Must the Financial Statements of a Charity be Audited

Must the Financial Statements of a Charity be Audited | Bestar

Charity Audit Requirements in Singapore

Must the Financial Statements of a Charity be Audited

In Singapore, whether a charity's financial statements must be audited depends on a few factors:

1. Institution of a Public Character (IPC) status:

•   All IPCs are required to have their financial statements externally audited by a public accountant.   

2. Gross income or total expenditure:

• For charities that are not IPCs, the audit requirements are as follows:

  •   $250,000 or less: Accounts can be examined by an independent person whom the governing board members believe have the relevant ability and practical experience.   

  •   Between $250,000 and $500,000: Accounts can be examined by an independent person who is a member of the Institute of Singapore Chartered Accountants (ISCA), or who possesses the necessary qualifications to be a member of the ISCA.   

  •   Above $500,000: Accounts must be externally audited by a public accountant.   

3. Type of organization:

• If the charity is a company limited by guarantee, its financial statements will be audited based on the requirements under the Companies Act, regardless of its income or expenditure.   

Key Points:

• The thresholds for audit requirements are based on the charity's gross income or total expenditure in any of the last 3 financial years, whichever is the highest.   

• Charities that are required to have their financial statements audited must comply with either the Financial Reporting Standards (FRS) or the Charities Accounting Standard (CAS).

• All charities, regardless of whether they are required to be audited, must maintain proper accounting records and submit an annual report to the Commissioner of Charities.

Company Limited by Guarantee

When a charity is structured as a company limited by guarantee (CLG), the audit requirements are primarily determined by the Companies Act, not the Charities Act. This means that regardless of the charity's income or expenditure, it will generally need to have its financial statements audited.

Here's why:

• Companies Act Requirements: The Companies Act mandates that all CLGs, as registered companies, must have their financial statements audited annually. This is a fundamental requirement for ensuring transparency and accountability for companies operating in Singapore.

• Public Company Status: CLGs are considered public companies under the Companies Act, even if they are not listed on the stock exchange. This classification triggers the mandatory audit requirement.

Key takeaway:

If your charity is a CLG, you should prioritize compliance with the Companies Act's audit requirements. This means engaging a public accountant to conduct the audit and ensure your financial statements meet the standards set by the Act.

Important Note:

While the Companies Act primarily governs the audit requirements for CLGs, it's still important to be aware of the Charities Act and its related regulations. The Charities Act provides a framework for the governance and administration of charities in Singapore, including requirements for financial reporting, transparency, and accountability.

By understanding the interplay between the Companies Act and the Charities Act, CLGs can ensure they meet all the necessary legal and regulatory obligations.

There are some additional nuances and details to consider regarding audit requirements for charities in Singapore. Here's a breakdown of some key areas:

1. What does "audit" mean?

An audit involves an independent examination of the charity's financial records and statements to ensure they are accurate, complete, and comply with the relevant accounting standards (FRS or CAS). The auditor will issue an opinion on whether the financial statements present a true and fair view of the charity's financial position.

2. What does "examination" mean?

An examination is less extensive than an audit. The independent examiner will review the charity's financial records and make inquiries to ensure they are generally in order. While they provide some assurance, an examination does not provide the same level of assurance as an audit.

3. Who can be an independent examiner?

• For charities with gross income/expenditure of $250,000 or less: The independent examiner can be someone whom the governing board members believe have the relevant ability and practical experience. This could be a volunteer with accounting knowledge or a retired accountant, for example.

• For charities with gross income/expenditure between $250,000 and $500,000: The independent examiner must be a member of the Institute of Singapore Chartered Accountants (ISCA) or possess the necessary qualifications to be a member of ISCA.

4. What are the responsibilities of the governing board?

The governing board is ultimately responsible for the charity's financial oversight, even if the financial statements are audited or examined. They must:

• Ensure proper accounting records are maintained.

• Approve the financial statements.

• Select the auditor or independent examiner.

• Ensure compliance with the Charities Act and other relevant regulations.

5. What happens if a charity doesn't comply with audit requirements?

Failure to comply with audit requirements can result in penalties, including fines and even revocation of the charity's registration.

6. Where can I find more information?

• Charity Portal: The official website of the Commissioner of Charities provides detailed guidance on audit requirements, accounting standards, and other regulatory matters. You can find it at www.charities.gov.sg.

• Institute of Singapore Chartered Accountants (ISCA): ISCA offers resources and guidance on accounting and auditing for charities. You can find them at www.isca.org.sg.

How Bestar can Help

Bestar plays a vital role in ensuring the financial health and transparency of charities. Here's how we can help:

For all charities (regardless of audit requirements):

• Financial Management:

  • Setting up proper accounting systems: Bestar can help charities establish robust accounting systems and procedures to accurately record and track financial transactions. This includes setting up chart of accounts, developing internal controls, and implementing accounting software.

  • Preparing financial statements: Bestar can assist in preparing accurate and timely financial statements that comply with the relevant accounting standards (FRS or CAS). This includes the Statement of Financial Activities, Balance Sheet, and Cash Flow Statement.

  • Budgeting and forecasting: Bestar can help charities develop realistic budgets and financial forecasts to guide their financial decision-making and ensure long-term sustainability.

  • Financial analysis: Bestar can analyze the charity's financial performance, identify areas of strength and weakness, and provide recommendations for improvement.

  • Compliance with regulations: Bestar can help charities stay compliant with the Charities Act, Companies Act (if applicable), and other relevant regulations related to financial reporting and governance.

• Governance and Internal Controls:

  • Developing internal control procedures: Bestar can help charities design and implement internal control procedures to safeguard assets, prevent fraud, and ensure the integrity of financial information.

  • Risk management: Bestar can assist in identifying and assessing financial risks and developing strategies to mitigate those risks.

  • Advisory on financial matters: Bestar can provide guidance on various financial matters, such as investment policies, fundraising strategies, and resource allocation.

Specifically for charities requiring audits:

• Independent Audit:

  • Conducting an independent audit: Bestar provide an independent examination of the charity's financial statements to ensure they are fairly presented and comply with the relevant accounting standards.

  • Providing assurance: The auditor's opinion provides assurance to stakeholders, including donors, beneficiaries, and the public, that the charity's financial information is reliable.

  • Identifying areas for improvement: During the audit, Bestar may identify areas where the charity's financial practices can be improved, such as internal controls or accounting procedures.

Benefits of engaging Bestar:

• Expertise: Bestar has the necessary expertise and knowledge to ensure accurate financial reporting and compliance with regulations.

• Objectivity: Independent Bestar provides an objective assessment of the charity's financial position and practices.

• Credibility: Audited financial statements enhance the credibility and trustworthiness of the charity, which can be crucial for attracting funding and support.

• Improved governance: Professional guidance can help charities improve their financial governance and internal controls, leading to greater efficiency and accountability.

In conclusion:

Engaging Bestar is essential for charities to maintain sound financial management, ensure compliance with regulations, and build trust with stakeholders. Whether it's setting up accounting systems, preparing financial statements, conducting audits, or providing financial advice, Bestar can play a crucial role in supporting the charity's mission and long-term sustainability.

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