An Update on Audits for Ontario Corporations
Adam Aptowitzer, February 01, 2007

In a previous article I wrote about the audit requirements for Ontario charities. In that article, I mentioned that in a bill introduced on April 27, 2005, the Ontario Provincial Parliament intended to change the audit requirements for provincial non-share capital corporations but that the changes never made it into the final law. As that article received a great deal of attention I thought it would be of interest to my readers to know that the audit requirements have finally changed. 

  Bill 152 received Royal Assent on December 20, 2006, as of that date, corporations incorporated under the Ontario Corporations Act do not require an audit if during the financial year the company has annual income of less than $100,000 and all of the members consent in writing to the exemption in respect of the year. The change made was in respect of the previous limit which was $10,000. Assuming that the exemption does not apply, the members must appoint an auditor (and if for some reason the members do not, then the directors must). The auditor him or herself may not be a director, officer or employee of the corporation.    

Unfortunately, appointing an auditor is fraught with practical difficulties for many corporations. Under the Public Accountancy Act only a public accountant may perform an audit and accountants can be costly, particularly for small charities. Furthermore, as the Corporations Act requires that the accountant be independent from the corporation being audited, the corporation is forced to hire someone who has no pre-existing desire to do the job for free or on a reduced basis.  

  It is also important to remember that the fees for an auditor are included in a charity's Disbursement Quota as calculated under the Income Tax Act. So, in a situation where the members of an Ontario incorporated charity do not vote to exempt the charity from the audit requirements, the charity could have a serious difficulty meeting both its disbursement quota obligation and its audit requirement.    

For example, take the situation of a fictional Ontario corporation, which is a registered Canadian charity. Assuming our charity has $50,000 of receipted revenue in 2006; in 2007 it is required under the Income Tax Act to spend $40,000 on its charitable activities and assuming a fee of $2500 - $3000 for the audit, between $7,000 and $7,500 for the rest of its non charitable activities. This may be completely unrealistic for some charities and force them to either contravene the law with respect to disbursement quotas or regarding audits.