AWARENESSccounting and Auditing Developments Issue 1 FEBRUARY 2004
AUDIT OFFICE 1AUDIT OFFICE UPDATE
AUDITOR-GENERAL’S REPORT TO PARLIAMENT 2003, VOLUME SIX ACCOUNTING 6
UPDATEThis report was released on the 4 December 2003. Significant issues in this
URGENT ISSUES 7
GROUP UPDATECompliance Review of Accountability and Reporting Requirements
for State Owned Corporations (SOCs)
The SOC Act requirement to table documents in Parliament within 14 sitting UPDATE
days does not always facilitate accountability on a timely basis.
Compliance Review of the Engagement and Use of Consultants PUBLICATIONS
Some agencies are not meeting documentation, conflict of interest, performance
LEGISLATIVE 11evaluation and reporting requirements for engaging and using consultants.
Attorney General’s Department
The costs per case finalised for the Supreme and District courts were UPDATE
substantially lower, but for local courts significantly higher than the national
average. PREMIER’S 14
Office of the Protective Commissioner-Common Fund UPDATE
Funding of the operations of the Office was not equitably borne by all clients.
AUDIT OFFICE 15
The Office does not adequately record client assets not held in the investment BETTER PRACTICE
Since the externally managed investment funds were established on 2 April
2002, the value of the funds has fallen by $48.2 million.
The Marine Parks Authority has on occasions produced an annual report for
tabling in Parliament that includes financial information not prepared according
to Australian Accounting standards and not audited by us. Because of this, there
is a risk that readers of the report may gain an incorrect understanding of the
Authority’s financial position.
WorkCover Scheme Statutory Funds
The accumulated deficit increased to $2,982 million at 30 June 2003 ($2,801
million at 30 June 2002). Proposed changes to the Scheme are estimated to
result in savings of $2,000 million over 5 years.
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
CONTENTSDepartment of Education and Training
The full financial transactions of schools were included in the Department’s financial report for
the first time. However due to inadequacies in accounting records and absence of an integrated
accounting system, the recorded school transactions are imprecise.
The proportion of the NSW adult population serving correctional orders has climbed from 2 per cent
above the national average in 1997-98 to 6 per cent above in 2001-02.
The NSW performance in a number of key areas compares unfavorably with the national average,
including prisoner assault, and average inmate costs. It is performing better in escapes from
open perimeters, in completing community orders, and in the cost of these areas. The biggest
improvement was in lowering the rate of unnatural deaths.
State Transit Authority
Only 39 per cent of Sydney and 3 per cent of Newcastle bus routes are profitable. All ferry routes
SAS Trustee Corporation –Pooled Fund
Unfunded liabilities increased from $12.7 billion at 30 June 2002 to $16.5 billion at 30 June 2003.
Costs as a percentage of funds under management are substantially below the average expense
ratio for public sector funds.
Sydney Water wrote off $51.2 million of Customer Information Billing System expenditure during
The Board has approved a detailed action plan and timetable for improving how it manages risk and
delivers major projects. As well, the Audit and Risk Management Committee’s charter now includes
overseeing large projects.
We continue to have some concern about Sydney Water’s ability to fund the replacement of its
system assets given its current pricing structures.
Barry Underwood, Acting Director, Governance and Communications on 92850020 or barry.underwo
2 3The Audit Office of New South WalesFOLLOW-UP OF PERFORMANCE AUDITS: NSW POLICE. ENFORCEMENT OF STREET
PARKING. STAFF ROSTERING,TASKING AND ALLOCATION
Periodically we review the extent to which agencies have implemented the recommendations they
accepted from earlier audits.
Where agencies accept our recommendations, there is an expectation they will implement them in
aa ttiimmeellyy mmaannnneerr.. UUnnlleessss tthhiiss iiss ddoonnee,, tthhee vvaalluuee ooff oouurr rreeccoommmmeennddaattiioonnss,, aanndd tthhee aaggeenncciieess aabbiilliittyy ttoo
improve on their performance, may diminish.
This audit examined changes by NSW Police following two earlier reports:
Enforcement of street parking (November 1999)
Staff rostering, tasking and allocation (January 2000)
NSW Police accepted all nine recommendations in the earlier reports. Some changes have been
made, however there are still matters raised in the reports that need to be addressed.
Enforcement of Street Parking
TThhee 11999999 aauuddiitt eexxaammiinneedd tthhee eeffffiicciieennccyy aanndd eeffffeeccttiivveenneessss ooff tthhee eennffoorrcceemmeenntt ooff ssttrreeeett ppaarrkkiinngg bbyy
NSW Police. The audit focussed on the adequacy of guidelines on enforcement; arrangements for
enforcing the law; and management of the function. The 1999 audit found that arrangements were
not as efficient and effective as they could be, and needed to be reviewed.
We have found that since the 1999 audit, progress has been made to address the issues raised.
TThhee mmaajjoorr aacchhiieevveemmeenntt hhaass bbeeeenn tthhee ttrraannssffeerr ooff pprriimmaarryy rreessppoonnssiibbiilliittyy ffoorr tthhee eennffoorrcceemmeenntt ooff
street parking from NSW Police to local councils in 2002.
There is, however, one recommendation that has not been advanced to the extent we believe
is warranted. Legislation needs to be reviewed in respect of multiple infringements, penalty
structures and fine strategies for drivers from overseas.
Staff Rostering, Tasking and Allocation
The 2000 audit examined the efficiency and effectiveness of staff rostering, tasking and allocation
systems and practices at metropolitan Local Area Commands (LACs). Rostering and tasking systems
and flexible staff allocation practices are critical to the successful deployment of officers to
The original audit found that information systems did not adequately support intelligence-based
rostering and tasking by LACs. In addition, proactive policing was not clearly defined resulting in
different interpretations by LACs, thereby preventing service-wide measurement and analysis of
At the time of the 2000 audit, NSW Police was planning a wide range of information technology
initiatives to improve the use of intelligence data in deciding the most effective ways to deploy
police. Our original audit concluded these enhancements would help NSW Police better target
proactive, high-visibility policing, and improve the overall efficiency and effectiveness of crime
2 3The Audit Office of New South Wales The Audit Office of New South WalesThis audit found that a service-wide rostering system has been introduced, along with a system
to allocate and record proactive tasks. However, neither system interfaces with intelligence
databases. In addition, NSW Police has not addressed the issue of what activities constitute
NSW Police has not adequately monitored the implementation of these recommendations. In our
opinion, most of the issues raised in the 2000 report still need to be addressed. In view of this, we
propose to conduct a further follow-up in 2004-05.
Jane Tebbatt, Principal Performance Auditor Phone: 02 9285 0074 E-mail: firstname.lastname@example.org
The report was tabled in Parliament on 10 December 2003 and can be accessed at
PERFORMANCE AUDIT REPORT-CODE RED: HOSPITAL EMERGENCY DEPARTMENTS-
DEPARTMENT OF HEALTH, NSW AMBULANCE SERVICE
This audit follows an earlier study where we examined data on Nepean Hospital’s ‘code red’ status.
We found a number of instances where Ambulance Service records differed from hospital records.
We then announced our intention to carry out a wider review.
Code red is part of the Emergency Department Network Access Scheme (EDNA) introduced in
July 2002. When a hospital goes red it means that there are no spare beds and ambulances must
divert patients with less serious conditions to neighbouring hospitals. It is designed to ensure that
patients get faster access to care and that ambulances and their crews are not delayed at the
emergency department and unavailable to respond to other calls.
The scheme aims to spread demand more evenly across the network. Therefore it can only be fully
effective if neighbouring hospitals have the capacity to treat diverted patients without themselves
going code red.
In this audit we visited 3 metropolitan hospitals. We wanted to find out whether they followed the
Department of Health’s guidelines for determining and reporting hospital capacity. We also wanted
to find out whether ambulances diverted to other hospitals.
EEDDNNAA hhaass eessttaabblliisshheedd aa ccoonnssiisstteenntt mmeetthhoodd ffoorr jjuuddggiinngg hhoossppiittaall ccaappaacciittyy.. IItt eennggaaggeess tthhee wwhhoollee
hospital, rather than the emergency department alone, in responding to overcrowding and
encourages hospitals to operate as a network.
EDNA has also had some impact on sharing demand. When a hospital goes red, the number of
ambulance patients presenting with less serious conditions decreases in most metropolitan
However the impact of EDNA is diminished when all hospitals in the same area are red or where
there are long distances between hospitals. And there has not been an overall reduction in
ambulance delays at hospitals
4 5The Audit Office of New South WalesAny improvements are limited by the fact that there is very little spare capacity available in the
network. Under these conditions, EDNA cannot markedly improve patient access. More fundamental
changes to hospital practices are required.
aallll tthhrreeee hhoossppiittaallss ffoolllloowweedd tthhee gguuiiddeelliinneess ffoorr jjuuddggiinngg bbeedd ccaappaacciittyy aanndd hhaadd ssyysstteemmss iinn ppllaaccee ttoo
nnoottiiffyy hhoossppiittaall ssttaaffff aanndd aammbbuullaannccee ccrreewwss ooff cchhaannggeess iinn ssttaattuuss
there were discrepancies between the records kept by hospitals and those kept by the
Department of Health. However we believe that these records do not need to match perfectly
if they are used to guide ambulance crews to the shortest queue
it is difficult to measure the effect of EDNA as there is no data on the number of ambulance
ddiivveerrssiioonnss tthhaatt ooccccuurr iinn rreessppoonnssee ttoo cchhaannggeess iinn ssttaattuuss
two factors that may pressure decision makers not to go red are:
code red being seen as an indicator of performance by hospital staff
the need to provide an exception report on extended periods of code red and ambulance delays
ttoo tthhee DDeeppaarrttmmeenntt ooff HHeeaalltthh
not all hospitals or key staff could view EDNA data on-line and were not aware of the status of
hospitals across the network.
Jane Tebbatt, Principle Performance Auditor. Phone: 02 9285 0074. E-mail: email@example.com
The report was tabled in Parliament on 15 December 2003 and can be accessed at
4 5The Audit Office of New South Wales The Audit Office of New South WalesACCOUNTING UPDATE
ED 129 DISCLOSING THE IMPACT OF ADOPTING AASB EQUIVALENTS TO IASB
This ED is being issued as part of the wider process of adopting all Standards issued by the
International Accounting Standards Board (IASB) in 2005. Adoption of AASB equivalents of the IASB
Standards (known as Australian International Financial Reporting Pronouncements) may have a
significant impact on the accounting policies of Australian reporting entities and their reported
financial position and financial performance.
The proposed standard requires an entity to disclose in its financial report:
explanations of changes in accounting policies expected to have material impacts; and
any known or reliably estimable quantitative information relevant to assessing the expected
on its reported financial position and future financial performance.
In complying with the standard, an entity considers disclosing either an estimate of the effect of
the changes on its reported financial position and future financial performance, or if making such
an estimate reliably is impracticable, a statement to that effect.
The comments period ended on 31 January 2004.
ED 130 REQUEST FOR COMMENT ON IASB ED6 EXPLORATION FOR AND EVALUATION
OF MINERAL RESOURCES
The EDs propose that entities that engage in the exploration for and evaluation of mineral resources
can, with some important exceptions, elect to continue to recognise and measure their exploration
and evaluation assets according to the accounting policies they applied in their most recent annual
financial report. For Australian reporting entities, this represents a continuation of some of the
requirements of AASB 1022 Accounting for the Extractive Industries as it relates to exploration and
evaluation activities. However this will be supplemented by proposals to require:
annual impairment testing of exploration and evaluation assets in accordance with IAS
36 Impairment of Assets, although entities can elect to perform the impairment testing at an
alternative level than is ordinarily permitted under IAS 36; and
the disclosure of accounting policies and amounts relating to exploration and evaluation and
The International Financial Reporting Standard (IFRS) arising from ED 6, which will be operative for
annual reporting periods beginning on or after 1 January 2005, is not expected to be issued by the
IASB until the second half of 2004. Consequently, the Australian equivalent of that IFRS, which will
share the same operative date, will also not be able to be issued by the AASB until the second half
TThhee pprrooppoossaallss iinn tthhee EEDDss aarree pprroovviiddeedd aass aann iinntteerriimm mmeeaassuurree oonn tthhee ttrreeaattmmeenntt ooff eexxpplloorraattiioonn aanndd
evaluation expenditure for entities that will be adopting or applying IFRSs (or in Australia’s case,
adopting standards which correspond to IFRSs) in 2005. The ED has been developed to enhance
comparability between entities until such time as the AASB and IASB complete a comprehensive
project that addresses accounting in the extractive industries generally.
6 7The Audit Office of New South WalesTo ensure the views of Australian constituents are considered in the AASB’s submission to the IASB,
the AASB is seeking comments on this ED by 19 March 2004. Comments on the IASB’s ED 6 are due
by 16 April 2004.
PENDING FINANCIAL INSTRUMENTS STANDARDS RELEASED
The AASB has placed Pending versions of AASB 132 Financial Instruments: Disclosure and
Presentation and AASB 139 Financial Instruments: Recognition and Measurement on its web site
This follows the release by the International Accounting Standards Board (IASB) of improved versions
of IAS 32 Financial Instruments: Disclosure and Presentation and IAS 39 Financial Instruments:
RReeccooggnniittiioonn aanndd MMeeaassuurreemmeenntt..
The Pending versions of AASB 132 and AASB 139 are presented in the style and format expected to
be used when the Standards are formally made and are equivalent to the IASB’s IAS 32 and IAS 39.
The AASB intends that the ultimate contents of the AASB Standards will be the same as the Pending
versions, except where necessary to incorporate amendments made subsequent to the release of
tthhee PPeennddiinngg SSttaannddaarrddss.. FFoorr eexxaammppllee,, aammeennddmmeennttss mmaayy rreessuulltt ffrroomm EEDD 112233 RReeqquueesstt ffoorr CCoommmmeenntt
oonn IIAASSBB EEDD ooff PPrrooppoosseedd AAmmeennddmmeennttss ttoo IIAASS 3399 FFiinnaanncciiaall IInnssttrruummeennttss:: RReeccooggnniittiioonn aanndd MMeeaassuurreemmeenntt
– Fair Value Hedge Accounting for a Portfolio Hedge of Interest Rate Risk.
AASB 139 will fill a major gap in Australia’s current reporting framework, given that the recognition
and measurement of financial instruments has not previously been the subject of a Standard in
Australia. In particular, the Standard will require derivatives to be reported at fair value and willl
lliimmiitt tthhee aapppplliiccaattiioonn ooff hheeddggee aaccccoouunnttiinngg wwhheenn ccoommppaarreedd wwiitthh ccuurrrreenntt AAuussttrraalliiaann pprraaccttiiccee..
AASB 132 will replace AASB 1033 Presentation and Disclosure of Financial Instruments. AASB 132 is
similar to AASB 1033, but will change the required classification of some financial instruments, in
particular, some instruments currently classified as equity may need to be reclassified as debt.
URGENT ISSUES GROUP UPDATE Meeting 4 December 2003
REVISED ABSTRACT 52 INCOME TAX ACCOUNTING UNDER THE TAX CONSOLIDATION
Entities that have already applied the May 2003 version of Abstract 52 in a financial report can
continue to apply the accounting policies adopted under that version without change. If they choose
to apply the revised Abstract instead, adjustments cannot be made via retained profits (surplus).
The UIG clarified the measurement of deferred tax balances relating to subsidiaries in the tax-
consolidated group, when accounting under the 1989 and 1999 version of the Accounting Standards
on income tax accounting, AASB 1020 or AAS 3.
The revised Abstract will apply for reporting periods ending on or after 4 December 2003. Application
to earlier reporting periods are allowed.
6 7The Audit Office of New South Wales The Audit Office of New South WalesSIC INTERPRETATIONS FOR 2005
As part of the process of adopting International Standards by 2005, the UIG is converting
International Interpretations, issued by the IASB’s former Standing Interpretations Committee (SIC),
into Abstracts applicable in Australia, where they are expected to apply beyond 2005.
Members agreed that Abstracts applying from 2005 would be numbered similarly to the AASB’s
scheme for numbering Standards. That is, Abstracts numbered 1–99 would correspond with
International Financial Reporting Interpretations Committee (IFRIC) Interpretations (IFRIC has
not yet issued any Interpretations), and Abstracts numbered 101–199 would correspond with the
remaining SIC Interpretations. Purely domestic Abstracts would be numbered from Abstract 1001.
INTRODUCTION OF THE EURO (SIC-7)
UIG members considered a draft Abstract 107 concerning the effect on foreign exchange accounting
of the 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. Thus
they agreed that the Interpretation should be adopted in Australia to support the requirements of
the forthcoming Accounting Standard AASB 121 The Effects of Changes in Foreign Exchange Rates.
As SIC-7 is subject to revision by the IASB, members did not finalise a Pending Abstract.
IAS 19 EMPLOYEE BENEFITS – MULTI-EMPLOYER PLANS
The UIG considered a proposed draft International Financial Reporting Interpretations Committee
(IFRIC) Interpretation that permits employers that are participants in a multi-employer defined
benefit plan to use defined contribution accounting. This would apply where sufficient information
is not available to use defined benefit accounting.
UIG members were of the view that the draft IFRIC Interpretation needed to be strengthened
to ensure that the exemption is only available in limited circumstances. The UIG will provide a
submission to the IFRIC on the Draft Interpretation once it is released for public comment.
ONEROUS CONTRACTS – LEASES AND EXECUTORY CONTRACTS
The UIG did not discuss this agenda item, since the IASB’s International Financial Reporting
Interpretations Committee decided not to continue to address the topic.
TThhee nneexxtt mmeeeettiinngg wwiillll bbee hheelldd iinn MMeellbboouurrnnee oonn tthhee 1122 FFeebbrruuaarryy 22000044..
8 9The Audit Office of New South WalesINTERNATIONAL UPDATE
EXPOSURE DRAFT ISA 600 (REVISED), “THE WORK OF RELATED AUDITORS AND
OTHER AUDITORS IN THE AUDIT OF GROUP FINANCIAL STATEMENTS” AND THE
PROPOSED NEW IAPS, “THE AUDIT OF GROUP FINANCIAL STATEMENTS”
TThhee pprrooppoosseedd cchhaannggeess ttoo tthhee IISSAA oonn ggrroouupp aauuddiittss wwiillll,, iinn ssoommee ccaasseess,, eexxtteenndd ccuurrrreenntt aauuddiitt
procedures. Significant changes include:
applying the new audit risk standards to an audit of group financial statements
recognising the differences that exist when the other auditor is related to the group auditor
through a firm operating under common quality control policies
ddiissccuussssiinngg tthhee ggrroouupp aauuddiittoorr’’ss rreessppoonnssiibbiilliittyy ttoo aacccceessss rreelleevvaanntt iinnffoorrmmaattiioonn;; aanndd
providing guidance on determining the adequacy of the other auditor’s work.
In addition to the proposed standard, the IAASB is proposing a new International Auditing Practice
Statement (IAPS) that sets out practical assistance on how the proposed revised ISA 600, along with
other ISAs, would be applied when the group auditor takes sole responsibility for the audit opinion
oonn tthhee ggrroouupp ffiinnaanncciiaall ssttaatteemmeennttss..
Comments are requested by 31 March 2004.
EXPOSURE DRAFT ISA 700 (REVISED), “THE INDEPENDENT AUDITOR’S REPORT
ON A COMPLETE SET OF GENERAL PURPOSE FINANCIAL STATEMENTS” ISA 200,
“OBJECTIVE AND GENERAL PRINCIPLES GOVERNING AN AUDIT OF FINANCIAL
STATEMENTS” AMENDMENTS TO ISA 210, “TERMS OF AUDIT ENGAGEMENTS;
The ED on the auditor’s report proposes significant changes to the wording of the auditor’s report
on a complete set of general-purpose financial statements. Significant changes include:
introducing guidance on matters the auditor considers in forming the audit opinion including a
requirement that the auditor reflects, at the end of the audit process, on the fair presentation
of the financial statements as a whole
clarifying the auditor’s responsibilities with respect to management’s identification of an
applicable reporting framework; and
requiring that reference to compliance with ISAs in the auditor’s report be based on the auditor
ensuring that the report includes all ISA reporting elements.
The proposed wording of the auditor’s report includes:
a better explanation of the responsibilities of the auditor and management, including
respective responsibilities for internal control, accounting policies and estimates
an updated description of the audit process to reflect the new audit risk standards; and
An explanation of the limitations of the auditor’s consideration of internal control in a financial
Comments are requested by 31 March 2004.
8 9The Audit Office of New South Wales The Audit Office of New South WalesCONTROLLING COMPUTERS IN BUSINESS
The International Federation of Accountants (IFAC) has released the following three volumes of
guidance documents to assist small and medium accounting practices and enterprises in managing
and operating their computer systems:
Controlling Computers in Business: Logical Access Security
Controlling Computers in Business: Selection, Implementation and Testing of Packaged
Controlling Computers in Business: Computer Disaster Recovery Planning.
Two additional documents in the series were released earlier this year:
Controlling Computers in Business: Backup, Archive and Restore; and
Controlling Computers in Business: Physical Security.
Each booklet features a series of notes that provide information on specific computer control
issues, including definition of key terms, costs and benefits, and risks and practicalities. A best
practice checklist is also included with each note.
All five documents may be downloaded at no charge from the small and medium practices section
of IFAC’s online bookstore (www.ifac.org/store). Print copies may be ordered through the online
bookstore for US $25 each plus shipping costs.
Australian National Audit Office Reports:
Survey of Fraud Control Arrangements in APS Agencies
Administration of Staff Employed Under the Members of Parliament (Staff) Act 1984
Administration of Consular Services Follow-Up Audit
AQIS Cost-recovery Systems Follow-up Audit
The Australian Taxation Office’s Use of AUSTRAC Data Follow-up Audit
Aid to East Timor
SSppeecciiaall EEmmppllooyyeeee EEnnttiittlleemmeennttss SScchheemmee ffoorr AAnnsseetttt GGrroouupp EEmmppllooyyeeeess
Audits of the Financial Statements of Australian Government Entities for the Period Ended 30
These reports are available at www.anao.gov.au.
Victorian Auditor-General’s Office Reports:
Addressing the needs of Victorian prisoners
Report of the Auditor-General on the Finances of the State of Victoria, 2002-03
These reports are available at www.audit.vic.gov.au.
10 11The Audit Office of New South Wales