Auditing accounts

The Act does not require all incorporated associations to audit or review their accounts. An association may still require an audit to be carried out and this requisite would normally be specified in the rules. It is within the power of the members to pass a resolution that the accounts for a particular financial year be audited, especially if they had any reason to be concerned. Funding body agreements might also require the association's accounts to be audited to ensure that the funds provided are used according to the funding agreement and for the purpose stated in the agreement.

Reasons for auditing

Although it may seem like additional time, effort and expense to have an annual audit. There are a number of reasons why an association (or a funding body) would require records to be audited:

  • an audit of the financial records of the association ensures greater accountability to the members (and for some associations, the public);
  • the audit gives assurance that all funds received by the organisation have been correctly collected, documented and banked. It shows all monies spent by the organisation were for the purpose of the association, approved by the management committee, and documented. This also helps to protect management committee members against unfounded allegations of misconduct;
  • the audit provides an account of the assets of the association and verifies that records and registers are properly maintained;
  • the audit functions as a check and balance. It requires that the financial statements of the association be kept to a standard in order for the audit to occur and will indicate areas that may require improvement;
  • audited financial statements are required if the association has charitable status; and
  • funding bodies often require audited financial statements.

The role of the auditor

The purpose of an audit is to enable an auditor to express a professional and independent opinion on the financial statements of the association. It is the responsibility of the management committee to provide the financial statements.

It is not the task of the auditor to find all errors or fraud, therefore the management committee cannot rely on the auditor's work as a substitute for the performance of their own duties. Every member of the committee must pay close attention to the association’s financial statements at all times.

The auditor will, on the basis of the financial statements take reasonable steps to ensure that the:

  • accounting records of the association are adequate to prepare the financial statements;
  • financial statements are reliable;
  • results for the period are demonstrated in the financial statements; and
  • association's state of affairs for the period are disclosed.

The auditor's task is to provide a professional opinion on the state of the financial affairs of the association. Auditors have a legal responsibility for their opinion and can be held liable for negligence if the audit is not completed according to professional standards, or for damage to the association as a result of negligence.

Appointing an auditor

When appointing an auditor, a good place to start is by word of mouth – simply asking other associations whom they use. If using a professional auditor check their registration status. Accountants who are members of the Institute of Chartered Accountants, the National Institute of Accountants or the Australian Society of Certified Practising Accountants are required to meet the auditing standards set out by these professional bodies.

The management committee may appoint the auditor or reviewer required to meet the reporting requirements of Tier 2 and Tier 3 associations. The auditor or reviewer will remain in office until their report has been presented for consideration at the annual general meeting (or they resign).

If the association is required to appoint an auditor or reviewer for any other purpose such as at the request of the members, a resolution must be passed by the members at a general meeting. The appointed auditor or reviewer will then remain in office unless they:

  • resign;
  • are removed from office;
  • cease to be qualified to conduct audits or reviews;
  • die; or
  • become an insolvent under administration.

When the reviewer or auditor has been appointed ask for a letter of engagement from the person setting out:

  • what their responsibilities are;
  • what they will require to undertake the task (ie ask them to list what they require);
  • what it will cost; and
  • what the expected time frame is for completion.

This ensures that there is a clear understanding of the duties and responsibilities of the auditor.

To deal with any problem, ensure the auditor has the contact details of the treasurer and at least one other committee member in case the treasurer can't be contacted, someone else can.

Although the treasurer usually has responsibility for overseeing the financial statements, this is not their responsibility alone. Whilst the treasurer should be able to provide the auditor with additional financial information if required, the responsibility can be shared among other members.

To avoid a potential conflict of interest, appoint an auditor who is independent of the association. Do not appoint an auditor for the association who is:

  • a past or present member of the management committee;
  • a member of the association;
  • an employee, supplier of goods or services or a servant of the association; or
  • an employer, partner or family member of a member of the association’s management committee.

Resignation of an auditor or reviewer

An appointed auditor or reviewer may resign at any time by giving written notice to the association. If this occurs the association must lodge notification with Consumer Protection within 14 days.

Removing an appointed auditor or reviewer

To remove an appointed auditor requires members to pass a resolution at a general meeting of the association. The Act requires written notice of the intention to move such a motion to be given to all members at least two months before the meeting is held.

It is also a requirement that the committee send a copy of the notice to the auditor or reviewer and the Commissioner for Consumer Protection.

Once the notice has been received the auditor or reviewer has 30 days to make a written submission to the committee. If such a submission is received the committee must:

  • give a copy to all members at least seven days before the meeting; and
  • allow the auditor or reviewer to attend the general meeting and speak to the members prior to any vote taking place.

If the association does not complete the above actions the resolution to remove the auditor or reviewer will have no effect.

Rights of the auditor/reviewer

Under the Act an appointed auditor or reviewer is entitled to:

  • receive all notices and communications that are sent to members regarding general meetings of the association;
  • attend any general meeting of the association; and
  • be heard at any general meeting they attend where the business being discussed relates to their functions as the auditor or reviewer.

It is the responsibility of the association’s committee to ensure that the above rights are afforded to the auditor/reviewer. There are penalties under the Act for failing to do so.


The association is required to provide all the financial records of the association to the auditor.  All records should be complete.

Auditing practice identifies any material that is omitted or not disclosed as a misstatement if it would have influenced the auditor’s judgement.

What if the audit report is unsatisfactory?

There is always the possibility an auditor may present an unfavourable report identifying areas that the association needs to address.

If the association is not clear about what the auditor is saying, it should ask for further written clarification.  In presenting the audit report and findings to the AGM, the management committee should report on the auditor's recommendations and what action has been undertaken to address areas of concern.  To ignore an auditor's report is likely to place the association at risk and increase the exposure of individuals (particularly, the committee) to personal liability.

There may be irregularities in the financial statements of the association due to a number of factors, such as:

  • a lack of understanding in preparing financial statements;
  • a lack of understanding in assessing financial statements;
  • poor controls over money in and out; or
  • dishonesty.

If problems suggesting dishonesty are found in the financial records, the association should obtain prompt legal advice and attend to any immediate matters such as freezing accounts, securing assets, investigation, contacting the police and/or the insurer.