Resources – Incorporation

What does Ontario law say about the auditing requirements for incorporated not-for-profit clubs?

If your club is incorporated in Ontario as a not-for-profit corporation (this includes charitable corporations), you are subject to the Ontario Not-for-Profit Corporations Act (ONCA). Among many things, the Act requires that members of your club appoint either an auditor or a person to conduct a review engagement¹ of the corporation at every annual meeting.

The person conducting an audit or review engagement must prepare a report on the corporation’s finances which the directors must provide to the members at every annual meeting².

Audits and review engagements are normally conducted by Chartered Professional Accountants and are expensive. Google AI suggests that audits for small not-for-profit organizations typically cost between $4,500 to $6,500 (review engagements are about half the cost of an audit).

Is there a way to avoid an expensive audit or review engagement?

Yes, ONCA provides an option for charitable corporations with annual income under $100,000 and other not-for-profit corporations with annual income under $500,000 to pass an extraordinary resolution to waive the requirement to conduct an audit or review engagement.

An extraordinary resolution must be approved by at least 80 per cent of the members present at a ‘special meeting of a corporation duly called for the purpose of considering the resolution’ and there must be sufficient members present to hold a vote. This ‘special meeting’ can be an item on the agenda of your club’s annual meeting. The resolution is only valid until the next annual meeting so an extraordinary resolution needs to be passed each year. 

Here’s an example of a very simple extraordinary resolution a club might consider:

Motion to waive the requirement to conduct an external audit or review engagement of the [NAME OF CLUB]’s financial records for the financial year January 1 to December 31 2026.

We recommend that the wording of the extraordinary resolution be sent to members in advance of the annual meeting (along with the year-end financial statement) so members have sufficient time to consider the resolution.

In lieu of conducting an external audit or review engagement, clubs might consider an internal audit or review of their year-end finances involving the club’s officers, directors, and/or members-at-large.

¹ Google AI provides the following description of financial audits and review engagements:

An audit provides reasonable (high) assurance that financial statements are free from material misstatement through extensive testing of transactions, controls, and third-party confirmations. A review engagement offers limited (moderate) assurance, focusing on inquiries and analytical procedures, making it a faster, more cost-effective alternative for smaller entities or stakeholders requiring lower, but still credible, assurance.

Note – you may also encounter the term compilation engagement. A compilation engagement simply organizes financial information in the form of financial statements without validating the underlying data and thus provides the lowest level of assurance.

² At the annual meeting, directors are also responsible for providing to members financial statements approved by the directors and any further information respecting the financial position of the corporation and the results of its operations required by the articles or the by-laws.