In Canada, charities hit the audit threshold when their annual revenue exceeds $250,000. At that point, they must conduct a formal audit by a licensed accountant. Below that level, a financial review or compilation may suffice.
Continue with us to unpack how these thresholds work, how to determine which rules apply, and what steps we should take to stay compliant.
What Are Audit Thresholds for Canadian Charities?
Running a charity in Canada comes with strict financial oversight. Understanding audit thresholds helps us know when we need an audit and what type is required.
Definition of Audit Thresholds
An audit threshold is the annual revenue level at which a charity must have its financial statements audited.
In Canada, this threshold varies by province and territory. For example, in Ontario, most charities require an audit when annual revenue exceeds $250,000, while smaller organizations may only need a review engagement.
These rules ensure financial transparency and protect donors’ trust.
Importance for Canadian Charities
Knowing the audit threshold helps us avoid costly mistakes. If we miss an audit when required, we could face penalties or lose funding opportunities.
It also gives donors and regulators confidence in our financial records. Audited statements prove that we handle funds responsibly and follow the law.
For many grant applications, having audited statements is a mandatory requirement.
Determining Applicable Thresholds
We start by checking our charity’s annual revenue and the rules in our province. Provincial legislation often sets the exact audit or review engagement requirements.
We also review our charity’s governing documents, as some bylaws or funding agreements may require audits even below the legal threshold.
If we’re unsure, we can confirm with a licensed public accountant or our provincial regulator to avoid compliance issues.
Key Financial Reporting Requirements
Canadian charities must follow strict financial reporting rules to maintain compliance and donor trust. These obligations ensure our records are accurate, transparent, and ready for government review at any time.
Annual Financial Statements
Every registered charity must prepare financial statements for each fiscal year. These statements summarise income, expenses, assets, and liabilities.
The required level of assurance compilation, review engagement, or audit depends on our annual revenue and provincial regulations. For example:
In Ontario, charities with over $250,000 in annual revenue generally require an audit.
- Charities below this threshold may only need a review engagement or compilation report.
Financial statements must follow Canadian accounting standards for not-for-profit organizations (ASNPO) unless otherwise required by funding agreements.
Directors should review and approve these statements before they are shared with members, funders, or the Canada Revenue Agency (CRA).
Whether nonprofits with these revenue amounts need a review engagement or audit and whether these requirements can be waived should be discussed with the Northfield & Associates lawyer or accountant, as this will depend on several factors, including whether the nonprofit is incorporated federally or provincially, as well as whether it is soliciting or non-soliciting corporation.
Annual Information Return Obligations
We must file the T3010 Registered Charity Information Return with the CRA within six months of our fiscal year-end. This filing includes:
- Basic charity details, including programs and activities
- Financial data from the year’s statements
- Information on fundraising, political activities, and compensation
Failing to file on time may result in late penalties, public notice of non-compliance, or even loss of registered status.
Maintaining accurate, up-to-date records throughout the year makes filing much easier and reduces the risk of errors.
Annual Reports Submission
In addition to the CRA requirements, many provinces require annual filings with their corporate registry if we are incorporated. For example:
- In Ontario, incorporated charities must file an annual return with the Ontario Business Registry.
- In British Columbia, charities must file an annual report with the BC Registry Services.
Some funders also request annual narrative reports alongside financial statements to demonstrate how grants were used.
Directors should ensure all required submissions governmental or contractual are completed by their deadlines. This protects our compliance status and maintains credibility with donors and partners.
Applicable Accounting Standards for Charities
Canadian charities must follow specific accounting standards to ensure their financial statements are accurate, consistent, and comparable. The standards we apply depend on our size, operations, and the type of organization we operate.
Accounting Standards for Not-for-Profit Organizations (ASNPO)
Most Canadian charities follow the Accounting Standards for Not-for-Profit Organizations (ASNPO) under the CPA Canada Handbook. These standards provide clear guidance for preparing statements that reflect our organization’s unique financial activities.
Under ASNPO, we must disclose:
- Sources of revenue, such as donations, grants, and fundraising
- How restricted funds are used
- The value of contributed goods and services, if measurable
ASNPO also allows flexibility for smaller charities while still promoting transparency. It is the preferred framework unless funders or regulators require a different standard.
Public Sector Accounting Standards (PSAS)
Some charities—especially those heavily funded by government grants—use Public Sector Accounting Standards (PSAS). This framework is more detailed and aligns closely with government reporting requirements.
PSAS often applies to:
- Charities controlled by government entities
- Larger organizations with substantial public funding
- Charities that choose to adopt a more comprehensive reporting system for transparency
PSAS has stricter rules for reporting tangible capital assets, employee benefits, and restricted funds compared to ASNPO.
Differences Between For-Profit and Non-Profit Reporting
Non-profit financial reporting focuses on accountability and stewardship of resources rather than profitability. Our goal is to show how we use funds to achieve our mission.
Key differences include:
- Revenue recognition: Non-profits often report grants and donations differently from sales revenue in for-profit entities.
- Net assets classification: We separate funds into restricted, internally restricted, and unrestricted categories.
- Performance measurement: Non-profits emphasise service delivery and program impact, not profit margins.
Understanding these differences ensures we prepare statements that meet legal requirements and reflect our charitable purpose accurately.
CRA Compliance and Audit Process
The Canada Revenue Agency (CRA) monitors charities to ensure they meet their legal and financial obligations. Understanding how audits work helps us prepare and stay compliant.
CRA Audit Procedures for Charities
When the CRA audits a charity, it reviews financial records, annual returns, and program activities to ensure that we operate within our charitable purposes.
The process typically includes:
- A formal notification of the audit
- Requests for specific documents, such as bank statements, receipts, and meeting minutes
- On-site or virtual review by CRA auditors
- A written summary of findings and any required actions
If the CRA identifies compliance issues, it may give us a chance to correct them before taking further steps.
How Charities Are Selected for Audit
Charities are selected for audits in several ways. Sometimes it’s random; other times, it’s due to potential red flags in our filings.
Common triggers include:
- Large or unusual changes in revenue or expenses
- Missing or late annual returns
- Complaints from the public or other agencies
- Inconsistencies between reported activities and actual programs
Regular, accurate recordkeeping reduces the risk of issues during an audit and demonstrates that we manage resources responsibly.
Role of the Charities Directorate
The CRA’s Charities Directorate oversees all registered charities in Canada. They handle registrations, review annual filings, and enforce compliance rules.
They also provide resources and guidance to help us meet reporting obligations. If we’re unsure about a requirement, contacting the Directorate directly can prevent costly mistakes.
Beyond enforcement, the Directorate’s role is to protect public trust in the charitable sector by ensuring funds are used for legitimate charitable purposes.
Internal Controls and Risk Management
Strong internal controls protect our charity’s assets, ensure accurate reporting, and reduce the risk of errors or fraud. By putting effective systems in place, we safeguard our reputation and maintain donor confidence.
Establishing Effective Internal Controls
Internal controls are policies and procedures that guide how we manage money and make decisions. They help us detect problems early and ensure compliance with laws and funder requirements.
Examples include:
- Separating duties so no single person controls all financial processes
- Requiring dual signatures for large transactions
- Conducting regular reconciliations of bank accounts
Documenting these controls in writing ensures everyone follows the same procedures.
Revenue Recognition and Tracking
Accurate revenue recognition is essential for compliance and transparency. We must record donations, grants, and other income according to accounting standards such as ASNPO or PSAS.
For restricted funds, we track how and when they are spent to ensure they meet the donor’s intent. Maintaining detailed ledgers and using accounting software designed for non-profits makes tracking easier and more reliable.
Timely and accurate tracking also helps us prepare for audits without scrambling for missing records.
Preventing and Detecting Non-Compliance
The best way to prevent non-compliance is to make it part of our daily operations. This includes regular training for staff and volunteers on legal requirements and ethical practices.
Periodic internal reviews can identify potential risks before they escalate. We can also engage external accountants to provide an independent assessment of our processes.
By addressing small issues early, we avoid penalties, reputational damage, and the possibility of losing our charitable status.
Consequences of Failing to Meet Audit and Reporting Standards
Missing audit or reporting requirements can have serious consequences for our charity. These range from financial penalties to losing our ability to operate as a registered charity.
Financial Penalties for Charities
The CRA can impose monetary penalties for late or inaccurate filings. These penalties vary depending on the severity of the offence and how quickly we correct the issue.
In some cases, we may also have to repay improperly used grant funds or cover the costs of an external audit ordered by regulators.
Revocation of Registered Status
If we repeatedly fail to meet our obligations, the CRA can revoke our charitable registration. Losing registered status means:
- We can no longer issue donation receipts
- We may have to transfer remaining assets to another registered charity
- Our charity’s name will appear on the public revocation list
Regaining status is a lengthy and challenging process, so prevention is critical.
Loss of Public Trust
Donors expect transparency and accountability. If we fail to meet reporting standards, it can damage our reputation.
Negative publicity can lead to reduced donations, volunteer drop-off, and strained relationships with community partners. Rebuilding trust often takes years and significant effort.
Impact on Grant and Funding Opportunities
Many funding agreements require current audited financial statements and proof of CRA compliance. If we fall short, we risk losing access to these funds.
In competitive grant programs, a history of non-compliance can make our applications less attractive to funders.
Maintaining strong reporting practices not only keeps us compliant but also positions our charity as a trustworthy and capable partner.
Conclusion
Meeting audit thresholds and following proper reporting standards isn’t just a legal requirement—it’s essential for protecting our charity’s mission and credibility. By staying informed about CRA rules and provincial obligations, we avoid penalties and keep our operations running smoothly.
Strong financial practices and timely audits show donors, regulators, and partners that we handle resources responsibly. This trust directly supports our ability to secure funding and deliver impactful programs.
If you want expert help with audits, financial statements, and CRA compliance, Northfield & Associates offers professional accounting services tailored to Canadian charities. Partnering with specialists ensures we stay compliant, reduce risks, and focus on making a difference in our communities.
Frequently Asked Questions
We often hear the same questions from charity leaders about audits and reporting rules in Canada. Here are clear answers to help you stay informed and compliant.
What is the audit threshold for charities?
In most provinces, charities must have an audit when annual revenue exceeds $250,000. However, thresholds vary depending on the province and governing documents. Always check both provincial law and your charity’s bylaws.
Do charities need audited financial statements in Canada?
Not all charities require an audit. Smaller charities may only need a review engagement or compilation. The requirement depends on annual revenue, provincial legislation, and any conditions set by funders or bylaws.
What are the requirements for audit in Canada?
Audit requirements depend on your province and revenue level. Generally, you must engage a licensed public accountant, provide full access to your financial records, and present the audited statements to your board or members.
What is the difference between a charity and a charitable trust?
A charity is an organization registered with the CRA to carry out charitable purposes, such as relieving poverty or advancing education. A charitable trust is a legal arrangement where assets are managed by trustees for charitable purposes. Both can be registered charities, but their governance structures differ.
What criteria establish the need for audited financial statements for charities across various provinces?
Each province sets its own rules. For example, Ontario generally requires an audit at $250,000 annual revenue, while British Columbia may set different limits. Some provinces also consider total assets, not just revenue, when determining requirements.
What defines a benefit corporation in Ontario and what are its audit requirements?
A benefit corporation is a for-profit company that also pursues a public benefit purpose. In Ontario, these corporations must follow standard corporate financial reporting rules. If incorporated under the Ontario Business Corporations Act, audit requirements depend on revenue, shareholder agreements, and corporate bylaws.
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