NSW Audit Office - Awareness - Issue 2003 05 - June 2003
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NSW Audit Office - Awareness - Issue 2003 05 - June 2003


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Learn all about the services we offer
20 Pages


AWARENESSccounting and Auditing Developments Issue 5 JUE 2003AUDIT OFFICE 1AUDIT OFFICE UPDATEUPDATEAUDITOR-GENERAL’S REPORT TO PARLIAMENT 2003, VOLUME ONEACCOUNTING 5The report was released on the 1 May 2003. Significant issues in this UPDATEvolume include:AUDITING UPDATE 7Sydney Water Corporation-Review of Implementation of Customer URGENT ISSUES 7Information and Billing System (CIBS) GROUP UPDATEOur audit found many unsatisfactory aspects in the areas of project INTERNATIONAL 9governance, project specification and management, cost estimation and UPDATErisk management. Examples included:MISCELLANEOUS 11Sydney Water spending approximately $61.0 million up to project PUBLICATIONStermination and another $18.6 million on related hardware and software. We believe most of the $61.0 million will be written offLEGISLATIVE 11CHANGES UPDATEmanagement not always reporting important issues to Sydney Water’s Board of Directors in a clear, complete and timely mannerTREASURY 12the Board not overseeing the project as effectively as it might have. UPDATEIts understanding of the project, in light of its complexity, was limitedPREMIER’S 18project planning and specifications were inadequate, contributing to DEPARTMENT many change requests and significant additional costs and delays UPDATErisk management not being effective at the corporate and project levels.AUDIT OFFICE 19Our recommendations included: BETTER PRACTICEGUIDESGovernment to consider ...



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AWARENESS Accounting and Auditing Developments Issue 5 JUNE 2003
AUDIT OFFICE UPDATE AUDITOR-GENERAL’S REPORT TO PARLIAMENT 2003, VOLUME ONE The report was released on the 1 May 2003. Significant issues in this m in
Sydney Water Corporation-Review of Implementation of Customer Information and Billing System (CIBS) Our audit found many unsatisfactory aspects in the areas of project governance, project specification and management, cost estimation and risk management. Examples included: Sydney Water spending approximately $61.0 million up to project ermination and another 18.6 million on related hardware and oftware. We believe most of the 61.0 million will be written off anagement not always reporting important issues to Sydney Water’s Board of Directors in a clear, complete and timely manner he Board not overseeing the project as effectively as it might have. Its understanding of the project, in light of its complexity, was limited roject planning and specifications were inadequate, contributing to any change requests and significant additional costs and delays risk management not being effective at the corporate and project levels. r r mm n i n in nment  to  consider  amending  the  Annual  Reporting  legislation  to  require  a to  expand  their  reporting  on  large  projects,    xplaining  significan s  and  whether  project  benefits  will  be  hi a  curr place.  Each  IT  project  hould  be  ass patibility  with  the  ra egy ommunicating  in  an  org imely,  all  he way to Board level a  change  r omplex   projects  will  be  delivered  late  and  at  increased  cost he  business  case  to  support  a  project  must  be  updat or  significant  hanges as they occur. r n  is  published  by  The  Audit  Off South  Wales,  234  Sussex  Street,  Sydney  NS  Sydney  NSW  2001   Te ep on  1 x  1 Em i  Terry.Hogan@audit.nsw.gov.au  i  www.audit.nsw.gov.au
In October 2002, the Treasurer requested the Auditor-General to audit CIBS and report to Parliament. Sydney Water’s Board terminated the full implementation of CIBS in October 002 due to concerns that the project was not reaching acceptable standards and there were xcessive delays and costs. CIBS with a final budget of $60 million was Sydney largest IT roject Sydney Water contracted PricewaterhouseCoopers (PWC) in June 2000 to build and implement CIBS. Because of problems with the project, Sydney Water is considering litigation.
New South Wales Aboriginal Land Council The capital value of the Aboriginal Land Council Account fell below the statutory limit. Local Aboriginal Land Councils owe the New South Wales Aboriginal Land Council (NSWALC) $6.6 illion. Of this, $2.8 million is treated as a doubtful debt. More robust controls are required to manage Councillors’ expenditure. There continues to be issues surrounding the accountability for Councillors’ travel. Th n i h f i m in in n ff i in rn i f n i n
Cobar Water Board, Gosford Water Supply Authority and Wyong Water Supply Authority From 1996 to 2002, Wyong Water and Gosford Water did not fully comply with statutory requirements and therefore all their water and sewerage charges require validation. This also applies to Cobar Water Board’s water charges. Under their legislative provisions, Wyong and Gosford Water Supply Authorities are not permitted to make their water and sewerage charges until a determination is made by the Independent Pricing and Regulatory Tribunal (IPART). The proposed charges must then be included in the Councils’ management plans and publicly isplayed for a specified period. yong and Gosford Water have applied to the Minister for Land and Water Conservation seeking action to amend the legislation. They have also sought the Governor’s consent to validate the harges. At the date of this report, no decision had been received from the Minister. Water  believes  a  review  is  required  of  the  IPART  decision-making  process  and  the  legislative  ns  requiring  Wyong  Water  to  make  determinations  within  prescribed  im fr m
Newcastle International Sports Centre Trust and Wollongong Sportsground Trust These  Trusts  continu .  Modified  Independent  Audit  Reports  ere  issued  due  to  the  inh ility  to  continue  as  going  concerns.
Further information     ood@audit.nsw.gov.au.
2 The Audit Office of New South Wales
ns  on  92850020  or  barry.under
PERFORMANCE AUDIT REPORT: DEPARTMENT OF EDUCATION AND TRAINING MANAGING TEACHER PERFORMANCE The  education  a  child  receives  is  still  largely  based  on  face-to-fac petence  f  in i i  h r  i  h r f r  n  f  h  m  f r  in  h  n r  f  i n  i r This  audit  examined   ost  recent  performance  management  scheme  for  primary  and  econdary  class  teachers,  which  was  introduced  by  the  NSW  Department  of  Education  and  Training  in  1.
Audit opinion and key findings NSW  publ mance  assessment  in  place  for  the  ast  40  yea hanced  by  making  annual  performance  review  and  fe s  are  required  to  improve  its  ff i n Firstly,  the  system  may   ts  across  all  schools.  Secondly,  the  annual  perfor ance  to  be  rated  as  anything other than efficient. There  are  also  no  professional  standards  or  e rincipals  can  assess  classroom  teaching.  The  basis  u  making  judgements  regarding  eacher performance can differ from school to school. Other findings were: he scheme is not used to identify poor performers and no other rating such as ‘needs improvement’, is available to the principal eachers rated as efficient are automatically entitled to a salary increment; 70 per cent of urrent teachers have progressed to the top of the salary scale he scheme does not recognise or reward outstanding performance or professional hi m n unlike most other states, NSW does not have an independent body responsible for etermining teacher qualifications, registrations and standards of professional practice. n Interim Committee was established by the NSW Government to advise on a NSW Institute f Teachers and the development of professional standards by June 2003. teacher’s performance can be reviewed at any time during the year and if a teacher is identified as experiencing difficulties with their performance, a separate scheme exists to anage them. During 2001, however, with more than 40,000 classroom teachers, only 174 (0.4 per cent) were eing managed according to these procedures. Of these, 51 teachers (0.1 per cent) left either uring, or because of this process.
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Recommendations The report contains a number of recommendations to improve the annual teacher performance m n  h m f r r m h r Further Information contact Jane Tebbatt, on (02) 9285 0074 or jane.tebbatt@audit.nsw.gov.au. The report was issued on 14 May 2003 and can be accessed at www.audit.nsw.gov.au.
PERFORMANCE AUDIT REPORT – PROTECTING OUR RIVERS This audit focussed on whether the quality of river water in New South Wales is efficiently and ffectively protected. Pr i n implies no further decline in the condition of the rivers ay include regulation, promotion of best practice guidelines, economic incentives or i n ay also involve works to restore the condition of rivers.
Key Findings The current arrangements lack the structure to ensure success. There is no lead entity to co-rdinate efforts to protect river water. New South Wales has no overarching water quality or river health strategy and no water quality anagement plans to ensure: lear outcomes and responsibilities for protecting river water quality integrated decision-making to protect areas of greatest risk to water quality. There are significant gaps in the monitoring and evaluation of water quality. Based on the information currently available it is not possible for anyone to gauge in a comprehensive way: h h h f ri r  in  ri k   h  ri r  n  h  r  f  ri k trategies  to  ma ose  risks.  minantly  focused  on  controlling  point  source  pollution.  There  i tory,  which  addresses  the  risks  from  diffuse  ollution  such  a icultural  run-off.
Recommendations The  report  recommends  th anagement  structure  for  implementing  th c  approach.  Further  information  from  Denis  Streater  on  92850075  or  denis. eater@audit.nsw.gov.au.
4 The Audit Office of New South Wales
The report was released on 7 May and is available in full on our website at ww.audit.nsw.gov.au. The report follows on from the August 2002 report on the audit of egulating the Clearing of Native Vegetation  
ACCOUNTING UPDATE GAAP/GFS CONVERGENCE IMPLEMENTATION STRATEGY The  Financ  Reporting  Council  (FRC)  has  set  Government  Finance  Statistics  (GFS)  and  Generall he  AASB ill   on  the  general  purpose  financial    report vernments,  including  consideration  of  issues  re s  on  general  purpose  financial  reporting  y  governm her  public  sector  entities oes  not  direct  t porting oes  not  replace  existin P  with  GFS. The  AASB  has  identified  technical  and   he  roject Some  of  the  differences  arising  from  the  two  frameworks as  the  differences  in  the  reatment  of  borrowing  costs,  may  be  eliminated  when  Australia  ad ernational  ccounting Standards. For more details, refer to the paper available on the AASB website from <http:// ww.aasb.com.au/public_docs/misc_docs/implementing_FRC-GFS_strategic_direction.pdf>. ource: Accounting and Auditing News Today Issue No 1 , May ).
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ACCOUNTING FOR GRAVEL ROADS The approach explored in the following draws on the principles in paragraph 5.7.5 of AAS 4 Depreciation and involves treating gravel on a road as analogous to paint on a building. Some local governments are concerned that by treating gravel on roads as a separate asset, an xpense is effectively being double counted, once for depreciation of the asset (gravel) and nce for repair work that is undertaken. There are typically two components to a gravel road: the formation of the road and the gravel op. Consistent with the definitions of asset and expense in accounting standards, arguably it ay be appropriate to treat the construction of a gravel road (including the initial spreading of gravel) in a manner similar to the construction of a building (including the initial painting). That is, all costs incurred in constructing the building (including the initial painting) are capitalised and recognised as a non-current asset, which is subsequently depreciated. Subsequent repainting/patching is not then treated as replacing an asset, but rather is treated as repairs and expensed as incurred. By analogy, gravel work would be initially capitalised into the cost of he road but any subsequent regravelling/grading/patching costs would be expensed. lthough expensed, subsequent gravel works would maintain the useful life of the road and herefore the initial useful life assessment of the road would take that into account, potentially resulting in a relatively long useful life of the road. This would be consistent with paragraph .5.8(a) of AAS 4, which states that an assumption of “adequate maintenance” is taken into account in determining the useful life of an asset. Given gravel road maintenance programs in any local governments, it would be expected that the life of gravel roads would be relatively long The AAS 4 requirement to consider “technical obsolescence” in determining the useful life f an asset (see paragraph 5.5.8(b)) is one factor that would mean that the life of a gravel road would be finite. However, paragraph 6.1 requires the useful life of depreciable assets to e reassessed at least annually. This would include a review of previous expectations about echnical obsolescence. Accordingly, it is conceivable that original expectations about technical bsolescence could be found, with the benefit of hindsight, to have unduly constrained stimates of useful lives, resulting in reassessments of useful lives to be significantly longer han first thought.  relative useful  life  would  result  in  a  relatively  lower  depreciation  charge,  effectively  ounteracted  by  the  ing  of  subsequent  gravel  works,  thus  overcoming  concerns  about   s  relating  to  gravel  roads. nothe reciation  charged  in  a  period  is  the  estimate  of  residual  value.   eds  to  be  assessed  in  light  of  the  facts  using  professional  jud ent. ource ransparenc  Issue   May  ).
6 The Audit Office of New South Wales
AUDITING UPDATE ED 82 ASSURANCE ENGAGEMENTS PROPOSED AUS 108 “INTERNATIONAL FRAMEWORK FOR ASSURANCE ENGAGEMENTS,” AND PROPOSED AUS 110 “ASSURANCE ENGAGEMENTS ON SUBJECT MATTERS OTHER THAN HISTORICAL FINANCIAL INFORMATION This  ED  is  the  A lian  “wrap  around”  version  of  International  ED  on  Assurance  Engagements.  For  further  i rmation  refer  to  the  International  Update  in  issue  4  May  2003  Awareness.
URGENT ISSUES GROUP UPDATE (UIG Action Alert 03-3) Meeting  May  
TAX CONSOLIDATION ACCOUNTING: SUBSIDIARY JOINS OR LEAVES THE GROUP-CONSENSUS AGREED The  UIG  reached  a  C e  Tax  Accounting  under  the  Tax  Consolidation  System”  revision  has  been  ade  to  clarify  general  account out  below.  (The  ASB  will  consider  the  Consensus  on  2  2003).  
Formation of Group, or Subsidiary Joins Group hen  a  tax-consolidated  group  is  formed,  the  head  entity  in  the  group  es  deferred  ax  balances  relating  to  the  wholly-owned  subsidiaries  in  the  tax-consolidated  group hen a subsidiary joins an existing tax-consolidated group, similar treatment of their eferred tax balances by the head entity applies Timing or temporary differences are determined by the carrying amounts of a subsidiary’s assets and liabilities at the level of the tax-consolidated group.
On-going Tax Consolidation Accounting hen the subsidiary remains in the tax-consolidated group, the head entity is required to account for movements in permanent and timing/temporary differences based on the group-level carrying amounts for the subsidiary’s assets and liabilities.
Subsidiary Leaves the Group hen a subsidiary leaves the tax-consolidated group and becomes a taxable entity, they are required to recognise deferred tax balances based on their own carrying amounts for its assets and liabilities and the tax values that applied to them under the tax-consolidated group he head entity is required to write down the deferred tax balances of the leaving ubsidiary where they are not recoverable when the subsidiary is expected to leave the roup.
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Superannuation Disclosures by Employers UIG members noted that there were a number of different disclosure practices arising from iffering interpretations of the requirements in AASB 1028 “Employee Benefits”. The UIG agreed hat the matter should be discussed with the AASB before further investigations.
Emission Rights and Renewable Energy Certificates UIG members considered a draft Interpretation of the International Financial Reporting Interpretations Committee (IFRIC) of the International Accounting Standards Board. The UIG oted that the draft Interpretation does not encompass all the issues concerning renewable nergy certificates (RECs) in Australia and has decided to pursue those issues for input to IFRIC.
Leases-Determining whether an Agreement contains a lease Current draft IFRIC Interpretation proposes that three elements need to be present for an agreement to contain a lease being that: ulfilment of the agreement depends on the explicit or implicit use of a specific item he purchaser controls the right to use the item for a specific period of time; and he purchaser’s obligation to make payments to the supplier under the agreement is for the im h h i m i m i r h r h n h f h i m Members agreed that it could be very difficult to distinguish leases and service contracts. The raft IFRIC interpretation may assist in extreme cases. The next meeting will be held on 17 June in Melbourne.
8 The Audit Office of New South Wales
INTERNATIONAL UPDATE IMPROVEMENTS TO INTERNATIONAL ACCOUNTING STANDARDS (IAS S ) In  May  2002,  the  International  Accounting  Sta d  (IASB)  published  an  exposure  draft  of  roposed  improvements  to  12  IA  150  comments  were  received. The  IASB  in  light  of  t comments  has  confirmed  its  general  support  for  the  changes  proposed  in  the  ED,  but  i so  agreed  to  make  detailed  changes. Of  particul  interest  are  the  proposed  changes  to  IAS  27  Consolidation  and  Separate  Financial  m n     
EXEMPTION FROM PREPARING CONSOLIDATED STATEMENTS The  IASB  co olidated  financial  statements  to  comply  ith  Internatio it  is  a  wholly-o  interests  have  not  objected  to  he  fact  that  consoli its  securities  are  not  publicly urities  and  he  immediate  or  ultimate  parent  p es  consolidated  financial  statements  in     ompliance with IFRSs. The  IASB  decided  that  the  exemption  should  be  available  wh  intermediate  parent  above  he  exempted  parent  prepares  consolidated  financial  statements  in  co  with  IFRSs.  This  exemption  applies  only  to  the  consolidation  of  subsidiaries  and  exempted  parents   required to account for their investments in associates using the equity method as proposed for IA
Exemption from Consolidation based on Temporary Control The clarification in the ED, that a subsidiary is excluded from consolidation when control is intended to be temporary because the subsidiary is acquired and held exclusively with a view to its subsequent disposal within 12 from acquisition, was confirmed.
Effective Date The IASB agreed that there should be a single implementation date for all standards revised in he Improvements project. The revised standards will be mandatory for financial statements for eriods beginning on or after 1 January 2005 (not 2003 as proposed in the ED).
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Business Combinations (phase II) ttributing a partially owned subsidiary’s excess losses to the controlling and minority in r Business combination disclosures - the Board agreed to add a disclosure requirement or contingent assets acquired, contingent liabilities assumed, and contingent consideration recognised initially at fair value that are not subsequently accounted for under current IASB guidance h r m r i in First-time adoption of IFRSs Ex r i in ri IA 1 In m T x IAS 16 Property Plant and Equipment IFRI i n r n n r in n r Share based payment.
CONTROLLING COMPUTERS IN BUSINESS: BACKUP, ARCHIVE AND RESTORE AND CONTROLLING COMPUTERS IN BUSINESS: PHYSICAL SECURITY These new guidance documents issued by the International Federation of Accountants (IFAC) assist small and medium accounting practices (SMPs) and enterprises (SMEs) in managing and rating  their  computer  systems. Each  of  the  b  features  a  series  of  notes  that  provide  information  on  specific  computer  ontrol  issues,  including tion  of  key  terms,  costs  and  benefits,  and  risks  and  practicalities.   d  with  each  note. Both  docu e  from  the  SMP  section  of  IFAC’s  online  ookstore  www.if dered  through  the  online  bookstore  for  US  25 each plus shipping.
10 The Audit Office of New South Wales
MISCELLANEOUS PUBLICATIONS AUSTRALIAN NATIONAL AUDIT OFFICE REPORTS: Navy Operational Readiness D T x n i n nnual  Report n  Ecologically  Sustainable  Development Managin esidential  Aged  Care  Accreditation The  S le  of  Sydney  (Kingsford  Smith)  Airport evi w  of  the  Parenting  Payment  Single  Program These  re rts  are  available  at  www.anao.gov.au.
VICTORIAN AUDITOR-GENERAL’S OFFICE REPORT Parliamentary  C ol  and  Management  of  Appropriations Performance  Manageme udy These  reports  are  available  at  www. .vic.gov.au.
LEGISLATIVE CHANGES UPDATE PROCLAMATION UNDER THE PUBLIC FINANCE AND AUDIT ACT 1983 The object of this Proclamation is to amend the list of departments in Schedule 3 to the P i Fin n n A i A 1 o as to reflect the administrative changes made by the P i Sector Employment and Management (General) Order 2003 and the change of name of Police r i P i Commencement of this Proclamation is 23 May 2003, GG No 89 23 May 2003 p4838).
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