NSW Audit Office - Awareness - Issue 2005 07 - August 2005

NSW Audit Office - Awareness - Issue 2005 07 - August 2005

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AWARENESSccounting and Auditing Developments ISSUE VII - AUGUST 2005AUDIT OFFICE 1 AUDIT OFFICE UPDATEUPDATEFollow-up Performance Audit Report ACCOUNTING 5 UPDATEState Rescue Board of NSW: AUDITING 14Coordination of Rescue Services UPDATEINTERNATIONAL 15BackgroundUPDATENearly 11,000 rescues are carried out each year in New South Wales, the majority involving motor vehicle accidents. MISCELLANEOUS 16PUBLICATIONSIn metropolitan areas, we have three emergency services providing general land rescue: NSW Police, the Ambulance Service and the NSW LEGISLATIVE 17 Fire Brigades. The two volunteer services, the State Emergency Service CHANGES UPDATEand the Volunteer Rescue Association, generally cover the remainder of PREMIER’S 18the state.DEPARTMENTRescue arrangements in NSW are different to all other mainland UPDATEstates. Elsewhere, the trend in metropolitan areas has been towards consolidation with only one provider of rescue services. AUDIT OFFICE 19BETTER PRACTICEThe State Rescue Board was set up in 1989. Its primary role is to ensure GUIDESefficient and effective rescue services are maintained throughout the state. In this audit, we examined how well placed the Board was to provide assurance to Parliament and the community that the organisation of rescue services in NSW best serves those in need of rescuing.Audit OpinionThe number of agencies and volunteer organisations involved in rescue presents challenges to how best to coordinate ...

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AWARENESSccounting and Auditing Developments ISSUE VII - AUGUST 2005
AUDIT OFFICE 1 AUDIT OFFICE UPDATE
UPDATE
Follow-up Performance Audit Report ACCOUNTING 5
UPDATE
State Rescue Board of NSW:
AUDITING 14
Coordination of Rescue Services UPDATE
INTERNATIONAL 15Background
UPDATE
Nearly 11,000 rescues are carried out each year in New South Wales, the
majority involving motor vehicle accidents. MISCELLANEOUS 16
PUBLICATIONSIn metropolitan areas, we have three emergency services providing
general land rescue: NSW Police, the Ambulance Service and the NSW LEGISLATIVE 17
Fire Brigades. The two volunteer services, the State Emergency Service CHANGES UPDATE
and the Volunteer Rescue Association, generally cover the remainder of
PREMIER’S 18the state.
DEPARTMENT
Rescue arrangements in NSW are different to all other mainland UPDATE
states. Elsewhere, the trend in metropolitan areas has been towards
consolidation with only one provider of rescue services. AUDIT OFFICE 19
BETTER PRACTICE
The State Rescue Board was set up in 1989. Its primary role is to ensure GUIDES
efficient and effective rescue services are maintained throughout the
state.
In this audit, we examined how well placed the Board was to provide
assurance to Parliament and the community that the organisation of
rescue services in NSW best serves those in need of rescuing.
Audit Opinion
The number of agencies and volunteer organisations involved in rescue
presents challenges to how best to coordinate services. To address this
issue, the Government established the Board. This was an effective
initiative in our view.
The Board has established policies and procedures that:
Effectively coordinate single incident rescue
Establish minimum requirements for equipment and training
Remove confusion over areas of responsibility.

Awareness is published by The Audit Office of New South Wales, Level 15, 1 Margaret Street
Sydney NSW 2000, GPO Box 12, Sydney NSW 2001 Telephone 9275 7100 Fax 9275 7200
Email Terry.Hogan@audit.nsw.gov.au Website www.audit.nsw.gov.au
CONTENTSThis was not always the case, and the Board has been successful in facilitating
change. The next challenge that we consider the Board needs to address is: are
rescue services arranged so as to perform effectively and in the most economical
way?
It may be that they are. But at present the Board is not in a position to be confident
about this, as it is not provided with enough detailed information on how best to
arrange rescue and on rescue performance.
Comparisons with other jurisdictions suggest that whilst current arrangements
operate adequately, other ways of organising rescue are worth careful
examination.
The Board has recognised the need for better information on performance and has
recently introduced minimum reporting standards for road rescue. We agree with
the Board’s approach and would like to see this extended to include all rescue types
and reporting against service standards.
We also believe that the Board should be able to assure the Government that
arrangements for rescue in NSW are optimal.
Although several reviews over a number of years have recommended reduction in
the number of rescue providers in metropolitan areas, a lack of information has
meant that the Board has been unable to settle the issue. This should be done.
Summary of Recommendations
We made a series of recommendations to improve rescue services:
Develop an overarching strategy that recommends to Government who the
providers of rescue should be
Introduce response time standards
Collect more data on rescue performance and cost
Introduce additional practices to check rescue unit compliance with accreditation
standards.
Further Information
Jane Tebbatt, Director, Performance Audit on 9275 7274 or jane.tebbatt@audit.nsw.gov.au.
The full report is available from our Internet site:
http://www.audit.nsw.gov.au/perfaud-rep/Year-2005-2006/Rescue-July2005/rescue-contents.html
The Audit Office of New South WalesPerformance Audit Report
In-year Monitoring of the State Budget
Background
Variations between an agency’s budget and the actual outcome are inevitable
and may arise from a number of sources including changes in government policy,
unexpected service delivery pressures, industrial determinations and accrual
accounting adjustments. Some of these variations may require supplementary
funding.
Effective budget monitoring requires variations to be identified and acted on
quickly. This in turn requires effective communication between the agency and
Treasury. If not, there is potential for significant impact on the State’s budget
result.
Budget monitoring practices were reviewed in the budget dependent agencies
NSW Health, Department of Education and Training, NSW Police, Roads and Traffic
Authority and Department of Ageing, Disability and Home Care, as well as NSW
Treasury. The audit focused on 2002-03 and 2003-04.
Audit Opinion
Budget monitoring has been improving; including increased focus on accrual based
financial information by Treasury and agencies. It is not yet as effective as it
needs to be, but it is reasonable. Some aspects are quite good, particularly those
monitoring the level of funding appropriated by Parliament to agencies. This is a
legacy of the traditional focus on cash accounting. The move to accrual accounting,
and a timely focus on overall expenditure and revenues is not yet fully embraced by
NSW budget dependent agencies nor in the Parliamentary budget processes.
This is reflected in the continuing emphasis on cash in the appropriation process
and the large adjustments to agency accrual-based results being identified only
close to the end of the financial year.
On the positive side, budget monitoring of appropriation funding in the five agencies
and Treasury was timely. In particular:
The number of significant funding variations was small, and
Most significant agency funding variations were for increases outside agencies’
control.
We also found budget monitoring practices supported by:
Well established processes, including extensive monthly analysis and reporting
of budget trends, and
Businesslike relationships between agencies and Treasury.
The Audit Office of New South WalesThe main problems we identified were:
Large adjustments and accelerated spending patterns by agencies at year-end
Treasury-agency relationships, while businesslike, are not sharing information in
the most effective ways
A focus in Treasury and agencies on year-end budget result and limited focus on
monthly targets, and
Parliamentary budget controls still focusing largely on a cash basis, despite the
adoption of accrual accounting a decade ago.
Summary of Recommendations
Net cost of services, rather than the cash based Consolidated Fund appropriations,
should become the prime focus of Parliamentary control and each agency’s net cost
of services should be set by Parliament as part of the Budget approval process.
Treasury should modify monthly returns from the largest agencies to have a greater
focus on monthly expenditure and revenue patterns, as well as incorporating capital
expenditure against monthly budgeted expenditure patterns.
Treasury should consider improving information flow with agencies through a charter
that establishes roles and responsibilities between Treasury analysts and agencies
and by developing its Financial Information System to provide for benchmarking of
agencies’ budget performance and practices.
More definitive measures of budget performance should be introduced into CEO
performance agreements.
Further Information
Sean Crumlin, Director Performance Audit, on (02) 9275 7286 or sean.crumlin@audit.nsw.gov.au.
The full report is available from our Internet site
http://www.audit.nsw.gov.au/perfaud-rep/Year-2005-2006/StateBudget-July2005/budget-contents.html
The Audit Office of New South WalesACCOUNTING UPDATE
Australian Accounting Standards Board (AASB)
Meeting 6-7 July 00
The AASB discussed the following matters:
Strategy and Work Program
The Board agreed an approach to a review of the activities and role of the UIG. The
Board discussed proposals for working more closely with the New Zealand Financial
Reporting Standards Board. It was agreed to trial project sharing and that joint
meetings from time to time were desirable.
UIG Report
The Board approved UIG Interpretation 1001 ‘Consolidated Financial Reports in
relation to Pre-Date-of-Transition Dual Listed Company Arrangements’.
Consolidations
The Board agreed to issue an IASB Exposure Draft that proposes amendments to IAS
27 ‘Consolidated and Separate Financial Statements’ to reflect only those changes
arising from the IASB’s decisions relating to Phase 2 of its Business Combinations
project. The ED will include an AASB preface highlighting certain proposals.
Comments are called for by the end of September 2005.
Financial Instruments
If IFRS 7 ‘Financial Instruments: Disclosures’ and the Amendments to IAS 1
‘Presentation of Financial Statements: Capital Disclosures are issued before the
September AASB meeting, the Board will consider the draft Australian equivalent
Standards (AASB 7 ‘Financial Instruments: Disclosures’ and Amendments to AASB
101 ‘Presentation of Financial Statements: Capital Disclosures’) for making out of
session.
Director and Executive Disclosures by Disclosing Entities and Related Party
Disclosures
The AASB considered a draft for an Exposure Draft containing the revised director
and executive disclosures from AASB 1046 ‘Director and Executive Disclosures
by Disclosing Entities’ as additional requirements to AASB 124 ‘Related Party
Disclosures’. A revised draft ED will be considered by the Board at, or before, its
September meeting.
The Audit Office of New South WalesFinancial Guarantees and Credit Insurance
The AASB decided to amend AASB 4 ‘Insurance Contracts’ and AASB 139 ‘Financial
Instruments: Recognition and Measurement’ in response to the IASB agreeing to
grandfather the treatment of financial guarantees. New entrant to the credit
insurance market will not be able to choose to treat financial guarantees as
insurance contracts.
Revenue Recognition
The Board considered draft guidance to accompany AASB 1004 ‘Contributions’
explaining some of the circumstances when contributions should be initially
recognised as a liability or as a revenue and decided to issue the guidance as an ED
in due course.
Self-Insured Workers’ Compensation
The Board considered which of AASB 119 ‘Employee Benefits’, AASB 137 ‘Provisions,
Contingent Liabilities and Contingent Assets’, or AASB 4 ‘Insurance Contracts’ was
the appropriate authority when dealing with liabilities for workers’ compensation.
Due to State regulation, the appropriate accounting standard may vary depending
upon the regulations and the benefits provided. The Board will further consider
the issue.
Memorandum of Understanding on Standard Setting Role
The Board considered its draft submission to the IASB on the Draft Memorandum of
Understanding on the role of Accounting Standard Setters and their relationships
with the IASB. The Board supported most of the Memorandum’s proposals,
highlighted the issue of interpretations of IFRS and noted that the final product
might be better drafted as a statement of intent.
Small and Medium –Sized Entities
The Board discussed the application of Accounting Standards to small and medium-
sized entities that make financial reports publicly available (either by lodgement or
otherwise) and will consider an issues paper at a future meeting.
Sources: AASB Action Alert No 86 (July 2005), ICAA Accounting and Auditing News
Today (ANT) Edition 26, 8 July 2005
6 The Audit Office of New South WalesExposure Drafts Currently Open for Comment
Issued in July 2005:
ED 139 Proposed Amendments to AASB 3 ‘Business Combinations’, comments due
23 September 2005
ED 140 Proposed Amendments to AASB 137 ‘Provisions, Contingent Liabilities
and Contingent Assets’ and AASB 119 ‘Employee Benefits’, comments due 23
September 2005
ED 141 Proposed Amendments to AASB 127 ‘Consolidated and Separate Financial
Statements’, comments due 23 September 2005
ED 142 ‘Financial Reporting of General Government Sectors by Government’,
comments due 21 October 2005.
ED 19 Proposed Amendments to AASB ‘Business Combinations’
ED 139 is based upon the ‘Exposure Draft of Proposed Amendments to IAS 3 ‘Business
Combinations’ that was issued by the IASB in June 2005. The proposals seek retain
the fundamental requirements of the previous Standard and aim to improve
financial reporting by requiring that the acquisition method be applied to more
business combinations.
ED 10 Proposed Amendments to AASB 17 ‘Provisions,
Contingent Liabilities and Contingent Assets’ and AASB 119
‘Employee Benefits’
ED 140 is based upon the ‘Exposure Draft of Proposed Amendments to IAS 37
‘Provisions, Contingent Liabilities and Contingent Assets and IAS 19 Employee
Entitlements’ that was issued by the IASB in June 2005.
Under the proposals, entities would be required to recognise in their financial
statements, obligations that satisfy the definition of a liability in the IASB’s
Framework, unless they cannot be measured reliably. This means that some
contingent liabilities, which were previously only disclosed in the notes to the
financial statements, will have to be included in the balance sheet under the new
proposals.
Source: ICAA Accounting and Auditing News Today (ANT) Edition 26, 8 July 2005
ED 11 Proposed Amendments to AASB 17 ‘Consolidated and
Separate Financial Statements’
ED 141 is based upon the ‘Exposure Draft of Proposed Amendments to IAS 27
Consolidated and Separate Financial Statements’ that was issued by the IASB in
June 2005. The IASB’s Exposure Draft proposes limited amendments to IAS 27
arising from the Board’s project on business combinations. The changes proposed
to IAS 27 are concerned primarily with accounting for increases and decreases in
7The Audit Office of New South Walesownership interests in subsidiaries after control is obtained and accounting for the
loss of control of subsidiaries.
ED 1 ‘Financial Reporting of General Government Sectors by
Government’
At its meeting in July, the AASB reviewed Draft Exposure Draft 14X ‘Financial
Reporting of General Government Sectors by Governments’ and approved it for
issue, subject to some minor amendments.
ED 142 aims to achieve a single set of reports for the General Government Sector
(GGS) that are auditable, comparable between jurisdictions, and in which the
outcome statements are directly comparable with the relevant budget statements.
If adopted, the proposals will significantly affect financial reporting by the
Australian government and each of the State and Territory governments.
The ED includes the following key proposals:
GGS to prepare a general purpose financial report adopting a ‘partial-
consolidation’ basis
GGS’s GAAP comprehensive result is to be reported in a single operating
statement
GAAP recognition and measurement requirements as reflected in Australian
Accounting Standards are to be applied in the determination of GAAP amounts
Where GAAP allows for optional treatments, only those aligned with the
Government Finance Statistics Manual (GFSM) 2001 published by the International
Monetary Fund (IMF) are to be applied
Selected GFS information is to be presented on the face of the financial
statements and in the notes, prepared in accordance with GFSM 2001
Convergence differences between GAAP and GFS are to be disclosed.
The Board noted that, to the extent that the Exposure Draft addresses topics
that are not directly related to GAAP/GFS convergence and that are applicable
to a broader range of entities than just GGSs, such as budget reporting, those
requirements may be located in another standard in due course.
Source: ICAA Accounting and Auditing News Today (ANT) Edition 29, 29 July.
Withdrawal of Accounting Standards Applicable to Government
The AASB agreed to propose that AAS 27 ‘Financial Reporting by Local Governments’,
AAS 29 ‘Financial Reporting by Government Departments’ and AAS 31 ‘Financial
Reporting by Governments’ be withdrawn and noted that all of the generically
applicable standards would apply to the various levels of the public sector in their
own right.
The Audit Office of New South WalesNew Standards to Address Information Pertinent to Public Sector
The Board concluded that generally applicable standards do not adequately address
disclosures of certain information pertinent to not-for-profit public sector entities
such as budget reporting, segment reporting, performance indicators, restricted
assets and administered items. Accordingly, because those issues are applicable
across a range of types of not-for-profit public sector entities, it will develop
a number of single topic standards and/or a multi-topic standard with common
requirements applicable to a range of entities.
In relation to particular disclosures, the AASB decided the following should be
proposed:
In respect of budget reporting, in principle, the proposals in the Exposure Draft
on ‘Financial Reporting of General Government Sectors by Governments (GGS
ED) would apply to all not-for-profit public sector entities
In principle, to apply the proposals for disaggregated information in the GGS ED
to all not-for-profit public sector entities
To draw a distinction between items that are administered and those that are
held solely on a custodial basis
To adopt, for the purpose of preparing financial information about administered
items, the principles used in the whole of government financial statements of
which the administering entity is a part
To illustrate an acceptable format for presenting information about administered
items.
The ED may need to have regard to the existing transitional provisions on land under
roads. The Board also discussed the possible implications of segment reporting
provisions.
Implications of Withdrawal of Existing Standards
The AASB noted that its decision to withdraw relevant standards would have
implications for particular recognition and measurement issues faced by not-for-
profit public sector entities, including:
The restructure of local governments or government departments, which would
be subject to the principles in AASB 1004 ‘Contributions’ or AASB 3 ‘Business
Combinations’ as appropriate. The Board will consider in the future the need
for additional guidance in either or both of these Standards to address local
government/government department specific issues
The treatment of assets discovered that had inadvertently previously been
unrecognised, which would be subject to the generic correction of errors
requirements in AASB 108 ‘Accounting Policies, Changes in Accounting Estimates
and Errors’.
9The Audit Office of New South WalesThe ED proposing their withdrawal will seek comment as to whether the application
date of the withdrawal would be for the year ended 30 June 2006 or 30 June 2007.
Source: AASB Action Alert No 86 (July 2005).
Property, Plant and Equipment (Land Under Roads)
At its meeting in July, the AASB considered issues relating to land under roads and
a draft Exposure Draft ‘Proposed Amendments to AASB 116 ‘Property Plant and
Equipment’ Relating to Land Under Roads’ and agreed to consider a draft Standard
at its September meeting.
In respect of the draft ED, the AASB has re-examined its earlier tentative decisions
to require the land under roads of a not-for-profit entity to be recognised at the
cost of acquisition, but only where the cost is measurable reliably, and to prohibit
the revaluation of land under roads.
The Board noted that, in contrast, the current AASB 116 ‘Property, Plant and
equipment’ requires a not-for-profit entity:
Acquiring an asset at no cost, or for a nominal cost, to recognise the asset at
fair value as at the date of acquisition, and
To choose either the cost model or the revaluation model in measuring assets
subsequent to acquisition, and that the revaluation model is only available
when fair value can be measured reliably.
Accordingly, the draft standard to be considered by the Board at its September
meeting will:
Highlight that the current AASB 116 requirements will apply when the transitional
provisions for the recognition of land under roads in AASB 1045 ‘Land Under
Roads’ Amendments to AAS 27A, AAS 29A and AAS 31A’ lapse, and
Include transitional provisions replicating the exemptions in AASB 1 ‘First time
Adoption of AEIFRS’ for use when a not-for-profit entity recognises and measures
land under roads at or before the expiry of AASB 1045, but not as part of its first
time adoption of AEIFRS.
Source: AASB Action Alert No 86 (July 2005)
Urgent Issues Group Meeting 1 July 00
The UIG discussed the following matters:
Inventory Rebates and Settlement Discounts
The UIG reconsidered its Draft Interpretation 1002 ‘Inventory Rebates and
Settlement Discounts’ after the AASB did not approve the version agreed by the
UIG at its last meeting. The revised draft Interpretation clarifies that it applies to
inventory rebates however described and to all settlement discounts that relate to
the purchase of inventory.
10 The Audit Office of New South Wales