NSW Audit Office - Awareness - Issue 2004 02 - March 2004

NSW Audit Office - Awareness - Issue 2004 02 - March 2004

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AWARENESSccounting and Auditing Developments Issue 2 MARCH 2004AUDIT OFFICE 1AUDIT OFFICE UPDATEUPDATEAUDITOR-GENERAL’S REPORT TO PARLIAMENT 2004, VOLUME 1 ACCOUNTING 2UPDATEThis report was released on the 25 February 2004. Significant issues in this volume include:URGENT ISSUES 2GROUP UPDATEReview of InterContinental Hotel Land SaleOn 24 September 2003, a media article alleged that the sale of government land AUDITING 3under the InterContinental Hotel in August 1999 had occurred at considerably UPDATE less than the market valuation. The article referred to a site valuation in 1991 by the government valuer of $130 million and the sale price in 1999 of $37 INTERNATIONAL 5million. UPDATEThe $130 million valuation was not a market valuation of the site and is not MISCELLANEOUS 6comparable to the sale price. The sale price is within an independent market PUBLICATIONSvalue range for the site at that time. The nature and execution of the sale transaction exposed the government to a TREASURY UPDATE 7range of risks. Given the circumstances, risk management processes could have PREMIER’S 7been improved. DEPARTMENT UPDATEAudit of Members’ Additional EntitlementsMembers substantially complied with the requirements of the Parliamentary AUDIT OFFICE 8Remuneration Tribunal’s (PRT) 2002 Determination. BETTER PRACTICEGUIDESMost Members receiving the Sydney Allowance on an annual basis are late in submitting supporting documentation.9INSTITUTE OF Some ...

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AWARENESSccounting and Auditing Developments Issue 2 MARCH 2004
AUDIT OFFICE 1AUDIT OFFICE UPDATE
UPDATE
AUDITOR-GENERAL’S REPORT TO PARLIAMENT 2004, VOLUME 1 ACCOUNTING 2
UPDATEThis report was released on the 25 February 2004. Significant issues in this
volume include:
URGENT ISSUES 2
GROUP UPDATEReview of InterContinental Hotel Land Sale
On 24 September 2003, a media article alleged that the sale of government land
AUDITING 3
under the InterContinental Hotel in August 1999 had occurred at considerably UPDATE
less than the market valuation. The article referred to a site valuation in 1991
by the government valuer of $130 million and the sale price in 1999 of $37 INTERNATIONAL 5
million. UPDATE
The $130 million valuation was not a market valuation of the site and is not
MISCELLANEOUS 6
comparable to the sale price. The sale price is within an independent market
PUBLICATIONS
value range for the site at that time.
The nature and execution of the sale transaction exposed the government to a TREASURY UPDATE 7
range of risks. Given the circumstances, risk management processes could have
PREMIER’S 7been improved.
DEPARTMENT
UPDATEAudit of Members’ Additional Entitlements
Members substantially complied with the requirements of the Parliamentary AUDIT OFFICE 8
Remuneration Tribunal’s (PRT) 2002 Determination. BETTER PRACTICE
GUIDESMost Members receiving the Sydney Allowance on an annual basis are
late in submitting supporting documentation.
9INSTITUTE OF
Some Members are late in submitting expenditure claims for a range of TECHNOLOGY
other allowances. REUNION DINNER
New South Wales Aboriginal Land Council
Our audit identified systemic and persistent problems in the Council’s financial
management. We have raised some of these issues for several years, and they
remain unresolved.
Awareness is published by The Audit Office of New South Wales, 234 Sussex Street,
Sydney NSW 2000, GPO Box 12, Sydney NSW 2001 Telephone 9285 0155 Fax 9285 0001
Email Terry.Hogan@audit.nsw.gov.au Website www.audit.nsw.gov.au
CONTENTSACCOUNTING UPDATE
ACCOUNTING STANDARD AASB 1046 DIRECTOR AND EXECUTIVE DISCLOSURES BY
DISCLOSING ENTITIES
The aim of this Standard is to improve the quality of disclosures relevant to individuals responsible
for the governance of listed entities.
The majority of the disclosures in this Standard were initially proposed in Exposure Draft ED 106
Part 1 Director and Executive Disclosures by Disclosing Entities (May 2002). Those proposals have
been amended to reflect the responses received and subsequent decisions of the International
Accounting Standards Board (IASB) addressing share-based payment.
Disclosing entities applying AASB 1046 will be exempt from complying with requirements on director
disclosures in AASB 1017 Related Party Disclosures. The requirements in AASB 1034 Financial
Report Presentation and Disclosures for the banded disclosures of executive remuneration will be
withdrawn. However, disclosing entities will still need to provide the other disclosures required by
AASB 1017. Corporate non-disclosing entities will remain subject to all requirements of AASB 1017,
including the disclosure requirements for directors. The issue of AASB 1046 does not change AAS 22
Related Party Disclosures, applicable to non-corporate, non-public sector reporting entities.
It is expected that reporting requirements for reporting entities other than disclosing entities will
be reviewed when considering the adoption of IAS 24 Related Party Disclosures.
This Standard is effective for years ending on or after 30 June 2004.
URGENT ISSUES GROUP UPDATE meeting 12 February 2004
ACCOUNTING FOR EARTHWORKS
UIG members discussed the current diversity in the accounting for earthworks, particularly in
relation to roads. In some jurisdictions, road earthworks are not depreciated at all, based on
assessment that the useful life is either infinite or indefinite, whereas in other jurisdictions
earthworks may be depreciated over standard periods ranging from 80 to 100 years.
Members considered the appropriate accounting for road earthworks if they had an indefinite life,
and took the view that an event may occur in relation to a specific road that would require the
entity to determine a useful life and to depreciate the earthworks over that period.
MMeemmbbeerrss aaggrreeeedd ttoo ccoonnssiiddeerr aa ddrraafftt AAbbssttrraacctt aatt tthhee nneexxtt mmeeeettiinngg aanndd ttoo oobbttaaiinn iinnffoorrmmaattiioonn
regarding the engineering assessment of the useful life of road earthworks.
COMMODITY POOLING ARRANGEMENTS
Members discussed the various arrangements for the sale of commodities, the distributions to
producers, and commission for pool managers. Members were advised that pool managers or related
ccoommppaanniieess mmaayy aallssoo pprroovviiddee aaddvvaanncceess aanndd ootthheerr sseerrvviicceess ttoo pprroodduucceerrss..
Members noted that the issues represented a specific application of general principles for
distinguishing transactions as a principal from those as an agent or as a bare trustee.
Members agreed to continue their discussion at a subsequent meeting.
2 3The Audit Office of New South Wales1ADOPTION OF SIC INTERPRETATIONS FOR 2005
The UIG Abstracts will adopt the AASB’s approach to editorial changes to the wording in the
International pronouncements, such as changing “financial statements” to “financial report” when
referring to both the statements and the accompanying notes, and prefixing additional Australian
paragraphs with “Aus”.
UUIIGG mmeemmbbeerrss ddiissccuusssseedd tthhee pprroocceessss ffoorr ccoonnvveerrssiioonn,, nnoottiinngg tthhaatt PPeennddiinngg UUIIGG AAbbssttrraaccttss ccaann bbee
prepared only once the related AASB Accounting Standard and revised International Interpretation
had been largely finalised. A Pending Abstract is subject to editorial changes and to approval by
the AASB.
INTRODUCTION OF THE EURO (SIC-7)-PENDING ABSTRACT AGREED
TThhee UUIIGG rreeaacchheedd aa ccoonnsseennssuuss ccoonncceerrnniinngg tthhee eeffffeecctt oonn ffoorreeiiggnn eexxcchhaannggee aaccccoouunnttiinngg ooff tthhee
introduction of the euro. Members noted that the issue remained relevant where entities had
operations in countries that in the future changed from their national currency to the euro.
UIG members agreed Pending Abstract 107 Introduction of the Euro, which will support the
requirements of the forthcoming Accounting Standard AASB 121 The Effects of Changes in Foreign
Exchange Rates.
The next meeting will be held in Melbourne on the 18 March 2004.
AUDITING UPDATE
AUDIT RISK STANDARDS
The Australian Auditing & Assurance Standards Board (AuASB) has released new and revised
Auditing and Assurance Standards (AUSs), which aim to improve audit quality by requiring auditors
to perform better audit risk assessments. The new requirements represent significant changes to
the standards governing audits of financial reports and provide the underpinnings for other AuASB
projects currently under development. The new and revised Australian AUSs are based on the
corresponding International Standards on Auditing (ISAs) issued by the International Federation of
Accountants (IFAC) late last year.
The newly issued AUSs are as follows:
AUS 202 “Objectives and General Principles Governing an Audit of a Financial Report” (revised)
AUS 402 “Understanding the Entity and Its Environment and Assessing the Risks
of Material Misstatements” (revised)
AUS 406 “The Auditor’s Procedures In Response to Assessed Risks” (new)
AUS 502 “Audit Evidence” (revised).
These AUSs should enable auditors to more clearly focus on areas where there is a greater risk
of potential material misstatement in a financial report. It is anticipated that implementation of
the newly issued standards will improve the linkage between assessed risks and audit procedures,
resulting in better quality audits.
1 Refer Awareness Issue 1 February 2004
2 3The Audit Office of New South Wales The Audit Office of New South WalesIn addition to the other new requirements, the auditor is now required to:
perform audit procedures to obtain a broader understanding of the entity and its
environment, including its internal control
make assessments of the risks of material misstatements in all cases and perform
more rigorous assessments
design and perform further audit procedures that are linked to the assessed risks.
The changes are effective for audits of financial reports for periods commencing on or
after 15 December 2004. This is in line with the operative date for the equivalent
International Standards on Auditing.
The following existing AUSs will continue to remain operative for financial reporting
periods commencing prior to 15 December 2004:
AUS 202 “Objectives and General Principles Governing an Audit of a Financial Report” (July 2002)
AUS 214 “Auditing in a CIS Environment” (October 1995)
AUS 304 “Knowledge of the Business” (July 2002)
AUS 402 “Risks Assessments and Internal Controls” (July 2002)
AUS 502 “Audit Evidence” (October 1995).
These AUSs will be withdrawn when the new and revised AUSs come into effect later this year.
Other existing AUSs address various specific aspects of an audit. Changes will be made to these AUSs
in early 2004 to ensure conformity and consistency with the new and revised standards. The AuASB
has decided to release the principal audit risk standards ahead of the conforming changes to other
AUSs, to provide auditors with as much time as possible to consider how to incorporate the required
changes into their audit methodologies and to explain the basis of audit risk assessment.
The AUSs are applicable to the audits of all entities. The AuASB recognises there may be specific
considerations relevant to the audit of smaller entities, and the revised AUS 402 includes such
considerations.
4 5The Audit Office of New South WalesINTERNATIONAL UPDATE
ASSURANCE FRAMEWORK AND INTERNATIONAL STANDARD ON ASSURANCE
ENGAGEMENTS (ISAE) 3000, ASSURANCE ENGAGEMENTS OTHER THAN AUDITS OR
REVIEWS OF HISTORICAL FINANCIAL INFORMATION
TThhee IInntteerrnnaattiioonnaall FFeeddeerraattiioonn ooff AAccccoouunnttaannttss’’ ((IIFFAACC’’ss)) IInntteerrnnaattiioonnaall AAuuddiittiinngg aanndd AAssssuurraannccee SSttaannddaarrddss
Board (IAASB) issued the above Framework and International Standard. The framework defines and
describes the elements and objectives of an assurance engagement, and identifies engagements to
which International Standards on Auditing (ISAs) and ISAEs apply. It provides a frame of reference
for practitioners and others involved with assurance engagements, such as those engaging a
practitioner and the intended users of an assurance report.
IISSAAEE 33000000 eessttaabblliisshheess bbaassiicc pprriinncciipplleess aanndd eesssseennttiiaall pprroocceedduurreess ffoorr aallll aassssuurraannccee eennggaaggeemmeennttss ootthheerr
than audits or reviews of historical financial information covered by ISAs. The standard is effective
for engagements where the assurance report is dated on or after January 1, 2005. Existing ISAE 100,
Assurance Engagements, will be withdrawn once ISAE 3000 is in effect.
While ISAE 3000 has been written for general application, the IAASB expects to develop further
IISSAAEEss ttoo pprroovviiddee ddeettaaiilleedd gguuiiddaannccee oonn ssppeecciiffiicc ssuubbjjeecctt mmaatttteerrss aanndd aatt ffuuttuurree mmeeeettiinnggss wwiillll ccoonnssiiddeerr
possible projects dealing with assurance on internal control and assurance on sustainability
reports.
As the provision of broader assurance services is an evolving field, the IAASB intends to keep the
practical implementation of the Framework and ISAE 3000 under review, and invites feedback from
practitioners and others on their experience with applying them.
ACCOUNTING FOR SOCIAL POLICIES OF GOVERNMENT AND REVENUE FROM NON-
EXCHANGE TRANSACTIONS (INCLUDING TAXES AND TRANSFERS)
The International Federation of Accountant’s (IFAC) Public Sector Committee (PSC) has issued
Invitations to Comment (ITCs) on the above matters.
The ITC on Accounting for Social Policies of Government focuses on government obligations to
account for the social benefits they provide. It addresses the financial reporting consequences of a
government’s actions in providing a wide range of social benefits to individuals and organisations and
their undertakings to provide benefits in the future. This includes goods and/or services provided
for collective and individual consumption and cash transfers to individuals, such as pensions and
unemployment and similar benefits. It also considers the financial reporting consequences of
undertakings governments may make to provide benefits in the future.
The ITC Revenue from Non-Exchange Transactions deals with key public sector issues, such as the
financial reporting for tax revenues and transfers, including grants, donations, appropriations,
and gifts. The ITC proposes adoption of an assets and liabilities approach to recognition and
measurement of revenue from non-exchange transactions.
Comments are requested by June 30, 2004.
4 5The Audit Office of New South Wales The Audit Office of New South WalesINTERNATIONAL ACCOUNTING STANDARDS BOARD MEETING ON 17-19 DECEMBER
2003
Matters discussed at the December meeting included:
Business combinations
Consolidation and SPEs
Disposal of non-current assets and presentation of discontinued operations
Exploration for and evaluation of mineral resources
Financial instruments-hedging
IFRIC issues
Insurance contracts
Intangible assets and IFRS 1
Post-employee benefits
Revenue recognition
Share-based payment
Financial reporting by small and medium-sized entities.
MISCELLANEOUS PUBLICATIONS
Australian National Audit Office Reports:
The Australian Taxation Office’s Management of Aggressive Tax Planning
Agency Management of Special Accounts
Intellectual Property Policies and Practices in Commonwealth Agencies
Supporting Managers-Financial Management in the Health Industry Commission
Management of Internet Portals at the Department of Family and Community Services.
These reports are available at www.anao.gov.au.
Tasmanian Audit Office Reports:
SSttaaffff SSeelleeccttiioonn iinn GGoovveerrnnmmeenntt AAggeenncciieess
Police Response Times.
These reports are available at www.audit.tas.gov.au
6 7The Audit Office of New South WalesTREASURY UPDATE
FINANCIAL REPORTING CODE FOR BUDGET DEPENDENT GENERAL GOVERNMENT
SECTOR AGENCIES
NSW Treasury has advised Government Agencies that the Financial Reporting Code for Budget
DDeeppeennddeenntt GGeenneerraall GGoovveerrnnmmeenntt SSeeccttoorr AAggeenncciieess ((TTPPPP 0033--0033)) wwiillll nnoott bbee rreeiissssuueedd ffoorr 3300 JJuunnee 22000044..
This is because no new Accounting Standards impacting on the Code for 30 June 2004 have been
issued during the year. Consequently Government Agencies should continue to follow Treasury Policy
Paper TPP 03-03 for the year ended 30 June 2004.
However, subsequent to this advice, if any new requirements are issued which impact on 30 June
22000044,, ((ee..gg.. EEDD 112299 DDiisscclloossiinngg tthhee IImmppaacctt ooff AAddooppttiinngg AAuussttrraalliiaann EEqquuiivvaalleennttss ttoo IIAASSBB SSttaannddaarrddss))
sseeppaarraattee gguuiiddaannccee wwiillll bbee pprroovviiddeedd ttoo GGoovveerrnnmmeenntt AAggeenncciieess..
PREMIER’S DEPARTMENT UPDATE
PREMIER’S DEPARTMENT CIRCULARS
Number Issued
2004-03 Access to and Use of Spatial Data January 2004
2004-04 HR Expert System no date given
PREMIER’S MEMORANDUM
Number Issued
2004-01 Year of the Built Environment 2004 January 2004
6 7The Audit Office of New South Wales The Audit Office of New South WalesAUDIT OFFICE BETTER PRACTICE GUIDES
The Audit Office produces guides to better practice to assist agencies. The following is a list of
those guides and the dates that they were published. All these guides are available on the Audit
Office website at www.audit.nsw.gov.au/guides-bp/bpgilest.htm.
Title of Guide Date issued
Management of Intellectual Property October 2001
e-ready, e-steady, e-government: e-government readiness
assessment guide September 2001
Monitoring and reporting on performance audit recommendations June 2001
Internal Financial Reporting June 2001
Reporting Performance: a guide to preparing performance
information for annual reports November 2000
Contracting Out Review Guide June 1999
Public Sector Corporate Governance - ready reckoner April 1999
Methodology for the Review of Residential Services for People
with Disabilities June 1998
On Board: Guide to better practice for public sector governing and
advisory boards April 1998
The Corporate Credit Card: guidelines for the internal control January 1997
Ambulance Service of New South Wales: debtors administration September 1996
Ethnic Affairs Commission: administration of grants December 1995
Joint Operations in the Education Sector: a review of establishment,
management and effectiveness issues September 1995
Fraud Control: developing an effective strategy
Volume 1: conceptual framework
Volume 2: strategy
Volume 3: diagnostics March 1994
Volume 4: Fraud Control Self Audit Kit March 1998
8 9The Audit Office of New South WalesTHE NEW SOUTH WALES INSTITUTE OF TECHNOLOGY
BRICKFIELD HILL ALUMNI REUNION DINNER
On Saturday 20 March 2004, from 7 pm to 11 pm, UTS will be holding a reunion for graduates from
the Brickfield Hill campus at the old Anthony Hordern’s Building. This era spanned 1967-1984.
TToo rreecceeiivvee aann iinnvviittaattiioonn pplleeaassee ccoonnttaacctt tthhee UUTTSS GGrraadduuaattee CCoonnnneeccttiioonnss ooffffiiccee RReeuunniioonn CCoooorrddiinnaattoorr
at Reunion Coordinator Graduate Connections Unit University of Technology, Sydney Ph: 02 9514
8036 Fax: 02 9514 8033 Post: PO Box 123 Broadway NSW 2007 Email: izanda.ford@uts.edu.au Web:
www.graduateconnections.uts.edu.au
Stephen Topple School of Accounting
8 9The Audit Office of New South Wales The Audit Office of New South WalesCOPIES OF REPORTS AND PUBLICATIONS
All performance audit reports are available on The Audit Offi ce web site at www.audit.nsw.gov.au/repperf.htm
and can be purchased from the NSW Government In for ma tion Service (tel 9743 7200).
Copies of Auditing Standards, Auditing Guidance Statements, Audit Guides, Exposure Drafts,
and other guid ance, including Legislative Policy Discussion Papers may now be obtained from:
The Institute of Chartered Accountants in Australia CA Retail/Chartered Bookshop
Phone:1800 659 397 - Fax: 1800 676 732
Email: bookshop@icaa.org.au - Postal Address: GPO Box 3921, Sydney. NSW.2001
Address: Level 11, 37 York Street, Sydney. NSW. 2000; or
CPA Australia
Level 28, 385 Bourke Street Melbourne, Victoria, 3000 - Telephone (03) 9886 5623
Publications of the Australian Accounting Standards Board (AASB), including Ac count ing Standards
and Accounting Exposure Drafts are available direct from the Australian Accounting Standards Board.
PO Box 204 Collins Street West, Victoria, 8007. Telephone (03) 9617 7600 - Fax (03) 9617 7608
Email: publications@aasb.com.au. Or by visting the AASB website: www.aasb.com.au.
Copies of International Federation of Accountants (IFAC) publications may be obtained di rect from IFAC, 535
Fifth Avenue, 26th Floor, New York, NY 10017, USA (tel 212/286.9344 or fax 212/286.9570 or by visiting the IFAC
web site at www.ifac.org.
Copies of International Accounting Standards, Exposure Drafts and International Ac count ing
Standards Committee (IASC) publications may be obtained direct from the IASC, 166 Fleet Street, Lon don EC4A
2DY, United Kingdom (tel +44 (020) 7427-5927 or fax +44 (020) 7353-0562 or email iasc@iasc.org.uk or Internet
www.iasc.org.uk).
Copies of NSW Government legislation including changes to legislation can be pur chased from the NSW
Government Information Service. The legislation is also on the Internet at www.austlii.edu.au/.
Treasury publications (including Circulars) may be viewed by visiting the NSW Treasury web site at
www.treasury.nsw.gov.au.
Copies of Premier’s Department Circulars and Premier’s Memoranda may be viewed by visiting the Pre mier’s
Department website at http://www.premiers.nsw.gov.au/.
The AWARENESS Newsletter is of a general nature only and is not intended to be a substitute for or relied upon
as specifi c professional advice. No responsibility for loss occasioned to any person acting on or refraining from
action as a result of any material in the publication can be accepted.