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NSW Audit Office - Awareness - Issue 2003 01 - February 2003

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18 pages
AWARENESSccounting and Auditing Developments Issue 1 February 2003AUDIT OFFICE 1AUDIT OFFICE UPDATEUPDATE AUDITOR-GENERAL’S REPORT TO PARLIAMENT 2002, VOLUME SIXACCOUNTING 5The report was released on the 12 December 2002. Significant issues in UPDATEthis volume include:AUDITING UPDATE 6Compliance with aspects of State Records Act 1998 URGENT ISSUES 7GROUP UPDATEOf the 167 agencies reviewed, 40 were totally or almost totally notcomplying with the principles of the Act. Of the few agencies that fully MISCELLANEOUS 8complied, none did so within the deadlines set by the State Records PUBLICATIONSAuthority.LEGISLATIVE 10CHANGES UPDATECompliance with A New Tax System (Goods and Services) Act 1999All of the 15 agencies reviewed were managing GST risk adequately, TREASURY UPDATE 12except some need additional procedures to ensure they can deal with PREMIER’S 15uncommon events and transactions.DEPARTMENT UPDATEOffice of the Protective Commissioner and Public GuardianAUDIT OFFICE 17Funding of the operations of the Office is not equitably borne by all BETTER PRACTICEclients. GUIDESThere is no adequate system to identify, record, manage and report on clients’ non-cash assets not held in the investment funds.The Department of Aboriginal AffairsAAfftteerr ffoouurr yyeeaarrss,, oonnllyy $$3355..88 mmiilllliioonn ooff tthhee $$220000 mmiilllliioonn 99--yyeeaarr AAbboorriiggiinnaall Communities Development Program has been spent.Australian ...
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AWARENESSccounting and Auditing Developments Issue 1 February 2003
AUDIT OFFICE 1AUDIT OFFICE UPDATE
UPDATE
AUDITOR-GENERAL’S REPORT TO PARLIAMENT 2002, VOLUME SIX
ACCOUNTING 5
The report was released on the 12 December 2002. Significant issues in UPDATE
this volume include:
AUDITING UPDATE 6
Compliance with aspects of State Records Act 1998 URGENT ISSUES 7
GROUP UPDATEOf the 167 agencies reviewed, 40 were totally or almost totally not
complying with the principles of the Act. Of the few agencies that fully
MISCELLANEOUS 8complied, none did so within the deadlines set by the State Records
PUBLICATIONS
Authority.
LEGISLATIVE 10
CHANGES UPDATE
Compliance with A New Tax System (Goods and Services) Act 1999
All of the 15 agencies reviewed were managing GST risk adequately, TREASURY UPDATE 12
except some need additional procedures to ensure they can deal with
PREMIER’S 15uncommon events and transactions.
DEPARTMENT
UPDATE
Office of the Protective Commissioner and Public Guardian
AUDIT OFFICE 17
Funding of the operations of the Office is not equitably borne by all BETTER PRACTICE
clients. GUIDES
There is no adequate system to identify, record, manage and report on
clients’ non-cash assets not held in the investment funds.
The Department of Aboriginal Affairs
AAfftteerr ffoouurr yyeeaarrss,, oonnllyy $$3355..88 mmiilllliioonn ooff tthhee $$220000 mmiilllliioonn 99--yyeeaarr AAbboorriiggiinnaall
Communities Development Program has been spent.
Australian Museum Trust
The Museum has not reported a value for its collection assets due to
ccoonncceerrnnss oovveerr tthhee rreelliiaabbiilliittyy ooff aa $$44..11 bbiilllliioonn vvaalluuaattiioonn oobbttaaiinneedd iinn 22000000--
01. This value is likely to fall by about $3.5 billion following a more
reliable valuation process that should be completed in 2002-03.
Awareness iiss ppuubblliisshheedd bbyy TThhee AAuuddiitt OOffffiiccee ooff NNeeww SSoouutthh WWaalleess,, 223344 SSuusssseexx SSttrreeeett,,
Sydney NSW 2000, GPO Box 12, Sydney NSW 2001 Telephone 9285 0155 Facsimilie 9285 0001
Email Terry.Hogan@audit.nsw.gov.au Website http:www.audit.nsw.gov.au
CONTENTSSale of Powercoal
Powercoal Pty Limited was sold to Centennial Coal Company Limited on 6 August 2002 for
$306 million.
TransGrid
TransGrid has identified a potential $43 million overstatement in its deferred tax liability.
Centennial Park and Moore Park Trust
An alleged fraud at Moore Park Golf Club over several years is being investigated. It is expected
to be significant.
Building and Construction Industry Long Service Payments Corporation
Net assets declined by 85 per cent following an increase in liabilities and poor investment
returns. An increase in the Corporation’s levy on building and construction work may be
necessary to maintain a positive net asset position.
State Transit Authority
STA’s liquidity continues to deteriorate and it is relying more heavily on borrowings.
Only 36 per cent of Sydney and 4 per cent of Newcastle bus routes are profitable.
Workers’ Compensation (Dust Diseases) Board
Liabilities and assets were understated because the Board did not include an estimate for
claims incurred but not yet reported.
Further information
Barry Underwood, Acting Director Governance and Communications on 9285 0020 or
barry.underwood@audit.nsw.gov.au.
2 The Audit Office of New South Wales 3PERFORMANCE AUDIT REPORT-MANAGING GRANTS
Grants are a large part of government spending. In 2001-02, the NSW Government provided
grants and subsidies worth $4.86 billion to organisations from a wide variety of industry sectorrss
including community services, health, education and the environment.
This audit examined the administration of grants by three NSW Government agencies for whichhh
ggrraannttss aarree aa mmaajjoorr aaccttiivviittyy.. IInn ttoottaall wwee llooookkeedd aatt 112255 pprroojjeeccttss ffrroomm 1133 ggrraannttss pprrooggrraammss wwoorrtthh
$180 million.
We considered two simple, but key issues. We wanted to find out whether agencies had
processes in place to ensure that:
grants align with their corporate objectives
oouuttccoommeess ffoorr tthhee ggrraannttss pprrooggrraamm aarree aacchhiieevveedd..
Audit Opinion and Key Findings
In our view, the agencies we studied cannot be sure that the grants they allocate align with
their corporate objectives, and that program outcomes are achieved. This is mainly due to
pprroobblleemmss wwiitthh ggrraanntt sseelleeccttiioonn aanndd tthhee eevvaalluuaattiioonn ooff rreessuullttss..
Most of the grants programs had funding objectives that were fairly clear, however, we found
problems across most programs that could affect the fair and equitable selection of grants, suucchh
as:
often no procedures for assessing applications
no assessment guidelines for advisory committees
often no clear rationale for assessments
poor documentation of the reasons for decisions.
There was not enough evaluation by agencies of the results achieved from individual grants.
Likewise, not enough formal reviews were undertaken of grants programs to assess the benefits
they deliver and determine whether they continue to be relevant.
This report illustrates the problems and difficulties faced by each agency, some of which have
yet to be mastered. They were conscious of their challenges, and efforts to improve their
programs were obvious.
Recommendations
The report contains a number of recommendations to improve the selection and management of
grants and help agencies ensure that the money is spent as intended.
Further information
Tom Jambrich, Assistant Auditor-General Phone on 02 9285 0051 or Tom.jambrich@audit.nsw.gov.au.
The report was issued on the 4 December 2002 and can be accessed at www.audit.nsw.gov.au.
2 The Audit Office of New South Wales 3PERFORMANCE AUDIT - MANAGING HOSPITAL WASTE
While this audit examined how waste is managed in four public hospitals, the report’s
comments and recommendations could well apply to other agencies. In particular:
agencies need to understand how their activities generate waste
pppeeeooopppllleee wwwhhhooo cccrrreeeaaattteee wwwaaasssttteee mmmuuusssttt bbbeee aaaccctttiiivvveeelllyyy iiinnnvvvooolllvvveeeddd iiinnn eeennnsssuuurrriiinnnggg iiittt iiisss mmmaaannnaaagggeeeddd iiinnn wwwaaayyysss ttthhhaaattt
aarree ssaaffee,, aapppprroopprriiaattee aanndd ccoosstt--eeffffeeccttiivvee
the effective management of waste can protect public and occupational health and reduce
both expenditure and environmental damage.
Audit Opinion and Key Findings
In 1998 NSW Health developed Waste Management Guidelines to promote continuous
improvement in waste management across the public health sector.
Systematic implementation of the Guidelines was impeded in 1999-2000 by resistance from the
waste industry and transport workers. Since then, NSW Health has not actively promoted waste
management in public hospitals.
As a consequence Area Health Services (AHSs) and hospitals have developed separate and
individual responses to waste management. This has resulted in:
inconsistent management of waste
inappropriate segregation of waste
additional costs of waste disposal.
Nevertheless, the four hospitals examined have reduced their output of waste and increased
the amount of material that is recycled.
The Mid Western AHS hospitals, Orange and Cowra, have implemented the Guidelines. Amongst
other improvements this has reduced their expenditure on waste.
In contrast, Central Sydney AHS hospitals have not implemented the Guidelines. Royal Prince
Alfred and Concord are spending more on waste. These hospitals are disposing of general waste
(as defined by the Guidelines and environmental regulation) into the more expensive clinical
waste stream.
Key Recommendations
It is recommended that NSW Health review its strategy and approach to improve waste
management across public sector hospitals.
NSW Health has accepted the audit’s recommendations that it:
clarify the status of the Guidelines, and in particular the definitions of clinical and general
waste
work with key players to improve understanding of how to manage risks associated with
different hospital wastes.
For further information call Mr Denis Streater, Director Performance Audit on 02 9285 0075 or
denis.streater@audit.nsw.gov.au. The report was issued on 10 December, 2002 and is available at
www.audit.nsw.gov.au.
24 The Audit Office of New South Wales 5ACCOUNTING UPDATE
EXPOSURE DRAFT (ED) 109 REQUEST FOR COMMENT ON INTERNATIONAL ACCOUNTING
STANDARDS BOARD (IASB) ED 3 “BUSINESS COMBINATIONS”; IASB ED OF PROPOSED
AMENDMENTS TO IAS 36 “IMPAIRMENT OF ASSETS” AND IAS 38 “INTANGIBLE ASSETS”;
AND AUSTRALIAN ACCOUNTING STANDARDS BOARD (AASB) ADDED MATERIAL
The key proposals within ED 109 that will have an effect on Australian financial reporting
include:
a non-amortisation/impairment-only approach for goodwill, and identifiable intangible
assets with indefinite useful lives
ccaasshh fflloowwss rreeqquuiirreedd ttoo bbee ddiissccoouunntteedd ttoo tthheeiirr pprreesseenntt vvaalluuee iinn ddeetteerrmmiinniinngg tthhee rreeccoovveerraabbllee
amount of assets
prohibition on recognising internally generated brands, mastheads, publishing titles,
customer lists and items similar in substance as assets; and
revaluations of intangible assets restricted to fair value determinations by reference to ann
active market.
ED 109 discusses issues relating to the transition for Australian reporting entities to the
proposed international standards. In addition, it explores specific issues affecting not-for-proffiitt
entities such as the measurement of impairment of assets that are not primarily dependent onn
net cash flows.
TToo eennssuurree tthhee vviieewwss ooff AAuussttrraalliiaann eennttiittiieess aarree ccoonnssiiddeerreedd iinn tthhee AAAASSBB’’ss ssuubbmmiissssiioonn ttoo tthhee IIAASSBB,,
tthhee AAAASSBB hhaass sseett aann eeaarrllyy ddaattee ooff 1100 MMaarrcchh 22000033,, ffoorr cclloossuurree ooff rreessppoonnsseess ttoo EEDD 110099.. IInn rreessppeecctt
to the IASB deadline, constituents have until 4 April 2003 to comment on the IASB’s ED 3 and tthhee
IASB’s ED of Proposed Amendments to IAS 36 and IAS 38.
AASB MEETING 4 DECEMBER 2003
Key proceedings of the meeting are outlined below.
review of AAS 29 “Financial Reporting by Government Departments” - the Board decided
that the application of the proposed Standard should be extended to include all entities
within the General Government Sector of a jurisdiction as it would lead to improved
consistency
Public Sector Related Party Disclosures - the Board decided to issue International Public
Sector Accounting Standard IPSAS 20 “Related Party Disclosures” as an ED that would apply
to all public sector entities other than government business enterprises
reciprocal and non-reciprocal transfers - the Board decided that the concepts of reciprocal
and non-reciprocal transfers are not necessary in determining how transfers should be
accounted for and so should be deleted from Australian Accounting Standards
review of AAS 27 “Financial Reporting by Local Governments” - the Board decided to amend
proposed requirements for disclosures about restricted assets
Post-Employment Benefits - the Board endorsed the IASB’s decision to recognise net interest
and surplus in a defined benefit plan as either an asset or liability subject to guidance.
4 The Audit Office of New South Wales 5FINANCIAL REPORTING COUNCIL BULLETIN 2002/5
The FRC has directed the AASB to urgently harmonise Government Finance Statistics (GFS) and
Generally Accepted Accounting Principles (GAAP) reporting. The objective should be to achieve
an Australian accounting standard for a single set of Government reports that are auditable
and comparable between jurisdictions. In addition the outcome statements should be directly
comparable with the relevant budget statements.
The strategic direction agreed by the FRC involves including within Australian GAAP applicable
to the public sector, the key features of the GFS framework. This will enable comparability
across the public sector within Australia, without sacrificing the high level of international
comparability that currently exists through GFS reporting.
AUDITING UPDATE
GUIDANCE NOTE ON AUDITOR INDEPENDENCE AND OTHER SERVICES
The objective of this Guidance Note is to provide examples of the application of the
Professional Statement F1 in relation to other services.
Whenever an auditor provides services other than the statutory financial statement audit to an
audit client, the significance of any threat is to be evaluated. In some cases it may be possible
to eliminate or reduce the threat by applying suitable safeguards. In other cases no safeguard is
available to reduce the threat to an acceptable level and either the audit or non-audit services
is to be refused.
Appendix 1 to this guide clarifies whether the service may be provided or is prohibited
or restricted. Prohibited services are those that must not be provided in order to ensure
compliance with the principles in Professional Statement F1. Restricted services are those
that may be provided in circumstances when there are appropriate safeguards as defined in
Professional Statement F1.
AUDITING AND ASSURANCE GUIDANCE STATEMENT AGS 1024 LIFE INSURANCE ACT
1995-AUDIT OBLIGATIONS
The AuASB developed this AGS to assist the auditor of a life insurance company in discharging
reporting obligations under the Life Insurance Act 1995 and not in relation to an audit under
the Corporations Act 2001. AUS 702 “The Audit Report on a General Purpose Financial Report”
pprroovviiddeess gguuiiddaannccee ffoorr tthhiiss llaatttteerr ttyyppee ooff aauuddiitt..
This AGS is not intended to limit or replace individual professional judgement and initiative or
to limit the application of Auditing and Assurance Standards on such engagements.
6 The Audit Office of New South Wales 7URGENT ISSUES GROUP UPDATE
meeting 10 December 2002
UIG ABSTRACT 39 EFFECT OF PROPOSED TAX CONSOLIDATION LEGISLATION ON
1DEFERRED TAX BALANCES
TThhee UUIIGG aammeennddeedd AAbbssttrraacctt 3399,, bbyy aaddddiinngg gguuiiddaannccee ffoorr eennttiittiieess tthhaatt aarree nnoott aappppllyyiinngg tthhee TTaaxx
Consolidation System prior to the reporting date.
The reissued Abstract applies to reporting periods ending on or after 13 August 2002.
2UIG ABSTRACT 51 RECOVERY OF UNFUNDED SUPERANNUATION OF UNIVERSITIES
TThhee UUIIGG rreeaacchheedd aa CCoonnsseennssuuss tthhaatt uunniivveerrssiittiieess wwiitthh uunnffuunnddeedd ssuuppeerraannnnuuaattiioonn oobblliiggaattiioonnss sshhoouulldd
recognise a receivable for the expected recovery, from anticipated government funding, for
superannuation payments.
The Consensus will apply to reporting periods ending on or after 10 December 2002. Transitionnaall
provisions require universities recognising a receivable for the first time to make the initial
aaddjjuussttmmeenntt tthhrroouugghh rreettaaiinneedd pprrooffiittss ((ssuurrpplluuss)) aass aatt tthhee bbeeggiinnnniinngg ooff tthhee rreeppoorrttiinngg ppeerriioodd..
3UIG ABSTRACT 52 INCOME TAX ACCOUNTING UNDER THE TAX CONSOLIDATION SYSTEM
The UIG reached a consensus on accounting for Australian income tax by the entities in a tax
consolidation group.
TThhee CCoonnsseennssuuss rreeqquuiirreess tthhee hheeaadd eennttiittyy ttoo rreeccooggnniissee bbootthh ccuurrrreenntt aanndd ddeeffeerrrreedd ttaaxx aammoouunnttss
in respect of its own transactions as well as those of its wholly owned subsidiaries in the tax-
consolidated group.
The Consensus will apply for reporting periods ending on or after 10 December 2002, where
the entity is applying the tax consolidation system. The net effect for an entity of applying tax
consolidation accounting for the first time is included in the entity’s net profit or loss/result.
4REVENUE RECOGNITION FOR DEVELOPMENT PROPERTIES
The UIG received presentations from representatives of Australand Holdings Ltd, Devine Ltd
and Thakral Holdings Ltd, all supporting the recognition of revenues based on the stage of
completion method.
The draft Abstract will be reconsidered at the next UIG meeting, to determine whether there is
sufficient support for the application of the stage of completion method.
IFRIC INTERPRETATIONS
UIG members discussed a draft Interpretation being developed by the International Financial
Reporting Interpretations Committee (IFRIC) of the IASB in relation to determining when a right
of use constitutes a lease.
The next UIG meeting is scheduled for Thursday, 6 February 2003, in Melbourne.
1 Awareness 2002/11 refers
2 Awareness 2002/11 and 2002/10 refers
3 Awareness 2002/11,2002/10 and 2002/08 refers
46 Awareness 2002/11, 2002/10 and 2002/08 refers The Audit Office of New South Wales 7MISCELLANEOUS PUBLICATIONS
PUBLIC AUDIT FORUM-THE WHOLE TRUTH: OR WHY ACCRUALS ACCOUNTING MEANS
BETTER MANAGEMENT
The purpose of this paper is to:
review the benefits of accruals accounting in the private sector and their application to the
public sector
consider the benefits available for the public sector, illustrated by a number of case studies
demonstrating the progress made to date in achieving them
identify the barriers that exist both within the system as a whole and within individual
organisations, and how they can be overcome; and
consider the role of the auditor.
The Public Audit Forum was established in the UK in 1998. It brings together the national audit
agencies on a purely advisory basis to provide a focus for developmental thinking about public
audit.
The paper can be accessed at www.public-audit-forum-gov-uk.
INDEPENDENT COMMISSION AGAINST CORRUPTION (ICAC) PUBLICATION
No excuse for misuse: Preventing the misuse of council resources. Guidelines 2
Fighting Fraud: Checklists
Fighting Fraud: Guidelines for State and Local Government
Taking the devil out of development: Recommendations for statutory reform. Position paper.
These reports are available at www.icac.nsw.gov.au.
AUSTRALIAN NATIONAL AUDIT OFFICE REPORTS:
Management of Trust Monies
The Australian Taxation Office’s Management of its Relationship with Tax Practitioners
Employee Entitlements Support Schemes
PPeerrffoorrmmaannccee IInnffoorrmmaattiioonn iinn tthhee AAuussttrraalliiaann HHeeaalltthh CCaarree AAggrreeeemmeennttss
Payments of Accounts and Goods and Services Tax Administration by Small Commonwealth
Organisations
Physical Security Arrangements in Commonwealth Agencies
EEnneerrggyy EEffffiicciieennccyy iinn CCoommmmoonnwweeaalltthh OOppeerraattiioonnss--FFoollllooww uupp AAuuddiitt
Audits of the Financial Statements of Commonwealth Entities for the Period Ended 30 June
2002
These report are available at www.anao.gov.au/.
8 The Audit Office of New South Wales 9QUEENSLAND AUDIT OFFICE REPORT:
Performance Management Systems Audit of the Regulatory Aspects of Ensuring a Clean
Environment Output of the Environmental Protection Agency
This report is available at www.qao.qld.gov.au.
TASMANIAN AUDIT OFFICE REPORTS:
Oral Health Services
Managing Community Service Orders
These reports are available at www.audit.tas.gov.au.
VICTORIAN AUDITOR-GENERAL’S OFFICE REPORTS:
Mental Health Services for People in Crisis
Management of Food Safety in Victoria
CCoommmmuunniittyy DDeennttaall HHeeaalltthh SSeerrvviicceess
Finances of the State of Victoria 2001-02
These reports are available at www.audit.vic.gov.au.
OFFICE OF THE AUDITOR-GENERAL FOR WESTERN AUSTRALIA REPORTS:
Management of Hospital Special Purpose Accounts
Second Public Sector Performance Report 2002-November 2002
These reports are available at www.audit.wa.gov.au.
8 The Audit Office of New South Wales 9LEGISLATIVE CHANGES UPDATE
CIVIL LIABILITY AMENDMENT (PERSONAL RESPONSIBILITY) ACT 2002
In recent claims, authorities have been found negligent for not warning the claimant of obvious
risks. This Act changes this by setting out a definition of obvious risks, by providing for waivers
for recreational activities, and by restating the test of negligence to emphasise the social
impact of findings of negligence.
Part 5 of the Act sets out the principles a court must consider when deciding if an authority has
a duty of care or has breached a duty of care. These are:
the functions required to be exercised by the authority are limited by the financial and
other resources that are reasonably available to the authority
the general allocation of those resources by the authority is not open to challenge
the functions required to be exercised by the authority are to be determined by reference
to the broad range of its activities
the authority may rely on evidence of its compliance with the general procedures and
applicable standards for the exercise of its functions as evidence of the proper exercise of
its functions in the matter to which the proceedings relate.
The Act covers claims for damages against public or other authorities based on civil liability in
tort, even if they are sought in an action for breach of contract or any other action. The harm
suffered can be personal injury or death, damage to property, or economic loss.
“Public or other authorities” under this Act mean
the Crown in right of NSW (including the Government, a Minister, or a statutory corporation
or other body representing the Crown.)
a Government department
a public health organisation
a local council
any public or local authority constituted by or under an Act
a person or body prescribed (or of a class prescribed) by the regulations as an authority
any person or body in respect of the exercise of public or other functions of a class
pprreessccrriibbeedd bbyy tthhee rreegguullaattiioonnss..
This means that not only traditional public authorities such as local governments will benefit
from the Act, but also potentially bodies to which public functions are outsourced.
The Act does not affect an authority’s liability for certain types of harm, such as dust diseases,
motor accidents, workers’ compensation, or harm done with the intention of causing injury
or death. Authorities therefore will have two different types of risks: those that arise from
oorrddiinnaarryy ffuunnccttiioonnss tthhaatt aannyyoonnee ccoouulldd ddoo ((ssuucchh aass eemmppllooyyiinngg aannootthheerr ppeerrssoonn)) aanndd tthhoossee ffuunnccttiioonnss
that only an authority can do (its public functions). An authority’s liability for claims arising
from performance of its public functions is the focus of this Act.
The Act was assented to on the 28 November 2002.
10 The Audit Office of New South Wales 11