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Audits of the Financial Statements of Australian Government Entities for the Period Ended 30 June 2011

Introduction

1. The Auditor-General Act 1997 establishes the mandate for the Auditor General to undertake financial statement audits of all Australian Government entities including those of government agencies, statutory authorities and government business enterprises.

2. The preparation of audited financial statements in compliance with the Finance Minister’s Orders1  (FMOs) is a key element of the financial management and accountability regime applicable to Australian Government entities. It is generally accepted in both the private and public sectors that a good indicator of the effectiveness of an entity’s financial management is the timely finalisation of its annual financial statements, accompanied by an unmodified audit opinion. Australian Government entities, in cooperation with the Australian National Audit Office (ANAO), devote considerable effort to achieving timeliness in financial reporting.

3. ANAO financial statement audits are an independent examination of the financial accounting and reporting of public sector entities. The results of the examination are presented in an auditor’s report, which expresses the auditor’s opinion on whether the financial statements as a whole and the information contained therein fairly present each entity’s financial position and the results of its operations and cash flows. The accounting treatments and disclosures reflected in the financial statements by the entity are assessed against relevant Accounting Standards and legislative reporting requirements.

4.In addition to undertaking financial statement audits, the ANAO tables two reports annually addressing the outcomes of the financial statement audits of public sector entities. The first of these, Audit Report No.54 2010–11 Interim Phase of the Audit of Financial Statements of Major General Government Sector Agencies for the Year Ending 30 June 2011, outlined the ANAO's assessment of audit findings relating to the internal controls of major agencies, including governance arrangements, information systems and control procedures. The findings summarised in that report are the results of the interim phase of the financial statement audits of major General Government Sector agencies.

5. This report complements the interim phase report referred to above, and provides a summary of the final audit results of the audits of the financial statements of all Australian Government entities, including the Consolidated Financial Statements for the Australian Government.

6.The audit findings in this report have been reported to the management of each entity, and to the responsible Minister(s).

Accounting and auditing framework developments

7. There were few changes to Australian Accounting Standards in 2010–11. One noteworthy change was the requirement that long-term leases of land should be assessed and, where they transfer substantially all the risks and rewards of ownership, the land be included as an asset on the lessee’s balance sheet.

8. While, for the foreseeable future, changes to Australian Accounting Standards will be driven mainly by major developments in Accounting Standards internationally, the Australian Accounting Standards Board (AASB) has also initiated a number of domestic projects. The project to harmonise reporting by government entities with the Australian Bureau of Statistics’ Government Finance Statistics (GFS) framework is continuing, the focus is now turning from whole-of-Government reporting to consideration of Government-controlled entities. Australian Accounting Standards harmonising financial reporting requirements of Australian and New Zealand for-profit entities have also been released. The AASB is also considering applying to not-for-profit entities similar disclosures of related party transactions and executive remuneration that already apply to for-profit entities.

9. At the international level, significant changes to Accounting Standards and the conceptual frameworks used to develop Standards are underway. A suite of new and revised Standards is expected to begin to come into effect from 2013–14, changing reporting requirements in important areas such as financial instruments, revenue, leases, fair value measurement and reporting by groups of entities. During 2010–11, work continued on new conceptual frameworks for financial reporting, in order to provide a sound base for the development of future Accounting Standards.

10. The 2010–11 financial year was the first year of the full application to the audit of the financial statements of Australian Government entities of the revised and re-drafted Clarity Auditing Standards issued by the Australian Auditing and Assurance Standards Board (AUASB).

Summary of audit findings

11. The ANAO is responsible for the audits of the financial statements of all the Australian Government entities. For the 2010–11 financial year, the Auditor-General and senior staff delegated to issue audit reports issued 254 audit reports (unmodified audit opinions); no modified audit reports; five reports included an emphasis of matter2  and 48 reports contained a reference to other legal and regulatory requirements.3 

12. Three reports referred to breaches of section 83 of the Constitution together with a risk of breaches of section 83. In addition, 45 referred to a risk of breaches of section 83, or the need to undertake risk assessments, in relation to payments from special appropriations and special accounts. A breach of section 83 of the Constitution occurs if payments are not made in accordance with conditions required by law. Relevant agencies have indicated that the circumstances giving rise to this issue will be investigated.

Consolidated Financial Statements

13. The Consolidated Financial Statements that presents the consolidated whole-of-government financial results inclusive of all Australian Government controlled entities, as well as the General Government Sector financial report, was signed by the Minister for Finance and Deregulation (Finance Minister) on 30 November 2011.

14.In 2010-11, the Consolidated Financial Statements incorporates both the whole-of-government and General Government Sector financial reports required by AASB 1049 Whole of Government and General Government Sector Financial Reporting.

15.As a AASB 1049-compliant General Government Sector report was prepared for the first time in 2009–10, this is the first year that explanations of variances between the original budget and 2009–10 actuals have been included in an audited set of Australian Government financial statements. The Consolidated Financial Statements continues the prior year approach of incorporating aggregate disclosure of ministerial remuneration.

16. The auditor’s report on the 2010–11 Consolidated Financial Statements was also issued on 30 November 2011 and expressed the opinion that the statements give a true and fair view of the Australian Government’s and the General Government Sector’s financial position as at 30 June 2011 and their financial performance and cash flows for the year then ended.

Entity financial statements

17. There was a reduction in the number and significance of issues arising from the final phase of the 2010–11 financial statement audits of individual entities. The number of significant and moderate audit findings decreased from 50 in 2009–10 to 36 in 2010–11, a reduction of some 28 per cent. This is consistent with the trend in relation to the results of our audits in recent years, which has seen a significant reduction in the number of significant and moderate audit issues. Issues that are common across a number of entities that were identified in the final audit phase as requiring attention by entities were in respect of: support for a range of provisions relating to payments to the States and Territories in accordance with the provisions of the Federal Financial Relations Act 2009; controls in entities’ IT environments, such as user access and the segregation of duties; asset management processes including accounting for assets under construction, asset stocktakes and the integrity of asset registers; and business system processing controls. These issues are generally consistent with our audit findings in previous years.

18. Generally, our audits also found that entities have made good progress in addressing and resolving, where possible, issues identified during the interim audit phase.

19. The ANAO continues to include an assessment of compliance in relation to annual appropriations, special appropriations, special accounts and the investment of public moneys in its financial statement audits. There continues to be a high level of compliance in most of these areas. However, as mentioned above, the auditor’s report on the financial statements of a large number of agencies mentioned a risk of breaches of section 83 of the Constitution.

Financial statements preparation

20.Consistent with previous years, the large majority of entities’ financial statements were completed within three months of the end of the financial year. This reflects positively on the priority entities give to meeting their financial reporting responsibilities and on the financial stewardship of the public sector generally.

21.There has also been an increase in the number of entities that met the deadlines for the submission of audit cleared financial information to the Department of Finance and Deregulation.

Future audit coverage

22. The ANAO will continue to work closely with entity audit committees and management with the aim of assisting entities to continue to meet their financial management responsibilities including addressing areas where improvements are warranted.


[1] The Finance Minister’s Orders (FMOs) made by the Minister for Finance and Deregulation set out the requirements for the preparation of financial statements of all reporting entities covered by the Financial Management and Accountability Act 1997 and the Commonwealth Authorities and Companies Act 1997.

[2] An emphasis of matter is included in the auditor’s report to draw the reader’s attention to a matter that is of such importance that it is fundamental to the users’ understanding of the financial statements.

[3] All numbers are as at 30 November 2011