This report complements the interim phase report released in June 2013 (Audit Report No.49 2012–13), 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.



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. 49 2012–13 Interim Phase of the Audits of the Financial Statements of Major General Government Sector Agencies for the Year Ending 30 June 2013, 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. Relatively few changes to the Public Sector Reporting Framework took effect in 2012–13, with the main change being the deferral of a requirement until 2014–15 to measure defence weapons platforms at fair value. Guidance was also issued on accounting for the carbon tax.

8. The International Accounting Standards Board (IASB) is finalising a number of major projects with significant potential impacts on financial reporting, including projects on leasing, revenue recognition and financial instruments. The International Public Sector Accounting Standards Board’s project to adopt IASB standards and modify them for the public sector has been completed. It is now developing a range of standards and guidance specifically for the public sector, including on such topics as the long term sustainability of government finances and service performance information.

9. There are also number of important projects in auditing being conducted by the International Auditing and Assurance Standards Board. These include the development of a broader framework for audit quality and continuing consultation on proposals to enhance the value of auditors’ reports on the financial statements of listed entities, in the first instance.

Summary of audit findings

10. The ANAO is responsible for the audits of the financial statements of all Australian Government entities. For the 2012–13 financial year, the Auditor-General and senior staff under delegation, issued 252 auditor’s reports, all of which were unmodified. Five of these reports included an emphasis of matter2; and 223 contained a reference to other legal and regulatory requirements.4

11. The reference to other legal and regulatory requirements mainly referred to actual or potential breaches of section 83 of the Constitution. A breach of section 83 of the Constitution occurs if payments are not made in accordance with conditions required by law. Where potential breaches have been reported, relevant agencies have indicated that the circumstances giving rise to this issue would continue to be investigated and legislative amendments developed where appropriate.

12. The auditor’s report on the Consolidated Financial Statements also referred to the High Court’s most recent decision on Commonwealth expenditure in Williams v Commonwealth (2012) 288 ALR 410 (Williams), and to the disclosure that the Australian Government will continue to monitor and assess risk and decide on any appropriate actions to respond to risks of expenditure not being consistent with constitutional requirements.

Consolidated Financial Statements

13. The Consolidated Financial Statements that present the consolidated whole of government financial results inclusive of all Australian Government controlled entities, as well as the General Government Sector financial report, were signed by the Minister for Finance on 27 November 2013.

14. The operating result attributable to the Australian Government disclosed in the 2012–13 Consolidated Financial Statements was a deficit of $3.7 billion (2011–12: deficit of $68.8 billion). At 30 June 2013, the reported fiscal balance was a deficit of $27.9 billion (2011–12: deficit of $46.3 billion) and the reported negative net worth position was $210.5 billion (2011–12: negative $256.9 billion). These outcomes reflect the financial effect of government policies and the economic environment for the year ended 30 June 2013 and the associated movement in assets and liabilities as at the financial year end, particularly as a result of the increase in the long term government bond rate that is used to discount significant liabilities.

15. The Consolidated Financial Statements provide explanations of variances between the original budget and 2012–13 actuals as part of the audited set of Australian Government financial statements. Commentary on these variances is provided in chapter 3 of this report.

16. The auditor’s report on the 2012–13 Consolidated Financial Statements was issued on 27 November 2013 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 2013 and their financial performance and cash flows for the year then ended. As mentioned above, the auditor’s report included a reference to the aggregate position relating to actual and potential breaches of section 83 of the Constitution and to the High Court’s most recent decision on Commonwealth expenditure in Williams.

Entity financial statements

17. As indicated above, no auditors’ reports were modified in 2012–13. This is a good result and reflects well on the integrity of financial reporting by all Australian Government entities.

18. There was also a reduction in the number and significance of issues arising from the final phase of all 2012–13 financial statement audits of individual entities finalised by 30 November 2013. The number of significant and moderate audit findings decreased from 38 in 2011–12 to 30 in 2012–13, a reduction of 30 per cent. This is consistent with the trend in recent years, which has seen a significant reduction in the number of significant and moderate audit issues in entities. Issues that are common across a number of entities that were identified in the final audit phase that required attention by entities were in respect of: controls in entities’ IT environments, such as the management of user access and the segregation of duties; asset management processes, including the valuation of assets and the reporting of inventory; business system processing controls; and the documentation of policies and procedures. These issues are generally consistent with our audit findings in previous years.

19. Our audits also found that generally entities had made good progress in addressing and resolving issues identified during the 2012–13 interim audit phase and previous audits.

20. 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 number of entities mentioned actual or potential breaches of section 83 of the Constitution, and referred to the note disclosure in the entities’ financial statements. The financial statements of a number of entities also referred to the High Court’s most recent decision on Commonwealth expenditure in Williams.

Commentary on financial statement related matters

Audit coverage of Commonwealth payments to the States and Territories

21. Each year our financial statement audit coverage includes a review of Commonwealth payments to the States and Territories including arrangements in place for National Partnership payments to the States and Territories under the Federal Financial Relations Act 2009. In 2012–13, $11.0 billion was paid in accordance with over 100 agreements between the Commonwealth and the States and Territories. A number of agreements require the achievement of specified performance benchmarks, project milestones and/or other conditions prior to payment. The ANAO’s review of a sample of agreements identified that relevant agencies generally had controls in place to support the payment process. Nevertheless, our audits identified: there is wide variation in the accountability and reporting arrangements in individual agreements; agreements generally did not provide for information, particularly of a non-financial nature to be subject to independent assurance or verification; agreements generally did not include provisions that allowed the Commonwealth to obtain independent assurance over the accuracy and completeness of information submitted by the States and Territories; and relevant agencies generally did not utilise provisions that allowed them direct access to information and records maintained by the States and Territories.

22. Our performance audits that have reviewed individual agencies’ responsibilities for managing agreements have identified the need to improve the effectiveness of reporting in informing the responsible Commonwealth agency of performance in achieving the outcomes of individual agreements and providing visibility to the Commonwealth on key matters of implementation.

23. As National Partnership agreements continue to evolve, the ANAO considers there would be benefit in relevant agencies exploring opportunities, within existing administrative arrangements and in the design of future agreements, for introducing mechanisms for obtaining additional assurance over the integrity of information provided by the States and Territories, particularly where Commonwealth payments are dependent on this information. Our audits have also highlighted there is scope in the design of future agreements to enhance the arrangements for measuring the achievement of program outcomes for the benefit of all stakeholders.

Analysis of entities’ financial statements

24. An analysis of material entities’ operating results by the ANAO identified that: the majority of entities had made small surpluses or deficits in the period 2010–11 to 2012–13; and only five entities had averaged deficits/losses over these three years and had incurred at least two annual deficits over this period that were greater than five per cent of total expenses. Eighteen entities had an average annual surplus over this period that was greater than five per cent of total expenses. This suggests that, overall, entities continue to appropriately manage their finances. An analysis of the balance sheet positions of material entities as at 30 June 2013 identified that, in aggregate, material entities’ financial assets were 165 per cent of the value of liabilities and equity was 61 per cent of the value of total assets. This was broadly comparable to the situation at 30 June 2012 and suggests that, overall, the balance sheet position of material entities also remains satisfactory. Nevertheless, a tightening budget environment is likely to increase budget pressures on individual entities.

Financial statements preparation

25. 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.

26. In addition, the timeframes for the submission of audit cleared financial information to the Department of Finance and Deregulation was largely consistent with the prior year.

Future audit coverage

27. 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 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. These Acts are expected to be replaced by the Public Governance, Performance and Accountability Act 2013 on 1 July 2014.

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

[3] Includes the auditor’s report on 16 material entities, five non-material entities and the Consolidated Financial Statements of the Australian Government.

[4] All numbers are as at 30 November 2013.