NSW Audit Office - Financial Reports - 2005 - Volume 2 - Survey of Agency Preparedness for Australian
4 Pages
English
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NSW Audit Office - Financial Reports - 2005 - Volume 2 - Survey of Agency Preparedness for Australian

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Learn all about the services we offer
4 Pages
English

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Survey of Agency Preparedness for Australian Equivalents to International Financial Reporting Standards (AEIFRS) Along with the private sector, public sector agencies are required to apply AEIFRS in General Purpose Financial Reports for reporting periods beginning on and after 1 January 2005. For the majority of New South Wales public sector agencies, this means the financial report for the year ended 30 June 2005 will be prepared under existing Australian Accounting Standards. However Australian Accounting Standard AASB1047 requires them to disclose in the notes of their financial reports, information about the transition process, key changes to accounting policies and any known or estimable information about the impact on the financial report of the adoption of AEIFRS. The impact of applying AEIFRS on public sector agencies will vary. Depending on the nature of their operations, their assets and their liabilities, there may be little impact or it may be significant. Agencies may be affected by new standards relating to transactions such as property, plant and equipment, financial instruments, investments, employee entitlements (superannuation), borrowing costs and grants. As the time period remaining to prepare for the change is getting shorter, we decided to undertake a survey of the preparedness of a sample of agencies to meet the deadline. We looked at whether: agency management was aware of the change y finance or audit committees or boards ...

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Survey of Agency Preparedness for Australian
Equivalents to International Financial Reporting
Standards (AEIFRS)
Along with the private sector, public sector agencies are required to apply AEIFRS in General
Purpose Financial Reports for reporting periods beginning on and after 1 January 2005.
For the majority of New South Wales public sector agencies, this means the financial report for
the year ended 30 June 2005 will be prepared under existing Australian Accounting Standards.
However Australian Accounting Standard AASB1047 requires them to disclose in the notes of their
financial reports, information about the transition process, key changes to accounting policies and
any known or estimable information about the impact on the financial report of the adoption of
AEIFRS.
The impact of applying AEIFRS on public sector agencies will vary. Depending on the nature of
their operations, their assets and their liabilities, there may be little impact or it may be
significant. Agencies may be affected by new standards relating to transactions such as property,
plant and equipment, financial instruments, investments, employee entitlements
(superannuation), borrowing costs and grants.
As the time period remaining to prepare for the change is getting shorter, we decided to
undertake a survey of the preparedness of a sample of agencies to meet the deadline. We looked
at whether:
agency management was aware of the change
y finance or audit committees or boards had been involved
a project plan had been developed, adequate resources were available and accounting
systems capable of handling the new information requirements
a summary of changes resulting from each standard had been prepared
agency staff have been adequately trained in the new standards
the agency submitted its restated opening balances by 31 March 2005 for review by Treasury
the restated opening balances have subsequently been submitted for audit
the agency has prepared a draft note making necessary disclosures in the financial report
CONCLUSION
This survey indicates that most agencies appear to be adequately prepared for AEIFRS. We will be
in a better position to assess agency preparedness after we complete our audit of opening AEIFRS
balances and AASB 1047 note disclosures.
KEY FINDINGS
All agencies surveyed that were required to submit their restated opening balances to
Treasury by 31 March 2005, did so
Many agencies are yet to submit their restated opening balances for audit or finalise their
AASB1047 disclosures
The process applied by agencies in catering for the application of AEIFRS depended on the
likely impact of the new standards. Most larger agencies applied full project management
skills to the exercise, while smaller, less impacted agencies adopted selected aspects of
project management
Auditor-General’s Report to Parliament 2005 Volume Two 9 International Financial Reporting Standards (IFRS)
As expected, State Owned Corporations - where the impact of AEIFRS may be the greatest -
appear to be better placed than small agencies for adopting AEIFRS
Many Budget-dependent agencies and smaller agencies believe the impact of AEIFRS on their
financial reporting is generally not great and because of limited resources many have relied
on information posted on the NSW Treasury website about the likely impact
Agencies were confident that their current accounting systems could handle the transaction
requirements of the new standards
The majority of agencies developed an AEIFRS training strategy for their staff and most staff
said that the training was adequate.
RECOMMENDATIONS
We recommend that:
Individual agencies that have not done so, should submit their restated opening balances for
audit and finalise their AASB 1047 disclosures as soon as is practical
Treasury may need to provide assistance to smaller agencies where internal accounting skills
or resources may be preventing the correct adoption of AEIFRS
DETAILED FINDINGS
The management of all agencies were aware of the need to adopt AEIFRS
The need to adopt AEIFRS was regularly discussed at the vast majority of agency boards or
audit committees or both
The vast majority of agencies adopted a project management approach to AEIFRS. The larger
agencies developed a formal project plan that included a timetable, milestones, resource
and training needs. Smaller agencies used different aspects of project management
All agencies except three assessed the likely impact of the individual standards on their
financial report as a part of their project
All agencies believe their current accounting system will cope with the AEIFRS requirements
In all but 16 per cent of agencies, a training strategy was developed. Staff of all but 12 per
cent of agencies considered that the level of training in AEIFRS that they have received so far
was adequate
At the time of preparing this report, only:
35 per cent of agencies surveyed have submitted their restated opening balances along
with adequate working papers to us to be audited
22 per cent of agencies surveyed have prepared the draft note containing the matters
mentioned in the introduction to this report.
Treasury’s Agency Reference Panel met on four occasions since it was set up in late 2003
10 Auditor-General’s Report to Parliament 2005 Volume Two International Financial Reporting Standards (IFRS)
During our survey at the Department of Health, we inquired about the new Area Health
Services. These have a greater challenge. Because their first reporting period commenced on
1 January 2005 they are required to prepare their financial report under the AEIFRS
framework. This is twelve months earlier than the majority of other agencies. It requires
them to adopt some standards that have been deferred for other agencies in respect of AASB
1047 disclosures. Together with the amalgamation issues they face, they may not be
adequately prepared to meet this challenge. We understand that few Area Health Services
have specialist advisers and are relying on guidance provided by the Department of Health
and the analysis of the standards undertaken by Treasury. The Department of Health told us
that its survey shows that the Area Health Services expect to be able to satisfy the AEIFRS
requirements.
BACKGROUND
In July 2002, the Financial Reporting Council announced that Australia would adopt international
financial reporting standards (IFRS) by 1 January 2005. Existing Australian standards (AASBs) have
been converged with their international equivalents. This means Australian entities applying the
AASB standards from 1 January 2005 will automatically satisfy the requirements of the IFRS.
The Australian Accounting Standards Board (AASB) is implementing the AEIFRS by releasing
standards based upon the international accounting standards with additional not-for-profit sector
clauses for the public sector.
Implications for NSW Public Sector Agencies
Convergence of accounting standards will bring consistency and comparability of financial reporting
across international borders. All reporting entities in the private and public sectors are affected.
The new standards will change the way public sector agencies account for a wide range of
transactions and may lead to volatility of results and net asset positions.
Volume Two of the Auditor-General’s 2004 Report forewarned that ‘the transition to IFRS is not just
an accounting exercise. It affects a wide range of business areas in an agency. Agencies should
manage it as a project and separately report to their Audit Committee. To be ready all NSW public
sector agencies will have to:
assess the impact of each new standard on the agency
review and modify systems
ensure that appropriate training is undertaken
communicate to stakeholders on financial statements and budgets.’
The AASB released AASB1047 Disclosing the Impacts of Adopting Australian Equivalents to
International Financial Reporting Standards.
The Standard requires agencies in respect of 30 June 2005 annual financial reports, to provide
known or reliably estimable information about the impacts on the financial report, had the
financial report been prepared using Australian equivalents to IFRS or, if the impacts are not known
or reliably estimable, a statement to that effect.
NSW Treasury Strategy
In 2004 the NSW Treasury announced its strategy to implement the changes arising from adoption of
AEIFRS in the NSW public sector. Key actions by Treasury were to:
analyse and comment to the AASB on all exposure drafts of standards
assess the impacts of all significant changes in finalised standards
raise awareness and keep agencies, the Treasurer, the Government and other stakeholders
informed
develop new or changed policies and guidance as necessary
present training and development seminars
establish a panel of agencies to assess AEIFRS issues.
Auditor-General’s Report to Parliament 2005 Volume Two 11 International Financial Reporting Standards (IFRS)
The agencies included in our review were:
Aboriginal Housing Office Ministry of Transport
Art Gallery of NSW NSW Fire Brigades
Attorney-General’s Department NSW Land and Housing Corporation
Australian Museum Trust NSW Lotteries Corporation
Crown Finance Entity NSW Maritime Authority
Delta Electricity NSW Treasury
Department of Ageing, Disability and Home sury Corporation
Care Port Kembla Port Corporation
Department of Commerce Rail Corporation
Department of Community Services Rail Infrastructure Corporation
Department of Corrective Services Rental Bond Board
Department of Education and Training Roads and Traffic Authority
Department of Health State Library of NSW
Department of Lands State Rail Authority
Department of State and Regional State Sports Centre Trust
Development State Transit Authority
Department of Tourism, Sport and Recreation Sydney Catchment Authority
Energy Australia Sydney Ferries Corporation
Eraring Energy Sydney Harbour Foreshore Authority
Forests NSW Sydney Olympic Park Authority
Home Care Service Sydney Ports Corporation
Hunter Water Corporation Sydney Water Corporation
Integral Energy Transgrid
Landcom Transport Infrastructure Development
Legal Aid Commission Corporation
Macquarie Generation WorkCover Authority
Mine Subsidence Board Workers’ Compensation (Dust Diseases) Board


12 Auditor-General’s Report to Parliament 2005 Volume Two