What Are the Financial Reporting Obligations for Nonprofit Corporations Under the ONCA?
Understanding the financial reporting obligations of not-for-profit corporations can be complex, especially with new regulations introduced by the Ontario Not-for-Profit Corporations Act (ONCA). Let's break down these obligations to make them clear and easy to understand.
What Is the ONCA?
The Ontario Not-for-Profit Corporations Act (ONCA) is a set of laws in Ontario, Canada, that governs how not-for-profit corporations operate. It introduces several new rules and flexibilities regarding financial reporting.
Why Is Financial Reporting Important?
Financial reporting is crucial for transparency and accountability. It ensures that members and stakeholders know how the corporation's money is being used. This builds trust and helps in making informed decisions.
Who Needs to Appoint an Auditor?
Under the ONCA, at each annual meeting, the members of a not-for-profit corporation must appoint an independent auditor. However, there are exceptions to this rule based on the type of corporation and its revenue.
What Is a Review Engagement?
A review engagement is a type of financial review that is less thorough than an audit but more extensive than no review at all. It is usually cheaper than an audit.
When Can a Corporation Waive an Audit?
Some corporations may not need a formal audit or even a review engagement. This depends on the corporation’s annual revenue and whether it is classified as a public benefit corporation or a non-public benefit corporation.
What Are the Different Types of Corporations Under the ONCA?
- Public Benefit Corporations (PBCs): These are organizations that operate for the public good, such as charities.
- Non-Public Benefit Corporations: These are not considered public benefit corporations and may have different financial reporting obligations.
How Does Revenue Affect Financial Review Requirements?
The amount of revenue a corporation earns each financial year determines the type of financial review it needs. Here’s a simple breakdown:
- Public Benefit Corporations (PBCs)
- Revenue of $100,000 or less: Can waive both an audit and a review engagement (needs approval).
- Revenue more than $100,000 but less than $500,000: Must have a review engagement (can waive audit with approval).
- Revenue of $500,000 or more: Must have an audit.
- Non-Public Benefit Corporations
- Revenue of $500,000 or less: Can waive both an audit and a review engagement (needs approval).
- Revenue more than $500,000: Must have a review engagement (can waive audit with approval).
What Is an Extraordinary Resolution?
An extraordinary resolution is needed to waive an audit or both an audit and a review engagement. This requires approval from at least 80% of the votes cast at a special members' meeting or if all voting members consent in writing.
What Are the Annual Financial Statement Requirements?
Members of the corporation are entitled to receive financial statements annually. These statements must be approved by the directors, and if there is an audit committee, they must review them first. After approval, the financial statements are presented to the members at the annual meeting.
The ONCA provides more flexibility for not-for-profit corporations regarding financial reporting. Understanding whether your corporation needs an audit, a review engagement, or can waive these requirements is crucial for compliance and effective financial management. By following these guidelines, not-for-profit corporations can ensure they meet their financial reporting obligations while maintaining transparency and accountability.
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