2017-18

FINANCIAL AUDIT SEMINAR

 WELCOME

Dr Maxine Cooper, Auditor-General

Financial Audit Season Again!

Source: all-free-download.com
 Address by the Deputy Chair,
Standing Committee on Public Accounts

Mr Michael Pettersson, MLA

 Results of the 2016-17 Audit Program

Mr David O’Toole
Senior Audit Manager, Financial Audits
 2016-17 Financial Audits – Overview
(Report No. 10/2017)
Summary results of the:
• audits of 55 financial statements; and
• reviews of 25 statements of performance.

Overall assessments of the quality and

timeliness of reporting.
 Quality and timeliness of financial statements
 No qualified audit reports in 2016-17 or in 2015-16.
Quality and timeliness of statements of performance

No qualified reports of factual findings in 2016-17 or in 2015-16

 Accuracy and timeliness of annual reports
 Most reporting agencies included accurate versions of the
financial statements and statement of performance in their
annual reports.

 Six agencies corrected errors in their annual report after

publishing (mainly omitted information)
 Three agencies placed their annual reports on websites a
day after the due date
 2016-17 Financial Audits – Financial Results
and Audit Findings (Report no. 11/2017)

Report has a discussion of:

• the Territory’s financial results;
• agencies’ performance in resolving audit findings;
• financial results and audit findings of selected reporting
agencies.
Recommendations are made in audit management reports
to ACT Government agencies.
Audit findings
 Audit findings
Internal Control Weaknesses
• reviews of payroll reports
• satisfactory receipt of goods and services on invoices
• authorisation and documentation of travel and hospitality
expenses

Reporting
• variance explanations unclear and not informative
• incorrect accounting treatments
• accountability indicators not properly explained in budget
or statement of performance
 2016-17 Financial Audits – Computer
Information Systems (Report no. 4/2018)

• Results of reviews of general controls over computer

information systems and controls over specific major
applications.
• Computer information controls were overall satisfactory,
however, some controls require strengthening.
 Weaknesses in CIS controls

General controls
• weaknesses in governance arrangements
• management of the security of information
• business continuity and disaster recovery arrangements

Controls over specific major applications

• management of information security
• business continuity and disaster recovery arrangements
• change management process
 Questions?
More information on the results of the 2016-17 financial audit
program can be found in the following public reports:

1. 2016-17 Financial Audits – Overview (Report no. 10/2017)

2. 2016-17 Financial Audits – Financial Results and Audit Findings

(Report no. 11/2017)

3. 2016-17 Financial Audits – Computer Information Systems (Report

no. 4/2018)

Website link
http://www.audit.act.gov.au/reports.html
 Key messages for 2017-18 reporting

Mr Saman Mahaarachchi
Senior Audit Manager, Financial Audits
 Key Messages
• Related party disclosures

• Certification of statements

• Audit Management Reports

• Standards issued not yet effective

• Decluttering/Materiality

• Facilitating an efficient audit process

 Related Party Disclosures
• Who are Key Management Personnel ?

• Declarations
• not received / completed
• Acting arrangements
• if significant related party transactions
were entered into during the acting
period
 Certification of Statements
• FMA requirements

• Draft statements with covering letter

• Audit close reports – issued close to the issue of

audit reports

• Certification process – avoid unnecessary delays

 Audit Management Reports
• Interim and final management reports

• Exit meeting - matters to be reported

• Management comments to be provided in a

timely manner

• Auditing standard requirements to close audit

files within 60 days of audit reports
 Standards Issued Not Yet Effective
• Identify standards applicable to your agency

• Assess whether there may be a material financial

and disclosure impact

• Document the assessment - Prepare work papers

• Disclose details of the standards / interpretations

which apply and the impact
 Standards Issued Not Yet Effective
• e.g. AASB 15 : ‘Revenue from Contracts with
Customers’ (1 Jan 2019 for not-for-profit entities).
...currently assessing the impact of this standard …
Document the assessment undertaken todate

…. at this stage ….is not able to estimate the impact…

and will make a more detailed assessment …
Document the reasons for not being able to assess the
impact
• Assessment not made or not documented may
result in a potential audit finding
 Decluttering/Materiality
• Agencies to check whether material information are
obscured with immaterial information

• Agencies should reassess whether immaterial information

are needed to help users understand the financial results

• Further emphasis on decluttering and materiality is in

Model FS
Facilitating an Efficient Audit Process
• Communication of issues
• Key audit contacts listed in audit strategy
• Timely feedback can improve the audit process
• Periodic meetings/catch-up
• Key agency contacts for audit
• Accounting position papers
• for significant/material arrangements and transactions
• seek expert advice early if needed and issue written
instructions
• Shell statements should include all known significant
changes
 Facilitating an Efficient Audit Process
• Audit workpapers
• Should be available to the audit team at the time
FS and SOP are provided for audit
• Provide the basis for information included in FS
and SOP
• Should be independently reviewed
• May be electronic or in hard copy
• Accommodation for audit teams
• Should meet relevant WHS requirements
Questions?
Changes to Australian
Accounting Standards
From 2017-18

Alastair Higham
Senior Director
Professional Services and
Relationships Group
2018-19
Financial Instruments
AASB 9
 Why A New Standard?

Global financial crisis

Measure financial assets based on the
entity business model
Earlier recognition of credit losses
 Measuring Financial Assets
What’s your business model?

Hold to collect
Hold to collect
principal and Other eg held
principal and
interest and to for trading
interest
sell

Fair value
Amortised through Other Fair Value
Cost Comprehensive through P&L
Income
 Impairment
Has there been a significant increase in credit risk
since initial recognition?
YES NO

Recognise lifetime Recognise 12 month

expected credit losses expected credit losses

Expected losses from all Expected losses from

default events over the life default events occurring
of the instrument in the next 12 months
Assessing Increased Credit Risk

General rule: compare the risk of a default event at

initial recognition with the risk at reporting date

Special rules:
• if instrument is low risk at reporting date,
assume risk has not increased
• rebuttable presumption that payments more
than 30 days overdue have increased credit risk.
 Measuring Credit Losses

Take into account:

unbiased, probability-weighted outcomes

time value of money

reasonable and supportable information,

available without undue cost or effort, about
past, present and future conditions

collateral
 Simplified Approach

Does not require the tracking of changes

in credit risk
Requires recognition of lifetime ECLs at
all times
Applies to trade receivables and contract
assets, as long as they do not contain a
significant financing component
 Implications

Identify your business model for holding

each type of financial asset
Develop procedure for:
identifying changes in credit risk

measuring expected credit losses

2019-20
Income of Not-for-Profit
Entities
 Accounting For Inflows
For these transactions When you initial recognise an asset,
credit…..

Sales of goods and Liability

services

Grants without Income

performance obligations

Grants with performance Liability

obligations

Capital grants Liability

 A Working Definition
Performance A promise to transfer goods/services in
obligation an agreement that is
• binding
• specific enough to identify when
goods/services have transferred

Capital grant A grant to acquire or construct a

non‑financial asset to specifications
under a binding agreement that does
not require the entity to transfer the
asset
 Example - Facts

The Commonwealth provides a State

Government department with a grant to
build a road in the State:
there are seven project milestones in the grant
agreement, expected to be met over several
years

the Commonwealth provides the full amount

of funding in Year 1
 Example – Accounting

When it receives the funding, the State

Government recognises a liability equal to
the funding
The State Government notionally
allocates the funding between milestones
As each milestone is met, the allocated
amounts are transferred from liability to
revenue
Relevant Standards
Leases
AASB 16
 Why A New Standard?

A view that leases are assets of lessees and

should be on the lessee’s balance sheet
 Lessees Vs Lessors

Different rules for lessees and lessors

Lessees Lessors

Recognise almost all Continue to differentiate

leases as assets and between finance and
liabilities operating leases
 Initial Measurement

Present value of unpaid lease payments

Liability
discounted at the rate implicit in the lease

Initial direct costs of lease

Rent paid before commencement

Asset

Make good obligation

Lease incentives received

 What Is The Lease Term?

The non-cancellable period of the lease

Options to extend if lessee reasonably certain to exercise

Options to terminate if lessee reasonably certain to exercise

 Subsequent Measurement

Liability Asset

1. Unwind NPV 1. Depreciate

2. Reduce for
2. Impair
lease payments

3. Adjust for
3. Remeasure
remeasurement
 Optional Exemptions

Expense the following (systematically

over the lease term e.g. straight line):
assets leased for less than 12 months (by
right-of-use asset class)

assets of low value (e.g. personal computers,

tablets, furniture and telephones)
Morning Tea
Changes in the 2017-18 Model Financial
Statements

Mr Geoff Britt (CPA), Accountant

Financial Framework Management & Insurance (FFMI)
Economic and Financial Group
Chief Minister, Treasury and Economic Development
Directorate
 Changes in the 2017-18 Model Financial Statements

See Model Section 1.2 and the forthcoming Financial Framework

Memo on 2017-18 Model Financial Statements. Model expected
to be released mid-April.

Decluttering/Materiality
Further emphasis on ‘decluttering’ and attention to materiality in
presentation and disclosure.

Agencies to consider materiality in preparing and streamlining

their financial statements.
Changes in the 2017-18 Model Financial Statements

Decluttering/Materiality (Continued)
Apply judgement in determining which disclosures could be
omitted on the basis that they are not quantitatively or
qualitatively material. (Further guidance in Model/Memo).

See AASB Practice Statement 2 Making Materiality Judgements

(December 2017).
Changes in the 2017-18 Model Financial Statements

Relocation of Disclosure
Controlled Disaggregated Disclosure of Assets and Liabilities
moved from the Notes to directly follow the disaggregated
Operating Statement for Output Classes.
This changes the Note order from previous years.

Accounting Standard Changes Impacting Model

AASB 2016-4 Amendments to Australian Accounting Standards-
Recoverable Amount of Non-Cash-Generating Specialised Assets of
Not-for-Profit Entities.
Changes in the 2017-18 Model Financial Statements

Accounting Standard Changes Impacting Model (Continued)

This amending standard:
removes references to depreciated replacement cost as a
measure of value in use for not-for profit entities; and
clarifies that the recoverable amount of primarily non-cash-
generating assets of not-for-profit entities, which are typically
specialised in nature and held for continuing use of their service
capacity, is expected to be materially the same as fair value
determined under AASB 13 Fair Value Measurement (i.e. current
replacement cost).
Changes in the 2017-18 Model Financial Statements

Accounting Standard Changes Impacting Model (Continued)

AASB 2016-2 Amendments to Australian Accounting Standards –

Disclosure Initiative: Amendments to AASB 107 requires agencies
to provide disclosures that enable users of financial statements
to evaluate changes in liabilities arising from financing activities,
including both changes arising from cash flows and non-cash
changes.

Where relevant, agencies should include a reconciliation of the

opening and closing balance of liabilities arising from financing
activities.
Changes in the 2017-18 Model Financial Statements

Financial Management Act

No changes to the Model from amendments to the Financial
Management Act 1996.
Model is a Guide for consistent financial reporting across the
ACTPS
Agencies are encouraged to follow the format of the Model for
consistency of presentation of financial statements by ACT
Government agencies for key users such as the members of the
Legislative Assembly.
Agencies’ financial statements are ultimately the responsibility
of the D-G/CEO/Board.
Changes in the 2017-18 Model Financial Statements

Addendum
All changes to the Model Financial Statements are set out in the
Addendum to the Model with red text (new) and strikethrough
(deleted).
 Thank You
•Any Questions?

•Contact: Geoff Britt 62070259

geoff.britt@act.gov.au

http://apps.treasury.act.gov.au/accounting
 61
Governance and Probity

Mr David Burfoot, Senior Consultant

The Ethics Centre
GOVERNANCE AND PROBITY

62
 3 MESSAGES FOR TODAY
ETHICAL LEADERSHIP

1. There are more than one or two perspectives in

Ethics
2. Brain mechanics create blind spots which affect
decision making
3. Integrate the Ethical Framework into
organisational governance

63
ETHICS IS…

About standing About having a Thinking and Being fair to

up for what you gut feeling that talking about a people, treating
think is right and something is situation to them like you’d
being true to right and doing decide what’s like them to treat
yourself. that. best. you.

Trying to do the
best for Tradition way of Just common
The law.
everyone doing things sense.
involved.
64
ETHICAL DILEMMAS AND MORAL TEMPTATIONS

Moral temptation Gray zone Ethical dilemma

Lawful killing (assisted suicide,

Killing
capital punishment, war)?

Lying to avoid hurting someone’s

Lying
feelings?

Stealing To feed a starving family?

Speeding To save a life?

Time Context

65
4 COMMON DILEMMAS

Rushworth Kidder academic and journalist

Ethical Dilemmas are defined “right vs. right” and “at the
heart of our toughest choices”. When people encounter
these tough choices, it is rarely because they are facing a
moral temptation (i.e.: right vs. wrong).

+ Truth vs Loyalty
+ Individual vs Community
+ Short-Term vs Long-term
+ Justice vs Mercy
66
UNDERSTAND HOW PEOPLE MAKE ETHICAL DECISIONS OR
JUDGEMENTS

67
THE TROLLEY PROBLEM

68
3 MAJOR PHILOSOPHICAL APPROACHES

Virtue

Duty

Consequences

ETHICS IN THE WORKPLACE 69

 COGNITIVE BIAS –
HOW YOUR BRAIN CAN FOOL YOU

70
COGNITIVE BIASES AND HEURISTICS

+ Confirmation bias
+ Racial Stereotypes
+ Moral license
+ Self Serving Bias
+ Overconfidence Bias
+ Framing

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72
FOUR CATEGORIES OF SELF-DECEPTION

Legalism the inability to imagine moral

obligations beyond the law;
Tribalism or the belief that the company is
always right;
Moral relativism the excusing of unethical
practices by viewing business as "a game" and
oneself as "a role";
Scientism the elevation of science-including
management science-to a position of
unquestioned authority JOHN KNAPP, 1999

73
73
Ethical framework

THE ETHICS CENTRE 74

74
Shadow Values

75
75
 Steps to Good Decision Making
FRAME
01 What’s your gut reaction? Why?
02 What are the facts and assumptions? What values are in play in framing the
facts and assumptions

03 Are there any non-negotiables?

SHAPE
04 Who’s involved? What’s their perspective? What are their interests?
05 How should interests, needs and wants be prioritised? Why?
06 What values are clashing? Good v good – right v right – choice between
poor options?
07 Brainstorm your options.
08 Norms – what is usually done in this situation? What laws/codes apply?
EVALUATE
09 Run your decisions through the Good Decisions Pathway.
10 What’s your decision? Why?
REFINE
11 Devil’s advocate/Integrity test/Mentor test
ACT
12 ACT 76
THE ETHICS CENTRE
 Option 3
Option 2
Option 1
01
Maximises benefit over harm

02
Would make a good universal rule

03
Develops & maintains good character

04
Protects fundamental moral rights
Good decision pathway

05

X
Promotes care for others & relationships

06
Promotes a common good for your
purpose

07
Applies stated values and principles

08
You would support it in public

09
Place a X in the circles you feel apply in each decision pathway

You could live with it if it were done to

you
THE ETHICS CENTRE 2016 ©
Integrity and Probity Review

1. Ethical framework alignment

2. Obtaining best value

3. Transparency of process

4. Addressing Conflicts of Interest

5. Confidentiality

6. Accountability
ETHICAL LEADERSHIP IN ORGANISATIONS

1. Comes from the top

2. Speak values and principles
3. Know:
a) the culture you want
b) how far you are from it, and
c) your plan for getting there
4. System and policy alignment
5. Open Communication
6. Long term view

79
80
ethics.org.au

81
 2017-18 Whole-of-Government
Reporting Requirements

Ms Margaret Barnes
Senior Analyst – Financial Reporting Team
ief Minister, Treasury and Economic Development Directorate
x75653
fabdfinancialreporting@act.gov.au
 Timing
• Shared Services Centre will provide agency
statements on 13 July
• Financial statements due to the Audit Office and
Treasury on 16 July (Group 1) and 26 July (Group 2)
• Some agencies are on differing timetables – ACTIA,
CMTEDD, CTP Regulator, Icon Water Ltd, LCSF, SPA
and TBA
• Audit reports provided by 19 September 2018
 Web Workbooks
Date Open/Close Comments
10 July Open Based on Oracle 7th working
day
11 July Close Data will be consolidated for
Government Finance Statistics
reporting to the ABS

27 July Open Based on Oracle ADJ period

30 July Close Data will be consolidated to

produce the June Quarter
Report (interim outcome) and
the whole of government
financial statements

This data must match agency certified statements

31 July – 19 September 2018 Open Treasury Admin Material agency audit changes
will be processed by Treasury
administrators
 Collection of Functional
Government Finance Statistics Data
• Effective from the 2017-18 financial reporting period
the ABS has implemented a revised Government
Finance Statistics Framework
• This includes changes to the Classification of
Functions of Government (COFOG)
• Due to Treasury 25 August 2018
 Consolidation Packs
• Treasury has made some amendments to the
consolidation packs which now includes
additional data validations which will improve
reporting and audit process

• Consolidation packs based on second

download (match to certified statements)

• Due 1 August (Group 1) and 6 August (Group 2)

 Key Issues – Whole of
Government
• Largely unchanged
– Accuracy of interim outcome to financial statements
– Variance explanations – this is an audit finding over several past years
which is still challenging. The purpose of the explanations is to
provide publishable information about why targets were not met or
were exceeded. This information is tabled as part of the WhoG
quarterly reports and as part of ACT Budget (BP3) as part of the
Government Fiscal Strategy. These explanations need improvement,
please contact the Reporting team for more information
– Internal trade errors – target <$100m
• 2016-17 = $372m
• 2015-16 = $369m
• 2014-15 = $409m
 Instruments/Drawdowns

• Final drawdowns 26 June – no additional

drawdowns will be available
• Final instrument requests to Treasury by
31 May (excluding grants)
 Closing

• Upcoming Treasury memos:

– Final audit timetable
– Instruments and cash disbursements
– Functional data reporting
• More detailed training again in June
– Please send your agency representatives
Questions?
 Close

Mr Ajay Sharma
Acting Director, Financial Audits
Thank you