such as:

CPA Australia (CPA)

Chartered Accountants Australia & New Zealand (CAANZ)

Institute of Public Accountants (IPA)

These professionals must be qualified to undertake reviews in line with the Corporations Act 2001 (Cth).

A cornerstone of the audit and review process is independence. The auditor or reviewer must provide the charity with a signed written declaration stating their independence and confirming that there have been no contraventions of any applicable code of professional conduct regarding the engagement. This aligns with ethical standards, such as those issued by the Accounting Professional and Ethical Standards Board (APESB), ensuring the integrity of the assurance process for the charity’s financial report.

Conclusion

Fulfilling ACNC reporting obligations, including submitting an AIS and, for many, an annual financial report, is crucial for every Australian charity to maintain transparency and public trust. The specific requirements for a charity’s financial report, including whether an audit or review is necessary and the type of financial statement to prepare, are primarily determined by its charity size and whether it is a reporting entity, all while adhering to standards and financial reporting.

To ensure your charity meets all its ACNC duties and understands the intricacies of its financial report obligations, including audit requirements based on your charity size, contact LawBridge today. Our experts in not-for-profit legal services offer trusted expertise to help your charity comply with all ACNC standards and financial reporting, ensuring you can report annually to the ACNC with confidence.

Frequently Asked Questions