Communique: Audit Committee Chairs Forum — 14 December 2017
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The Audit Committee Chairs Forum is a joint initiative of the Department of Finance and the ANAO and includes the general government and non-general government sector Audit Committee Chairs. This communique covers the outcomes of the discussion at the forum on 14 December 2017 including updates from the Auditor-General and the ANAO, and from the Department of Finance.
At the opening of the meeting and introduction of the agenda, Audit Committee Chairs sought for an opportunity to have a discussion and participate in the consultations on the draft guidance on Audit Committees under development by the Department of Finance. The Department of Finance representatives were asked to take this feedback back to their Executive.
Updates from Department of Finance
New accounting standards and amendment to existing standards applicable for 2017-18
- Further information on the standards relevant to the 2017-18 financial year will be available on the Finance website: http://finance.gov.au/resource-management/reporting-accounting/
- The slides of the presentation provided further details on the new accounting standards and amendments.
2016-17 financial reporting process
- The Final Budget Outcome was released by 30 September, and the Consolidated Financial Statements were signed by 30 November.
- Finance surveyed entities in November to get feedback on their 2016-17 financial reporting experience. It is making changes for the 2017-18 reporting year, based on the feedback received.
- Related parties
- Entities should consider the definition of related parties in AASB124 when determining who is in scope.
- Special account balances are now to be reported as cash or cash equivalents, to ensure consistency in the way these amounts are treated for both administered and departmental.
- Minimal changes to the 2017-18 FRR are expected. A draft was circulated to entities for comment before Christmas.
- Chief Finance Officers (CFOs) and Chief Operating Officers (COOs) of non-corporate Commonwealth entities have been consulted on draft guidance on audit committees. CFOs and COOs were advised that they may wish to provide the draft guidance to their entity’s audit committee.
- The draft guide was written and developed in consultation with the ANAO. The draft guidance is consistent with the views of the Joint Committee of Public Accounts and Audit (JCPAA) which has recommended:
- The Australian Government amend, as necessary, the PGPA Act, and accompanying rules and guidance, to clarify that the functions and charter of Commonwealth entity audit committees need to reflect their role in assurance of the appropriateness of performance reporting, as well as specifying that some members must have skills in performance measurement and reporting, with Finance to report back to the Committee on progress on this matter.
- Finance is currently reviewing the feedback from entities and their audit committees and will provide the revised draft guidance for further consultation with entities and audit committees in early February.
- CFOs of corporate Commonwealth entities have also been consulted on the development of guidance on audit committees for Commonwealth corporate entities and Commonwealth companies. They were asked to provide main points of difference with issues they face in relation to audit committees. Finance will progress drafting this guidance in first half of 2018.
- Queries on audit committees, performance reporting or executive remuneration should be directed to PMRA@finance.gov.au.
Agency Resourcing Review and Productivity Roadmap – Efficiency and Assurance
- Discussion papers were distributed to portfolio CFOs for their review and comments in November 2017. Queries should be directed to APSproductivity@finance.gov.au or contact Thea Daniel, Assistant Secretary Resourcing Framework Department of Finance, phone (02) 6215 3657.
Government Charging – Governance and Public Management
- Finance is undertaking a range of improvements in relation to the Australian Government Charging Framework. This includes improving information on government charging, improving Portfolio Charging Reviews, and bringing greater consistency to charging activities across government.
- For further information on government charging, please email firstname.lastname@example.org or contact Ian Nicholas, Assistant Secretary, Resource Management Branch, Department of Finance, phone (02) 6215 2895.
Updates from the Australian National Audit Office
Key updates from the Auditor-General
- Following the ‘Belcher Red Tape Review’ and review of Better Practice Guides, the ANAO has started producing audit insights to provide additional insights into public sector administration. The first quarterly edition of audit insights draws together key learnings from ANAO performance audit reports tabled in the Parliament from July to September 2017: Insights from performance audit reports tabled July to September 2017
- Key observations of relevance to audit committees from ANAO performance audits this year include:
- Managing the risk that value for money can deteriorate through sole source procurement processes. Audit committees might consider their carriage in respect to how agencies robustly defend the taxpayers’ dollar in an environment where you are in a non-competitive process.
- Commentary with respect to ANAO performance audits being ‘in the weeds’, particularly in environments where the ANAO finds non-compliance against a set of rules and frameworks established by the accountable authority. Audit committees might consider their carriage in respect to entities’ compliance; considering that strong compliance is fundamental for entities that focus on outcomes, cost-effectiveness and economy.
- The ANAO’s report offerings have diversified this year. The ANAO has tabled two assurance reviews under section 19A of the Auditor-General Act 1997:
- The ANAO has also tabled an information report: Australian Government Procurement Contract Reporting. This information report is neither an audit nor an assurance review and presents no conclusions or opinions. The report presents in a variety of ways, including tables and figures, publicly available data from public sector procurement activity.
- The ANAO provided a submission to the statutory review of the Public Governance, Performance and Accountability Act 2013 (PGPA Act) and Public Governance, Performance and Accountability Rule 2014 (PGPA Rule).
- The Joint Committee of Public Accounts and Audit (JCPAA) recently tabled Report 469: Commonwealth Performance Framework. A summary of some of the key recommendations of interest for audit committees are:
- The ANAO consider conducting an audit of one complete Commonwealth performance reporting cycle to see whether there is line of sight from corporate plans through to performance statements;
- Mandatory annual audits of performance statements by the Auditor-General; and
- Amend the PGPA Act and accompanying rules and guidance to clarify that the functions and charter of Commonwealth entity audit committees need to reflect their role in assurance of the appropriateness of performance reporting, as well as specifying that some members must have skills in performance measurement and reporting.
- The Independent Auditor has tabled his report titled Australian National Audit Office Performance Audit: Review of Cyber Security. The ANAO takes cyber security very seriously - both as an organisation and as an Audit Institution. This is reflected in the Auditor-General’s ongoing allocation of resources to cyber security in the Annual Audit Work Program. The ANAO’s 2017-18 Corporate Plan also ensures an ongoing focus on cyber security through the organisational priority - Advanced ICT strategies and systems. As the report notes, where issues have been identified the ANAO has taken prompt action to address them. The ANAO agrees with the recommendations contained in the report and is well advanced in addressing each recommendation.
Other updates from the ANAO
Thematic observations: Audits of the Financial Statements of Australian Government Entities for the Period Ended 30 June 2017
- Each year two reports are tabled in Parliament relating to the ANAO financial statements audit coverage. The anticipated tabling of ANAO Report No. 24 of 2017–2018 Audits of the Financial Statements of Australian Government Entities for the Period Ended 30 June 2017 was discussed and a summary of the observations, themes and issues was provided. The report details the 2016-17 audit results of all Commonwealth reporting entities (239 entities, of which 234 were finalised as at 30 November) and the whole of government consolidated financial statements.
- Timeliness of reporting: Increase in number of audit reports signed within 2 months (28% in 2016-17 compared to 24% in 2015-16) and within 3 three months (87% in 2016-17 compared to 80% in 2015-16)
- Of the 239 2016-17 financial statement audits, 178 entities are required to table annual reports. Of these entities, the ANAO provided 54 (30%) auditor’s reports within two months of year end and 162 (91%) auditor’s reports within three months of year end.
- Two entities tabled their annual report within 3 months of year end. 153 annual reports were tabled within 4 months of year end.
- The report includes a section of the financial sustainability of the material entities with similar observations to the 2015-16 analysis.
- The ANAO also followed up on executive remuneration reporting by entities.
Summary of Findings
- Findings are fairly consistent with the previous period although there has been a decrease in moderate rated findings (Category B audit findings). There has been a reduction in significant or moderate unresolved findings from seven in the prior period to one. Category C findings remain at approximately 200.
- Approximately 77% of moderate/significant findings relate to IT General Controls (ITGC) and Compliance and Quality Assurance Frameworks:
- ITGC – user access and monitoring
- Quality assurance supporting program payments, revenue collection and financial reporting
Audit Committee Chairs survey results
- The 2017 Audit Committee Chairs Survey was conducted online over a three-week period in June-July 2017. A total of 61 responses were received out of the 131 Audit Committee Chairs invited to participate, representing a response rate of 47%. 79% of Audit Committee Chairs who attended one or both forums, perceived them to be of high value overall.
New and revised audit standards
- Two new Australian Auditing Standards Board standards effective for audits that commence on or after 1 January 2018:
- ASAE 3100 Compliance Engagements
- ASAE 3500 Performance Engagements
The ANAO is currently reviewing the minimum reporting content requirements of the new standards and in setting ANAO auditing standards for next year will consider the ISSAI 3000 standard for performance auditing issued by the International Organisation of Supreme Audit Institutions (INTOSAI), which contains reporting requirements more consistent with reporting on performance audit engagements in the public sector.
Key Audit Matters
- In 2016/17 the ANAO voluntarily applied a new auditing standard; ASA701 Communicating Key Audit Matters in the Independent auditor’s report. The purpose of the auditor reporting key audit matters in their report is to increase transparency where the auditor has made significant judgements in their audit. The Auditor-General considers the reporting of key audit matters in the audit report is better practice in the financial statements auditing profession, and it’s also consistent with the ANAO’s outcome of improving public sector performance and accountability through independent reporting.
- 25 entities, those included in the ANAO’s controls report to Parliament were selected for the reporting of key audit matters. 57 key audit matters were reported across those entities with the number per entity ranging from one to four.
- The top five key audit matters reported were:
- Valuation of liabilities – financial, provisions, superannuation
- Valuation of financial assets – investments, loans
- Valuation of non-financial assets – property plant and equipment, intangibles
- Completeness and accuracy of revenue
- Accounting for personal benefits
- For the ANAO, early and continuous communication is critical. Expected key audit matters will be communicated to the audit committee early in the planning stage, and then whilst performing the audit if the ANAO becomes aware of new matters these will also be communicated in a timely manner.
PGPA Audits – Corporate Plans, Performance Statements, Risk
- The ANAO has developed a rolling audit program to review entities’ implementation of the PGPA requirements for risk management and the annual performance cycle. Since 2016-17, the following audits have been published:
- two audits on corporate planning, involving 14 entities;
- an audit on performance statements, involving three entities; and
- an audit on risk management, involving four entities.
- In 2017-18, it is planned to publish:
- Key findings and learnings from the corporate planning audits:
- audited entities were at different levels of maturity in their implementation of requirements; and
- further work was needed to fully embed requirements and position the corporate plan as the entity’s primary planning document.
- In November 2017 an Audit insights was published that looks at recent performance audit activity reviewing entities implementation of key components of the Public Governance, Performance and Accountability Act: Corporate planning, performance statements and risk management.
- The Joint Committee of Public Accounts and Audit reviewed this series of audits in its Report 469: Commonwealth Performance Framework. The report was released in early December 2017. The JCPAA recommended report-backs from a number of entities which were part of the corporate plans audit (Recommendation 1). It also took the opportunity, through that report, to refer a number of the issues raised in the audits to the PGPA review that is currently underway (Recommendation 2).
Performance audits: Key learnings for all Government entities
- Key learnings for all Government entities as a specific reporting area was introduced to ANAO performance audit reports in July 2017. When undertaking an audit, the findings and recommendations for the specific entity or group of entities audited is captured, but close attention is also given to whether the activity or approach, risk or challenge is likely to be common across government, and these are captured in the Key learnings for all Australian Government entities section. The learnings will be aggregated each quarter – over which period there will be on average 12 audits to draw on into a quarterly audit insights report which will be published on the ANAO website.
- If you subscribe to the ANAO website (or follow the ANAO twitter), you will receive alerts as to when quarterly audit insights and other performance reports are tabled.
- The purpose of audit insights is to identify and discuss common recurring issues, shortcomings and good practice examples, identified through our financial statement and performance audit work. The first quarterly audit insights report was published mid December 2017: Insights from performance audit reports tabled July to September 2017
- Themes emerging to date:
- Consistent application of policies and frameworks across agencies
- Measuring performance and impact
- Use of data and evidence
- Risk management
- Learning organisations
- Flowing corporate level performance indicators, frameworks and risk management down to the project level
Next Audit Committee Chairs Forum is scheduled for Friday, 15 June, 10:00am-12:30pm, Galambany Centre, Department of Finance, One Canberra Avenue, Forrest ACT.