Does my company need an audit?

Start with the reason, not the rule

The question is almost never 'is there a law that says so' in isolation. It is 'who is relying on these financial statements, and have they asked for assurance'. Working through the four common sources in order will resolve it for most entities.

1. Corporations Act size tests

A proprietary company is required to prepare and lodge audited financial reports if it is 'large' under the Corporations Act size tests, which look at consolidated revenue, consolidated gross assets and employee numbers. Meeting the thresholds in a financial year brings the obligation. Small proprietary companies are generally exempt, unless they are controlled by a foreign company, or ASIC or members holding at least five per cent of votes direct otherwise.

2. The entity's legal form

• Public companies, including companies limited by guarantee above the relevant revenue thresholds
• Registered schemes and certain financial services licensees
• Incorporated associations and co-operatives, where the relevant state legislation sets its own tiers

3. ACNC tiers for charities

Charities registered with the ACNC are classified by annual revenue. Small charities generally face no audit or review requirement, medium charities must be at least reviewed, and large charities must be audited. As with the Corporations Act tests, the revenue thresholds are set by regulation and are revised from time to time, so check the current tier boundaries for the reporting year.

4. Contractual and constitutional triggers

This is the category that catches the most entities and gets thought about the least. An audit obligation can arise from a company's own constitution, a shareholders' or unitholders' agreement, a government or philanthropic grant deed requiring an acquittal, a bank covenant, a franchise agreement, or a tender requirement. None of these appear in legislation, and all of them are enforceable against you.

If you do not need an audit, you may still want assurance

Where a full audit is not required, a limited assurance review under ASRE 2400 gives a lower level of assurance at a lower cost, and an agreed-upon procedures engagement under ASRS 4400 reports factual findings on specific procedures without expressing an opinion at all. Both are legitimate answers to a funder who wants comfort but has not specifically required an audit — though you should confirm what the funder will accept before commissioning either.

The honest answer

A good auditor will tell you when you do not need one. If an entity is not caught by any of the four triggers above and nobody external is relying on the numbers, an audit is a cost without a corresponding benefit. Ask the question before you ask for the quote.