NonProfits & Audit Requirements

Thanks to Karen Reynar, an associate in our Business Law Department, for this article! If you sit on a Board for a non-profit corporation or are otherwise involved with one, this article should be of interest. In the past, most non-profits have been required legally to have their fnancial statements audited. The exemptions from this were quite limited. This often comes as a surprise to directors and officers of these companies. For more information, contact Karen at kreynar@burgarrowe.com


Audit Requirements under the new Not-for-Profit Corporations Act(Ontario)

The Corporations Act (Ontario) which currently governs the Ontario not-for-profit sector exempts not-for-profit corporations that (i) are not public corporations, (ii) have annual income of less than $100,000, and (iii) have the consent of all of their member in writing, from the Act’s requirements with respect to the appointment and duties of an auditor.

As you may know, the Ontario government recently passed the Not-for-Profit Corporations Act, 2010 (the “ONCA”) in an effort to modernize the legislation governing the not-for-profit sector. The ONCA received Royal Assent on October 25, 2010, but will not come into force until a date to be named, which is expected to be in the fall of 2012.

As with the current Corporations Act (Ontario), the default rule applicable to every corporation under the ONCA is that it must appoint an independent auditor to audit its annual financial statements. However, as with the current act, the ONCA sets out some exceptions to the default rule. The exceptions under the ONCA, however, are different depending on whether or not the corporation is (a) a Charitable Public Benefit Corporation or a Non-Charitable Public Benefit Corporation (collectively referred to as “Public Benefit Corporations”); or (b) a Non-Public Benefit Corporation. (Please see the blog post entitled “Modernization of the Not-for-Profit Sector – Are you Ready?” for a discussion on the introduction of these categories, and what each of them means.)

Public-Benefit Corporations: Members of a Public-Benefit Corporation may pass an extraordinary resolution (i.e. a resolution passed by 80% of members at a special meeting) to (i) have a review engagement rather than an audit if the corporation's annual revenue in that financial year was more than $100,000 or such other prescribed amount and less than $500,000 or any other prescribed amount; or (ii) waive both the audit and the review engagement in respect of the corporation’s financial year if the corporation had annual revenue in that financial year of $100,000 or less or any other prescribed amount.

Non-Public Benefit Corporations: Members of non-Public Benefit Corporations may pass an extraordinary resolution (i.e. a resolution passed by 80% of members at a special meeting) to (i) have a review engagement rather than an audit if the corporation had annual revenue in that financial year of more than $500,000 or such other prescribed amount; or (ii) waive both the audit and the review engagement if the corporation's revenue for the annual year was $500,000 or less or any other prescribed amount.

In anticipation of the ONCA being proclaimed into force, it makes good business sense to become familiar with the level of financial review that may be applicable to your not-for-profit.