Financial statement audit — period ended 30 June 2006

Our report on the audit of the financial statements of Australian Government entities for the period ended 30 June 200614 was tabled in December 2006. This report summarised the final result of the audits of the financial statements of Australian Government entities, including the Consolidated Financial Statements of the Australian Government, for the period ended 30 June 2006.15 A commentary was provided on a number of contemporary issues relating to key developments in the financial reporting and auditing framework that impact on the Australian Government and its reporting entities.

AAS Auditors, Lian Kwa, Lucinda Kelly and Rachel Gatley

There was an increase in the number of material General Government Sector entities that provided clearance to the Department of Finance and Administration by the 30 July deadline (80 per cent, up from 76 per cent in 2004–05). The ability of material entities to achieve the audit clearance by 30 July highlights the improved financial statement preparation processes, which rely on efficiency, effectiveness and timeliness. We had previously published a comprehensive better practice guide on the preparation of financial statements16 to assist in this process.

The December 2006 report on the audit of the financial statements of Australian Government entities for the period ended 30 June 2006 also provided details about qualifications of audit opinions and any other matters reported or emphasised in audit reports. The reporting of “other statutory matters” dropped significantly to three in 2005–06 from 18 in 2004–05.17 The report also detailed the results of the individual financial statement audits and any additional significant control issues identified by each audit.

The report noted that 2005–06 was the first year of reporting under Australian Equivalents to International Financial Reporting Standards (AEIFRS) for most government entities. We reported that all material Australian Government entities indicated unreserved compliance with AEIFRS, other than the Department of Defence which indicated exceptions within the extent permitted by Australian Accounting Standards Board (AASB) 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards. The major impacts on the financial statements of Australian Government entities on transition to AEIFRS were in relation to:

  • the measurement of superannuation benefits at their present value in accordance with AASB 119 Employee Benefits;
  • the first-time adoption of AASB 139 Financial Instruments: Recognition and Measurement; and
  • the recognition of makegood under AASB 137 Provisions, Contingent Liabilities and Contingent Assets.

A number of other AEIFRS adoption issues were also summarised in the report.

The report also re-emphasised our focus in our financial statement audits on legislative compliance with the financial reporting framework. In October 2006, the Department of Finance and Administration released Finance Circular No. 2006/08 ‘Certificate of Compliance – FMA Act Agencies’ requiring Chief Executives to annually certify compliance with all financial legislation, regulations, and official guidance issued by the Department of Finance and Administration. The report noted that many agencies have given consideration to the processes required for the completion of the Certificate of Compliance.

A broad range of internal control issues were raised as part of the final audit phase, all of which were consistent with issues from the interim audit phase and those of previous years. Most were specific to the entity concerned and covered such issues as:

  • opportunities for improvement within the financial statement preparation process;
  • the need to develop, implement, test and document comprehensive business continuity plans;
  • deficiencies in the performance of key reconciliations; and
  • deficiencies in the robustness of IT control environments, including access security.

14 Audit Report No.15 2006—07, Audits of the Financial Statements of Australian Government Entities for the Period Ended 30 June 2006.

15 For the financial year ending 30 June 2007, the audit cycle is completed around November 2007. This means we report the results of the 2005–06 final financial statement audit cycle in this report.

16 Preparation of Financial Statements by Public Sector Entities (April 2006).

17 The higher number in 2004–05 is explained by the reporting of ineffective agreements under section 31 of the FMA Act.