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 OToole 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 Territorys 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 Whats your business model?

Hold to collect principal and interest Hold to collect principal and interest and to sell Other eg

held for trading Amortised Cost Fair value through Other Comprehensiv e Income

Fair Value through P&L Impairment Has there been a significant increase in credit risk since initial recognition? YES NO

Recognise lifetime expected credit losses Recognise 12 month expected credit losses Expected losses from all default events over the life of the instrument Expected losses from

default events occurring 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

services Liability Grants without performance obligations Income Grants with performance obligations

Liability Capital grants Liability A Working Definition Performance obligation

A promise to transfer goods/services in an agreement that is binding specific enough to identify when goods/services have transferred Capital grant A grant to acquire or construct a nonfinancial 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 lessees balance sheet

Lessees Vs Lessors Different rules for lessees and lessors Lessees Lessors Recognise almost all leases as assets and liabilities

Continue to differentiate between finance and operating leases Initial Measurement Liability Present value of unpaid lease payments discounted at the rate implicit in the lease

Initial direct costs of lease Asset Rent paid before commencement 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 lease payments 2. Impair 3. Remeasure 3. Adjust for 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 StandardsRecoverable 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-cashgenerating 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 [email protected] http://apps.treasury.act.gov.au/accounting

Governance and Probity 61 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 up for what you think is right and being true to yourself. About having a gut feeling that

something is right and doing that. Thinking and talking about a situation to decide whats best. Being fair to

people, treating them like youd like them to treat you. Trying to do the best for everyone involved. Tradition way of

doing things Just common sense. The law. 64 ETHICAL DILEMMAS AND MORAL TEMPTATIONS

Moral temptation Gray zone Ethical dilemma Killing Lawful killing (assisted suicide, capital punishment, war)?

Lying Lying to avoid hurting someones 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



COGNITIVE BIASES AND HEURISTICS + Confirmation bias + Racial Stereotypes + Moral license + Self Serving Bias + Overconfidence Bias + Framing 71

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 SHAPE EVALUATE REFINE ACT 0 Whats your gut reaction? Why? are the facts and assumptions? What values are in play in framing the

1 What 02 facts and assumptions 0 Are there any non-negotiables? 04Whos involved? Whats their perspective? What are their interests? 3 05How should interests, needs and wants be prioritised? Why? values are clashing? Good v good right v right choice between 0 What poor options? 6

0 Brainstorm your options. 7 Norms what is usually done in this situation? What laws/codes apply? 08 09Run your decisions through the Good Decisions Pathway. 10Whats your decision? Why? 11Devils advocate/Integrity test/Mentor test 12 ACT THE ETHICS CENTRE 76

X You could live with it if it were done to you 09 You would support it in public 08 Applies stated values and principles

07 Promotes a common good for your purpose 06 Promotes care for others & relationships 05

Protects fundamental moral rights 04 Develops & maintains good character 03 Would make a good universal rule 02

Maximises benefit over harm 01 Good decision pathway Option 1 Option 2

Option 3 Place a X in the circles you feel apply in each decision pathway 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 [email protected] 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

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