Independent assurance and corporate reporting

Sound financial and corporate reporting structure

LIGHTHOUSE PRINCIPLE: CORPORATE REPORTING

(based on ASX Principle 4)

The integrity of our financial information is safeguarded by a number of key mechanisms.

Audit and Risk Committee

The Audit and Risk Committee independently reviews the objectivity and reliability of the Audit Office’s financial information, and ensures the financial statements are supported by appropriate management sign-off on the adequacy of internal controls. At each meeting, financial reports and budgets are presented to the committee for review. A special meeting is also held annually to review the annual financial statements.

Internal audit

Our internal auditors add value and improve our operations by monitoring and providing independent and objective assurance to the Audit and Risk Committee, and ultimately the Auditor-General. The internal audit function brings a systematic, disciplined approach to evaluate and improve organisational systems, processes and reporting. The internal auditors attend each quarterly Audit and Risk Committee meeting to report on the progress of the Internal Audit Plan and present the findings of their reviews. Our internal audit function is externally resourced.

In 2016−17, the internal auditors reviewed:

  • procurement and contract management
  • systems and processes supporting the development of our Auditor-General’s Reports to Parliament
  • performance management framework
  • recruitment and retention
  • Audit Office readiness for the Public Accounts Committee quadrennial review
  • follow up of previous internal audit findings and recommendations.

During the year an external quality assessment of our internal audit function confirmed that the Audit Office is generally conforming with TPP15-03 ‘Internal Audit and Risk Management Policy’.

External audit

Pursuant to Section 47 of the Public Finance and Audit Act 1983, the Governor of New South Wales appointed an independent audit practitioner to audit the Audit Office’s financial statements. The external auditor, Nexia Australia, provides an independent opinion on whether the Audit Office’s financial statements are true and fair and comply with applicable Australian Accounting Standards. The external auditor also attends all Audit and Risk Committee meetings.

Auditor-General and Management Internal Control Sign-Off

The Auditor-General certifies that the Audit Office’s financial statements give a true and fair view and are prepared in accordance with applicable Australian Accounting Standards, the Public Finance and Audit Act 1983, the Public Finance and Audit Regulation 2010, the Financial Reporting Code for NSW General Government Sector Entities and Treasurer’s Directions.

This certification is supported by the Management Internal Control Sign-Off (see appendix nine for further information) and the Chief Financial Officer’s sign-off as to the effectiveness of internal controls over financial information. The Chief Financial Officer’s sign-off is supported by the completion of an internal control questionnaire

Independent quality assurance program

The Audit Office has established a system of quality control designed to provide assurance that it complies with Australian Auditing Standards, relevant ethical requirements, and applicable laws and regulations. This is achieved through the Quality Audit Review Committee, which monitors the quality of financial audit engagements and provides the Auditor-General with reasonable assurance they comply with the requirements of ASQC 1 Quality Control for Firms that Perform Audits and Reviews of Financial Reports and Other Financial Information, Other Assurance Engagements and Related Service Engagements, APES 320 Quality Control for Firms.

The Quality Audit Review Committee is accountable to the Auditor-General, is chaired by the Executive Manager Governance, and comprises at least four people who are:

  • appropriately experienced and qualified
  • drawn from our financial audit and performance audit branches, or external, independent members of the profession.

External reviews provide important scrutiny of the Audit Office’s quality control systems and processes and help benchmark the effectiveness of the Audit Office’s quality control systems and processes.

The Audit Office is subject to or has participated in the following external reviews:

  • a quadrennial review by a person appointed by the Public Accounts Committee to examine the auditing practices and standards of the Auditor-General. The next review is scheduled for 2017–18
  • periodic reviews of aspects of the Audit Office by peer reviewers arranged under a quality assurance framework sponsored by the Australasian Council of Auditors-General (ACAG). The most recent peer review was conducted in 2016–17 and was led by the Western Australian Office of the Auditor-General. The review confirmed that there is very sound governance and audit practice management in place at the Audit Office. Performance and financial audit engagement files reviewed were supported by sufficient and appropriate audit evidence and were rated either ‘better practice’ or ‘good with limited improvement opportunities’.
Quality assurance reviews

The Audit Office reviews the quality of its financial audits annually. The reviews may be coaching reviews, where files are reviewed in progress, or monitoring reviews, where files are reviewed on completion. The quality review program covers the audits the Audit Office conducts internally and those contracted to private sector firms (our contract audit agents).

The assurance review program for financial statement audits is managed by the Audit Support Team. During 2016–17, 12 financial statement audits were reviewed. The reviews consisted of six coaching reviews and six monitoring reviews.

The results of these reviews are reported to the Quality Audit Review Committee. The Quality Audit Review Committee is responsible for ensuring the process, conclusions and any remedial actions are communicated to the audit team, the Auditor-General, the Audit and Risk Committee, the Office Executive, and the Audit Office’s contract audit agents.

The findings from the 2015–16 financial statement audit reviews related to the sufficiency and adequacy of audit documentation. Deficiencies identified included:

  • insufficient documentation of the client’s business and accounting processes and the related controls activities
  • inappropriate and insufficient audit procedures to respond to the risk of management override through journals
  • audit teams not assessing compliance with the Audit Office’s rotation policies (which exceed mandatory requirements).

Despite these deficiencies, all assurance conclusions were found to be appropriate in the circumstances. The results of the quality reviews are communicated to staff at a debrief session highlighting the deficiencies identified. The results of quality reviews are communicated to contract audit agents individually and annually at the Contract Audit Agents Forum. Quality findings inform the learning and development program of the Audit Office to promote an environment of continuous improvement.

Based on the completed internal and external reviews, the Auditor-General is satisfied that the system of quality control functioned effectively in 2016–17.

Independence practices

The Audit Office’s commitment to high ethical and professional standards underpins the quality of our work.

The Audit Office’s independence policy requires staff and contractors engaged in audits to comply with the relevant provisions of APES 110 Code of Ethics for Professional Accountants relating to independence so independence of mind and appearance is maintained throughout the audit.

Performance reporting

In 2016−17, performance against the Audit Office’s strategic plan was tracked and reported to staff. Lead managers and executive sponsors met quarterly to review milestones and key performance indicators and track progress towards achieving overall outcomes.

Regular financial and operational reports were presented to the Office Executive, Financial Audit Executive and Performance Audit Executive to monitor our audits and related reporting. These were also supported by regular reports on the performance of our Corporate Services function.

Transparency reporting

The Corporations Act 2001 includes requirements for annual transparency reporting by auditors.

Although the Audit Office is not subject to the requirements, the Audit Office has embraced the principles of transparency reporting. Appendix eleven summarises the requirements that are relevant to the Audit Office and shows where the required information is presented in this annual report.

The year ahead

In 2017−18, our internal auditors will focus on key areas of risk in our audit practices and corporate systems.

We will also in 2017–18:

  • review the governance arrangements of our strategic initiatives and planning process
  • ensure our performance reporting is based on our revised strategic and branch business plans
  • include progress in our performance reporting against our strategic initiatives and revised key performance and branch business plan indicators.

Further information on our 2017-18 strategic initiatives can be found here.