NSW Audit Office - Awareness - Issue 2003 09 - October 2003

NSW Audit Office - Awareness - Issue 2003 09 - October 2003

-

English
14 Pages
Read
Download
Downloading requires you to have access to the YouScribe library
Learn all about the services we offer

Description

AWARENESSccounting and Auditing Developments Issue 9 OCTOBER 2003AUDIT OFFICE 1AUDIT OFFICE UPDATEUPDATEPERFORMANCE AUDIT REPORT-FREEDOM OF INFORMATION ACCOUNTING 3MINISTRY OF TRANSPORT, PREMIER’S DEPARTMENT, DEPARTMENT UPDATEOF EDUCATION AND TRAININGFreedom of information (FOI) laws aim to give people the right to obtain access to AUDITING 7information held by the Government. They have been recognised as a fundamental UPDATEelement of government accountability and modern democracy, and have been URGENT ISSUES 9adopted by governments worldwide.GROUP UPDATEIn this audit we examined FOI arrangements in three government agencies. In total we looked at 84 FOI requests for non-personal information. INTERNATIONAL 11UPDATEWe did not review the basis of decisions. Rather we wanted to find out whether agencies acted in accordance with the spirit of FOI legislation. In particular, whether MISCELLANEOUS 11they: facilitate and encourage, promptly and at the lowest reasonable cost, the PUBLICATIONSdisclosure of information (Section 5(3)(b) FOI Act 1989).PREMIER’S 12Audit OpinionDEPARTMENT FOI Coordinators and their staff were supportive of the legislation. However, the UPDATEagencies we examined can do considerably more to fully achieve the intentions of the Act. AUDIT OFFICE 13BETTER PRACTICEOn the positive side, all three had processes in place to handle requests and had GUIDESmade a number of changes to improve the effectiveness of the FOI process ...

Subjects

Informations

Published by
Reads 8
Language English
Report a problem

AWARENESSccounting and Auditing Developments Issue 9 OCTOBER 2003
AUDIT OFFICE 1AUDIT OFFICE UPDATE
UPDATE
PERFORMANCE AUDIT REPORT-FREEDOM OF INFORMATION
ACCOUNTING 3MINISTRY OF TRANSPORT, PREMIER’S DEPARTMENT, DEPARTMENT
UPDATE
OF EDUCATION AND TRAINING
Freedom of information (FOI) laws aim to give people the right to obtain access to AUDITING 7
information held by the Government. They have been recognised as a fundamental UPDATE
element of government accountability and modern democracy, and have been
URGENT ISSUES 9adopted by governments worldwide.
GROUP UPDATE
In this audit we examined FOI arrangements in three government agencies. In total
we looked at 84 FOI requests for non-personal information. INTERNATIONAL 11
UPDATEWe did not review the basis of decisions. Rather we wanted to find out whether
agencies acted in accordance with the spirit of FOI legislation. In particular, whether
MISCELLANEOUS 11
they: facilitate and encourage, promptly and at the lowest reasonable cost, the
PUBLICATIONS
disclosure of information (Section 5(3)(b) FOI Act 1989).
PREMIER’S 12Audit Opinion
DEPARTMENT
FOI Coordinators and their staff were supportive of the legislation. However, the
UPDATE
agencies we examined can do considerably more to fully achieve the intentions of
the Act. AUDIT OFFICE 13
BETTER PRACTICEOn the positive side, all three had processes in place to handle requests and had
GUIDESmade a number of changes to improve the effectiveness of the FOI process. Fees and
charges had also been kept to a minimum. No processing fees were requested in the
majority of cases, and if charged, were not unreasonable.
We believe there is value in making further improvements to address the following
issues:
processing fees being charged in some cases and not others even though a
similar amount of work had been undertaken
little documented evidence of the extent of searching which had been
undertaken to locate documents, making subsequent reviews more difficult
supporting reasons for refusing access to information not always being provided
to applicants
involvement of CEOs or Ministerial staff prior to determinations being finalised.
This opens the possibility for perceptions of interference and may affect an
agency’s capacity to conduct an unbiased internal review
no routine or formal analysis of reviews of decisions to determine whether
changes in practice are required
timeframes not being achieved.
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
CONTENTSRecommendations
This report illustrates the range of challenges which agencies may face when handling FOI requests. While
we examined only three agencies, the issues and recommendations apply to all organisations responsible
for handling FOI requests.
Further information
Stephen Horne, Director Performance Audit Phone: 02 9285 0078
E-mail: stephen.horne@audit.nsw.gov.au.
This report was tabled in Parliament on 28 August 2003 and can be accessed at www.audit.nsw.gov.au.
NSW POLICE AND NSW ROADS AND TRAFFIC AUTHORITY: DEALING WITH
UNLICENSED AND UNREGISTERED DRIVING
The audit looked at how well the Roads and Traffic Authority (RTA) and the NSW Police work together
to deal with unlicensed and unregistered driving. RTA registers motor vehicles and licenses drivers, and
the NSW Police detects breaches of the law.
Laws require that drivers must be licensed and vehicles must be registered. These laws are designed to
ensure that people drive safely and that vehicles are roadworthy.
In New South Wales, 561 people died as a result of road accidents in 2002 and over 28,000 were injured.
Apart from the personal trauma, the RTA estimates the cost of the State’s road accidents at around $2.5
billion per year.
Key Findings
Over the last few decades, improved vehicle design and the efforts of the RTA and Police have significantly
reduced road accident trauma. However more needs to be done to address unlicensed and unregistered
driving.
RTA and Police do not know the extent of unlicensed driving, as they have not agreed on a method to
determine this.
Police do not have technology that can quickly check licence and registration details against RTA records
when they stop vehicles. Consequently they are only checking these details in one in 20 vehicle stops.
Also the law does not allow ‘red-light’ and speed cameras to be used to detect unregistered vehicles.
Less than one in 4 fines for unlicensed and unregistered driving are paid. Courts are more likely to dismiss
suspended driving cases if Police are unable to establish that the driver was aware of the suspension.
Under current law a driver who claims not to have been informed that their licence or vehicle registration
has been suspended has a valid defence if the claim cannot be refuted.
We found a significant level of repeat offending. Seventy per cent of unlicensed driving charges going to
court are second or subsequent offences.
2 3The Audit Office of New South Wales The Audit Office of New South WalesRecommendations
We recommend that the Government consider:
giving police power to conduct random licence and registration checks
using red light and speed cameras to detect unregistered vehicles
the adequacy of arrangements for notifying drivers of licence suspension
the effectiveness of arrangements for enforcing laws relating to unauthorised driving.
We recommend that the NSW Police and RTA improve arrangements for the appropriate exchange of
information.
We recommend that the NSW Police improve the information available to target and detect unauthorised driving
and in particular:
equip police on the roadside with technology that can quickly verify licence and registration details
facilitate the exchange of information with the Infringement Processing Bureau
improve the integration of traffic policing with other policing activities.
We recommend that the RTA ensure that customers are informed of licence and registration suspension and
cancellation.
Further information
Tom Jambrich Assistant Auditor-General Performance Audit Phone: 02 9285 0051 E-mail: tom.jambrich@
audit.nsw.gov.au
This report was tabled in Parliament on 4 September 2003 and can be accessed at
www.audit.nsw.gov.au.
ACCOUNTING UPDATE
CHANGE TO PROCESS FOR ISSUING AUSTRALIAN EQUIVALENTS TO INTERNATIONAL
ACCOUNTING STANDARDS
The Australian Accounting Standards Board (AASB) decided on 4 September 2003 to change its proposed
schedule for making AASB standards equivalent to International Financial Reporting Standards (IFRSs).
The decision was based on a legal opinion the Board has received, relating to the process of making
standards. It does not affect the policy of adopting the standards of the International Accounting
Standards Board (IASB) in Australia by 1 January 2005 (as announced by the Financial Reporting Council
(FRC) in July 2002).
Previously, the AASB had intended to issue the new AASB standards in a staged process, making each
Standard as it was approved. The Board has now decided that all Australian equivalents to IASB standards
will be made at the same time, when the set is complete. This is likely to be around April 2004, following
finalisation by the IASB (by 31 March 2004) of all its standards.
Until then, the AASB will continue its schedule of approving the equivalents and, subject to resolution of
copyright issues, place them as Proposed Standards on its web site, available for downloading.
2 3The Audit Office of New South Wales The Audit Office of New South WalesPROCESS OF CONVERGENCE
As part of the process to converge Australian Accounting Standards with International Reporting Standards,
the Australian Accounting Standards Board (AASB) has issued the following Exposure Drafts. The preface
to each Exposure draft:
Compares the requirements in the International Standard to those in the current Australian
equivalent
Identifies differences between the International Standard and the equivalent International Public
Sector Standard (IPSAS)
Proposes Amendments to the current Australian equivalent, and
Seeks comments on specific issues.
ED 121 REQUEST FOR COMMENT ON IAS 31 FINANCIAL REPORTING OF INTERESTS
IN JOINT VENTURES
The Exposure Draft identifies the following incompatibilities between AASB 1006 and IAS 31:
1. IAS 31 applies to investors in a joint venture that are not venturers. In contrast, AASB 1006 applies
only to venturers.
2. IAS 31 requires entities that are acquired and held exclusively with a view to their disposal in the
near future and entities operating under severe long-term restrictions that significantly impair their
ability to make distributions to the venturer to be accounted for in accordance with IAS 39. Under
IAS 39, such investments would generally be classified as available-for-sale financial assets and
measured at fair value without any deduction for disposal costs. AASB 1006 excludes such entities.
Therefore, the treatment of investments in such entities under Australian GAAP is governed by the
general requirements of AASB 1041.
3. AASB 1006 requires, and IAS 31.32 permits as an allowed alternative treatment, a venturer to
measure its interest in a joint venture entity in its consolidated financial report by applying the
equity method.
The Exposure Draft discusses the following areas where the level of guidance differs between the
Standards:
1. Identifying entities acquired and held exclusively with a view to disposal in the near future
2. Recognition criteria for assets, liabilities, expenses and revenue for joint venture operations
3. Venturer’s separate financial report for a joint venture entity
4. Venturer’s consolidated financial report for a joint venture entity
5. Liability recognition for a joint venture entity
6. Elimination of unrealised profits and losses for a joint venture entity
7. Determining profits and losses on transactions between venturers.
4 5The Audit Office of New South Wales The Audit Office of New South WalesInternational Public Sector Accounting Standards (IPSAS) 8 uses different terminology, in certain
instances, from IAS 31. The most significant examples are “entity”, “revenue”, “statement of financial
performance”, “statement of financial position” and “net assets/equity” in IPSAS 8. The equivalent
terms in IAS 31 are “enterprise”, “income”, “income statement”, “balance sheet” and “equity”. Note,
however, that as part of its Improvements project, the IASB proposes to replace the term “ enterprise”
with “entity” in IAS 31.
IPSAS 8 uses a different definition of joint venture from IAS 31. The term contractual arrangement” has
been replaced by “binding arrangement”.
IPSAS 8 includes a transitional provision that permits entities that adopt the benchmark treatment to not
eliminate all balances and transactions between entities within the economic entity for reporting periods
beginning on a date within three years following the date of first application of this Standard.
The proposed Standard is to be operative for annual reporting periods beginning on or after 1 January
2005.
The comment period ends on 31 October 2003.
ED 122 REQUEST FOR COMMENT ON IASB ED 5 INSURANCE CONTRACTS
The AASB is proposing to take the following approach:
issuing IASB ED 5 in full, for public comment, without amendment
proposing to delete from AASB 1023 Financial Reporting of General Insurance Activities and AASB 1038
Life Insurance Business the requirements which are not related to insurance contracts and which are
addressed by other IASB Standards
proposing to amend in AASB 1023 and AASB 1038 requirements that are inconsistent with IASB ED 5
proposing to cross-reference AASB 1023 and AASB 1038 to the proposals of IASB ED 5 which are not
addressed by AASB 1023 and AASB 1038.
The following explains the most fundamental changes to AASB 1023 and AASB 1038 proposed in this ED.
AASB 1023
1. Recognise premium revenue on a fully prospective basis from the attachment date. Recognise
premium liability in the balance sheet. Currently premium revenue is earned in accordance with the
pattern of risk and unearned premium and deferred acquisition costs recognised in the balance
sheet.
2. Outstanding claims and premium liability to include a risk margin. Currently outstanding claims
liability reflects expected future payments.
3. Discount outstanding claims and premium liability to be included at a rate that reflects the assumption
that the value of insurance liabilities is independent of the value of insurance assets. Currently
requires discount of outstanding claims liability at a rate that reflects the returns anticipated on
insurance assets.
4. Scope includes Medical Benefits Organisations. Currently scope excludes medical benefits insurance.
4 5The Audit Office of New South Wales The Audit Office of New South Wales5. Assets of a general insurer that are integral to an entity’s general insurance activities to be
treated under Australian equivalents to IAS 39, 32, 40 and 16. However, entities to apply the fair
value measurement “option” to all assets of a general insurer which are integral to an entity’s
general insurance activities. Currently assets of a general insurer that are integral to an entity’s
general insurance activities measured at net market value.
AASB 1038
1. Contracts that do not meet the proposed definition of an insurance contract will fall within the
scope of IAS 39, for example, most unit-linked business sold by life insurers. Currently scope includes all
business sold by life insurers registered under the Life Insurance Act 1995.
2. Scope to include Friendly Societies registered under the Life Insurance Act 1995. Currently it excludes
these Societies.
3. Policy liabilities to be discounted at a rate which reflects the assumption that the value of insurance
liabilities is independent of the value of insurance assets. However, where the value of the liability is
dependent upon the value of the asset, the discount rate will reflect this. Currently the policy liabilities
are discounted at a rate which reflects the returns anticipated on insurance assets.
4. To apply Australian equivalents to IAS 39, 32, 40 and 16 to all assets of a life insurer. However,
entities to apply the fair value measurement “option” to all assets of a life insurer. Currently all assets
of a life insurer are measured at net market value.
5. To apply IAS 39 and 32 to financial liabilities arising from investment contracts (non-insurance
contracts) written by life insurers. However, entities to apply the fair value measurement “option” to
all financial liabilities arising from investment contracts, that is designate them as held for trading.
Currently all life insurance policy liabilities measured using Margin on Services method.
6. To delete the excess of net market value of an interest in a subsidiary over the net assets requirement.
Currently Life insurers recognise the excess of net market value of an interest in a subsidiary over the net
assets of the subsidiary in the consolidated financial report of a life insurer.
Loss Recognition
It is proposed that the Standard arising from AASB ED 122 will require insurers to carry out a loss
recognition test. If an insurer’s current accounting policies do not require a loss recognition test that
meets the minimum requirements, insurers must apply IAS 37. The AASB believes that neither AASB
1023 nor AASB 1038 meet the minimum requirements of AASB ED 122 and, therefore, the AASB proposes
amending both standards as this is seen as preferable to applying IAS 37 to insurance contracts.
The proposed Standard is to be operative for annual reporting periods beginning on or after 1 January 2005.
The comment period ends on 15 October 2003.
6 7The Audit Office of New South Wales The Audit Office of New South WalesED 123 REQUEST FOR COMMENT ON IASB ED OF PROPOSED AMENDMENTS TO
IAS 39 FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT-FAIR VALUE
HEDGE ACCOUNTING FOR A PORTFOLIO HEDGE FOR A PORTFOLIO HEDGE OF
INTEREST RATE RISK
The IASB has proposed an approach to portfolio hedging that it believes is consistent with the principles
that underlie IAS 39 for fair value hedge accounting, while being workable in practice.
The approach is explained in detail in the Basis for Conclusions and Application Guidance of the IASB ED.
The main features of the approach are:
an entity can apply fair value hedge accounting to a portfolio hedge
the hedged item can be determined using the scheduling (of the assets and liabilities that make up
the portfolio) that is used for risk management purposes
the item designated as the hedged item for a given time period must be a percentage of assets or a
percentage of liabilities that are scheduled into that time period
the calculation of ineffectiveness must include the effect of prepayment, either because of actual
prepayment, or because of changed expectations about the amount of assets and/or liabilities in the
time period
demand deposits (sometimes called core deposits) cannot be designated as the hedged item (however
these liabilities may be used to determine the amount of assets or liabilities to which fair value
hedge accounting will apply); and
any gain or loss on the hedged item must be presented in the balance sheet as a separate line item
within assets or liabilities.
The AASB is concerned that Australian entities may have views on fair value hedge accounting for a
portfolio hedge that differ from the views articulated by entities in other jurisdictions.
The IASB is seeking comments on its proposed amendments by 14 November 2003. Constituents should
respond to the IASB, with copies of those responses to the AASB by 31 October 2003. This will enable the
AASB to consider Australian constituents’ comments in the process of formulating its own comments to
the IASB.
AUDITING UPDATE
ED 84 AND ED 85
These exposure drafts (refer articles below) of the International Auditing and Assurance Standards Board
(IAASB) were approved for exposure in August 2003 by the AuASB. The proposed Australian Auditing
and Assurance Standard (AUS)s may be modified in light of comments received before being issued in
final form. In particular, the final AUSs will be conformed to new AUSs issued when the Audit Risk ED is
finalized.
6 7The Audit Office of New South Wales The Audit Office of New South WalesED 84 PROPOSED REVISED AUSTRALIAN STANDARD ON AUDITING AND ASSURANCE
(AUS 210)-THE AUDITOR’S RESPONSIBILITY TO CONSIDER FRAUD IN AN AUDIT OF A
FINANCIAL REPORT
The proposed AUS/ISA revises existing AUS 210/ISA 240, and deals only with the auditor’s responsibility
to consider fraud in an audit of financial statements. The Audit Risk ED provides general guidance on
the auditor’s responsibility to consider both fraud and error. It is proposed that certain paragraphs from
existing AUS 210/ ISA 240, providing specific guidance with respect to error, will be moved to other AUSs/
ISAs. These paragraphs are noted at the end of this exposure draft.
The proposed AUS/ISA distinguishes fraud from error and describes the two types of fraud that are
relevant to the auditor – misstatements resulting from misappropriation of assets and misstatements
resulting from fraudulent financial reporting. It describes the respective responsibilities of those charged
with governance and the management of the entity for the prevention and detection of fraud, and sets
out the responsibilities of the auditor with respect to fraud.
The proposed AUS/ISA incorporates the basic principles and essential procedures contained in the US
Statement on Auditing Standard (SAS) 99 “Consideration of Fraud in a Financial Statement Audit”. It also
provides additional guidance about earnings management and the audit of small entities.
The comment period ends on 31 October 2003.
ED 85 PROPOSED REVISED AUSTRALIAN STANDARD ON AUDITING AND ASSURANCE
(AUS 302)-PLANNING THE AUDIT
In light of changes needed to align the guidance on audit planning with the proposed guidance in the
Audit Risk ED the IAASB approved a project to revise AUS 302/ISA 300, “Planning” (Existing AUS 302/ISA
300). This exposure draft establishes standards and provides guidance on the considerations and activities
applicable to planning an audit of financial statements.
Existing AUS 302/ISA 300 states that obtaining knowledge of the entity’s business is an important part of
planning an audit. The Audit Risk ED includes audit procedures to obtain an understanding of the entity’s
business, which have been broadened to encompass a more in-depth understanding of the entity and its
environment, including its internal control. As a result of the proposed guidance in the Audit Risk ED, the
scope of audit planning in Proposed AUS 302/ISA 300 no longer includes an understanding of the entity
and its internal control.
Proposed AUS 302/ISA 300 still includes planning considerations relating to overall strategic audit
decisions as well as the planning of detailed audit procedures. Existing AUS 302/ISA 300 discusses the
requirement for the auditor to develop an “overall audit plan” and an “audit program”. The IAASB/
AuASB believe these concepts should be revised to be more reflective of recent trends in audit practice
related to planning activities and to be better aligned with the proposed guidance in the Audit Risk ED.
As a result, Proposed AUS 302/ISA 300 discusses the requirement for the auditor to develop an “overall
audit strategy” and an “audit plan”. The audit plan begins by planning risk assessment procedures. Once
these procedures have been performed it is updated and changed to reflect the further audit procedures
needed to respond to the results of the risk assessments.
8 9The Audit Office of New South Wales The Audit Office of New South WalesIn addition to the changes discussed above, Proposed AUS 302/ISA 300 includes the following:
activities the auditor should perform prior to performing the detailed audit planning activities
guidance on matters the auditor should consider in planning the timing and extent of direction,
supervision and review of the work of engagement team members
revised documentation requirements
guidance on the special planning considerations for initial audit engagements
guidance from AGS 1048/IAPS 1005, “The Special Considerations in the Audit of Small Entities”.
The comment period ends on 31 October 2003.
URGENT ISSUES GROUP UPDATE Meeting 18 September 2003
REVIEW OF UIG ABSTRACTS FOR 2005
Members continued their review of UIG Abstracts and International Interpretations to identify differences
between them. The review will enable the members to identify changes in practice expected from 2005
under the adoption of the International Interpretations, in conjunction with the AASB’s program to adopt
International Standards by 2005.
Members formally withdrew the following Abstracts, subject to veto by the AASB:
Abstract 15 “Early Termination of Foreign Currency Hedges”
Abstract 18 “Early Termination of Gold Hedges”
Abstract 26 “Accounting for Major Cyclical Maintenance”
Abstract 35 “Disclosure of Contingent Liabilities”; and
Abstract 48 “Status of Tax Consolidation Legislation”.
TAX CONSOLIDATION ACCOUNTING: IMPLEMENTATION GUIDANCE
The UIG considered a range of issues concerning the implementation of Abstract 52 Income Tax Accounting
under the Tax Consolidation System.
Members will consider revisions to Abstract 52 at the next meeting.
SECURITISATION
The UIG discussed Abstract 28 Consolidation – Special Purpose Entities, given concerns over its
interpretation in relation to securitisation arrangements. Members agreed to consider some illustrative
examples to determine how the Abstract should be applied in some common circumstances. The
illustrative examples are intended to identify key features affecting the treatment of special purpose
entities.
8 9The Audit Office of New South Wales The Audit Office of New South WalesCOMBINING AND SEGMENTING CONSTRUCTION CONTRACTS
The UIG considered a proposed draft IFRIC Interpretation Combining and Segmenting Contracts that
proposes further criteria for combining or segmenting contracts under IAS 11 Construction Contracts. UIG
members did not object to the proposals.
CHANGES IN DECOMMISSIONING, RESTORATION AND SIMILAR LIABILITIES
UIG members discussed a draft submission to IFRIC on its Draft Interpretation D2 Changes in
Decommissioning, Restoration and Similar Liabilities, which is open for comment until 3 November
12003 .
Members confirmed their view that the retrospective approach to the treatment of a change in accounting
estimate was not consistent with the approach in the proposed improved IAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors. Members also noted that the Draft Interpretation should
address the accounting when the related asset is measured at fair value.
ISSUE PROPOSALS
Inventory Purchase Discounts and Rebates
This issue concerns the accounting for settlement discounts, volume rebates and similar items, such as
promotional rebates. The UIG agreed that this issue was significant in Australia, but since the issue arises
equally in relation to IAS 2 Inventories, members also agreed that IFRIC should be requested to address
the issue in the first instance.
Accounting for Earthworks
Members decided to obtain further information about accounting for earthworks before the UIG Agenda
Committee decides whether to include the topic on the UIG’s work program. Members noted that the
issue could be relevant to public sector entities (including local and state governments) as well as to
developers and some agricultural and mining activities. Comments on the issue are invited.
Purchased Delinquent Debt Portfolios
The UIG considered that this issue, which concerns the method of revenue recognition for proceeds
collected from purchased delinquent debt portfolios was unlikely to be of widespread significance, and
took the view that it should not be added to the UIG’s work program.
The next meeting will be held in Adelaide on 30 October 2003.
1 Refer International Update this Awareness
10 11The Audit Office of New South Wales The Audit Office of New South Wales