glossary
What Is an Audit Report? A Guide for Board Directors
Governance GlossaryPublished: February 22, 2024 Last Reviewed: March 6, 2026
Key Takeaways
- An audit report is a formal opinion by an independent auditor on the accuracy of financial statements.
- There are four types of audit opinion: unqualified (clean), qualified, adverse, and disclaimer.
- The board is responsible for ensuring the organisation's financial statements are audited as required.
- NFP organisations in Australia may be required to have an audit depending on their size and revenue.
- A clean audit report builds stakeholder confidence and demonstrates sound financial governance.
An audit report is a formal opinion or disclaimer, produced by an auditor after examining an entity’s financial records and statements. The purpose is to determine whether the financial statements give a true and fair view of the organisation’s financial position and performance over a financial year. Stakeholders — investors, creditors, regulators — use the report to assess whether the financial information is accurate and reliable.
The auditor is an independent professional or firm. The auditing process involves planning, examining financial records, testing selected transactions, and evaluating internal controls. The aim is to confirm that the financial statements follow the applicable accounting standards and are free from material misstatement.
Components of an audit report
Audit reports follow a standard format. The key sections are:
Title and addressee
The report is titled ‘Independent Auditor’s Report’ to make clear the auditor’s external and unbiased position. It is addressed to the shareholders or members of the organisation, as set out in the entity’s governing documents.
Auditor’s opinion
This is the most important part of the report. The auditor states whether the financial statements present a true and fair view of the organisation’s financial position and performance in line with the applicable financial reporting framework.
There are four types of opinion:
- Unqualified (clean report): The financial statements present a true and fair view without material misstatements.
- Qualified: The financial statements are fair except for certain issues the auditor has identified.
- Adverse: The financial statements contain significant misrepresentation that affects the overall view.
- Disclaimer: The auditor could not obtain enough evidence to form an opinion, usually because of scope limitations.
Basis for opinion
Explains the basis for the opinion, including the scope of the audit and the auditor’s assessment of the evidence obtained.
Management and governance responsibilities
Outlines the responsibilities of the entity’s management and governance bodies for the preparation and fair presentation of the financial statements and internal controls.
Auditor’s responsibilities
Describes the auditor’s responsibilities under the audit, including obtaining reasonable assurance that the financial statements are free from material misstatement.
Other reporting responsibilities
Covers any additional responsibilities specific to the jurisdiction or regulatory requirements, such as compliance with particular laws or contractual agreements.
Signature, date, and address
The report is signed by the auditor or audit firm, dated, and includes the auditor’s location.
When is an audit required?
Not every organisation needs a full audit. In Australia, the requirement depends on the organisation’s legal structure, size, and revenue.
Companies limited by guarantee registered with the ACNC follow a tiered system. Small charities (annual revenue under $500,000) generally do not need an audit or review. Medium charities ($500,000 to $3 million) must have their financial reports reviewed or audited. Large charities (over $3 million) must have a full audit conducted by a registered company auditor, audit firm, or authorised audit company.
Incorporated associations are governed by state and territory legislation, which sets its own thresholds. In most states, larger associations must have an audit while smaller ones may only need a review or compilation.
Companies under the Corporations Act follow the rules for their company type. Large proprietary companies and all public companies must lodge audited financial reports with ASIC. Small proprietary companies are generally exempt unless directed by ASIC or required by their constitution.
Even where an audit is not legally required, some organisations choose to have one — particularly if funders, grant bodies, or donors expect it.
The board’s role
The board does not conduct the audit, but it is responsible for ensuring one happens when required. The audit committee (or the full board in smaller organisations) oversees the appointment of the auditor, reviews the audit plan, and considers the audit findings.
When the auditor presents the report, directors should read it carefully, ask questions about any qualifications or emphasis of matter paragraphs, and satisfy themselves that management has addressed any issues raised. A clean audit report does not mean the board can stop asking questions — it means the financial statements are free from material misstatement as at the reporting date.
If the auditor issues a qualified or adverse opinion, the board must understand what went wrong, what management intends to do about it, and whether stakeholders need to be informed.
Frequently Asked Questions
What is an audit report in the context of a not-for-profit (NFP) organisation in Australia?
An audit report is a formal opinion provided by an independent auditor on the accuracy and fairness of the financial statements of a not-for-profit organisation in Australia.
This report assesses whether the financial statements are prepared in accordance with relevant Australian Accounting Standards and present a true and fair view of the organisation's financial position and performance. It forms part of the organisation's annual reporting and helps build trust with stakeholders.
Why is an audit report necessary for NFP organisations in Australia?
- Compliance: Certain NFP organisations in Australia are required by law, or under their governing documents, to have their financial reports audited, particularly if they exceed specific size or revenue thresholds as defined by the Australian Charities and Not-for-profits Commission (ACNC) or other relevant authorities.
- Transparency and Trust An audit enhances the credibility of the financial statements, providing donors, members, and the public with assurance that the information presented is accurate and reliable.
- Risk Management: The audit process can identify weaknesses in financial reporting and internal controls, offering recommendations for improvement, thereby reducing the risk of fraud, financial misstatement, or inefficiency.
- Stakeholder Confidence: For donors, funding bodies, and grant providers, an audit report is a reassurance that the organisation manages its finances responsibly and adheres to the highest standards of governance.
What does an audit report include for a not-for-profit organisation in Australia?
An audit report for a NFP organisation typically includes the following components:
- Auditor’s Opinion: The most critical part of the audit report, where the auditor states whether the financial statements give a true and fair view in accordance with Australian Accounting Standards without material misstatement.
- Basis for Opinion: This section details the basis on which the auditor's opinion is founded, including an assertion that the audit was conducted in accordance with Australian Auditing Standards. It highlights the auditor's responsibilities and the scope of the audit.
- Responsibilities of Management and Those Charged with Governance: Outlines the responsibilities of the organisation's management and governing bodies in the preparation and fair presentation of the financial statements.
- Auditor’s Responsibilities: Describes the objectives of the auditor, including the need to conduct the audit with professional skepticism and to provide an opinion on the financial statements based on the audit findings.
- Other Reporting Responsibilities: If applicable, this section covers other responsibilities the auditor may have, such as compliance with additional laws, regulations, or contractual agreements specific to the organisation or the sector it operates in.
Can a not-for-profit organisation in Australia choose not to have an audit report?
Whether a not-for-profit organisation can opt out of having an audit report depends on several factors, including its legal structure, size, income, and the specific requirements of its constitution or governing documents.
Small-size NFPs may be eligible for an exemption or may only be required to have a review rather than a full audit, depending on legislation and regulations applicable to them.
However, even if not legally required, organisations may choose to have an audit to meet the expectations of funders, donors, and other stakeholders. It's important for NFPs to consult the ACNC's requirements and any sector-specific regulations to determine their obligations.
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