with the Commonwealth Fraud Control Guidelines.

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1 OPINIONS Summer 2015 Opinions is published each quarter to provide our clients with information on developments in financial reporting and disclosure, together with details of recently tabled ANAO performance audits and better practice guides. This edition of Opinions provides updated information since the Autumn 2014 edition and lists performance audits scheduled for release in the January to March 2015 period. ANAO AUDIT REPORTS recently TABLED AUDIT REPORTS The following section contains the objectives of ANAO audit reports tabled from October to December To view an electronic copy of the full audit report left click the symbol ( ) next to the relevant title. A complete copy of all ANAO reports can be obtained from the ANAO website at: For further details phone the Publications Officer on (02) Audit Report No 3: Fraud Control Arrangements The audit objective was to examine selected entities effectiveness in implementing entity-wide fraud control arrangements, including compliance with the requirements of the 2011 Commonwealth Fraud Control Guidelines, and the overall administration of the fraud control framework by the Attorney-General s Department (AGD). In addition to examining AGD s overall administration of the fraud control framework, the ANAO examined AGD s implementation of the ANAO s most recent performance audit on fraud control. Further, the ANAO examined the relationship between AGD and the Australian Institute of Criminology, relating to the production of two annual reports to government: Fraud Against the Commonwealth and Compliance with the Commonwealth Fraud Control Guidelines. Audit Report No 4: Second Follow-up Audit into the Australian Electoral Commission s Preparation for and Conduct of Federal Elections the adequacy and effectiveness of the Australian Electoral Commission s implementation of recommendations made in Report No relating to: a more strategic approach to election workforce planning; the suitability and accessibility of polling booths and fresh scrutiny premises; and the transport and storage of completed ballot papers, in respect to matters not fully addressed in ANAO Audit Report No INSIDE THIS EDITION ANAO Audit Reports Recently tabled reports Reports scheduled to be tabled January to March 2015 ANAO Better Practice Guides Recently published Guides Guides scheduled to be published January to March 2015 Australian Accounting Standards Board (AASB) Developments New, revised and amending Accounting Standards and Interpretations Exposure Drafts, Invitations to Comment and Consultation Papers Department of Finance Publications Resource Management Guides

2 RECENTLY TABLED AUDIT REPORTS Audit Report No 5: Annual Compliance Arrangements with Large Corporate Taxpayers the effectiveness of the Australian Taxation Office s (ATO) administration of annual compliance arrangements with large corporate taxpayers. To form a conclusion against this objective, the ANAO adopted the following high level criteria: the governance arrangements for Annual Compliance Arrangements (ACA) are well planned and effective; there are sound processes for identifying entities to enter into an ACA; results achieved to date reflect initial expectations of ACAs; and individual ACAs are effectively administered, in accordance with internal policies and procedures, to achieve intended benefits. Audit Report No 6: Business Continuity Management the adequacy of selected Australian Government entities practices and procedures to manage business continuity. To conclude against this objective, the ANAO adopted highlevel criteria relating to the entities establishment, implementation and review of business continuity arrangements. The ANAO examined Business Continuity Management (BCM) arrangements and practices in the: Civil Aviation Safety Authority; Department of Finance; and Department of Social Services. For these entities, the ANAO assessed the BCM framework and approach, including: key documentation (such as BCM policy and Business Continuity Plans); entity responses to actual events; BCM exercises and testing activities; and monitoring and review. Audit Report No 7: Administration of Contact Centres how effectively and efficiently the ATO managed contact centres as part of its overall service delivery strategy. To form an opinion against the audit objective, the ANAO adopted the following highlevel criteria: contact centres are effectively integrated with other ATO client communication channels, such as the online and on-site channels; contact centres are supported by effective business and administrative arrangements; contact centres provide a high level of client service; and contact centres are managed efficiently. The audit principally focused on the ATO s handling of incoming telephone calls by contact centres. Audit Report No 8: Implementation of Audit Recommendations The audit objective was to assess the effectiveness of the Department of Health s (Health) monitoring and implementation of ANAO performance audit and internal audit recommendations. The ANAO examined a sample of 220 such recommendations to assess the timeliness of Health s implementation of the recommendations. A subset of seven closed ANAO performance audit recommendations and seven closed internal audit recommendations was also analysed in detail to assess the adequacy of the implementation of the recommendations. To conclude against the audit objective, the ANAO examined whether Health s arrangements for monitoring the implementation of audit recommendations: provided adequate visibility and assurance to departmental management regarding the status of audit recommendations, with appropriate involvement by the Audit Committee and internal audit function; and facilitated appropriate and timely implementation by agency management of ANAO, and internal audit, recommendations. The ANAO also compared Health s overall performance in implementing recommendations against seven other departments that had been the subject of recent ANAO audits on the implementation of audit recommendations. 2 OPINIONS Summer 2015

3 RECENTLY TABLED AUDIT REPORTS Audit Report No 9: The Design and Conduct of the Third and Fourth Funding Rounds of the Regional Development Australia Fund the effectiveness of the design and conduct of the third and fourth funding rounds of the Regional Development Australia Fund. The scope of the audit included the processes by which proposals were sought and assessed and successful projects were approved for funding. The audit criteria reflected the financial and grants administration frameworks then in effect, including the Commonwealth Grant Guidelines and the ANAO s grants administration Better Practice Guide. Audit Report No 10: Administration of the Biodiversity Fund Program the effectiveness of the Department of the Environment s administration of the Biodiversity Fund program. To form a conclusion against the objective, the ANAO adopted the following high-level criteria: governance arrangements were appropriate; grant assessment processes to select funded projects under the program were open, transparent, accountable and equitable; negotiation and management of funding agreements with approved applicants were sound; and effective monitoring, reporting and evaluation arrangements were established to determine the extent to which the program has achieved its objectives. Audit Report No 11: The Award of Grants under the Clean Technology Program The audit objective was to assess the effectiveness and equity of the award of funding under the Clean Technology Program in the context of the program objectives and the Commonwealth s grants administration framework. The scope of the audit included the design of the programs, as well as the assessment and decision-making processes in respect to the 1171 applications that were received. The audit scope was focused on the application and assessment processes up to the point at which funding was awarded and a funding agreement signed, and also included analyses of the distribution of funding (including in electorate terms) and the announcement and reporting of grant funding. The scope did not include the administration of the Clean Technology Innovation Program. Audit Report No 12: Diagnostic Imaging Reforms The audit objective was to assess the effectiveness of Health s implementation of the Diagnostic Imaging Review Reform Package. To conclude on this objective, the ANAO examined the progress and impact of the reform initiatives to date and whether Health has: worked effectively with stakeholders and planned for implementation of the reform measures; monitored and reported on the progress of achievements of the reform package; effectively progressed initiatives intended to improve the financial sustainability of Medicare related to diagnostic imaging, in particular improving appropriate requesting of imaging services and addressing fee relativities and incentives; effectively implemented reforms to enable patient access to affordable and convenient MRI services; and enabled diagnostic imaging service quality and safety enhancements by introducing relevant regulations and guidance in a timely manner. Audit Report No 13: Management of the Cape Class Patrol Boat Program the effectiveness of the Australian Customs and Border Protection Service s management of the Cape Class patrol boat program. To form a conclusion against this objective, the ANAO adopted the following high-level criteria: sound capability development and government approval processes were in place to deliver the best value for money; the contract arrangements are currently facilitating the delivery of the program at the agreed cost, schedule and performance parameters; appropriate governance and program oversight arrangements were in place; and OPINIONS Summer

4 RECENTLY TABLED AUDIT REPORTS suitable arrangements have been established for the future operation of the capability through the inservice support arrangements, crew recruitment and training, and the necessary support infrastructure. Audit Report No 14: Major Projects Report The objective of this report is to provide the Auditor-General s independent assurance over the status of 30 selected Major Projects, as reflected in the Statement by the Chief Executive Officer Defence Materiel Organisation (DMO), and the Project Data Summary Sheets (PDSSs), prepared by the DMO. Assurance from the ANAO s review of the preparation of the PDSSs is conveyed in the Auditor-General s Independent Review Report, prepared pursuant to the Guidelines endorsed by the Joint Committee of Public Accounts and Audit. Audit Report No 15: Administration of the Export Market Development Grants Scheme the effectiveness of the Australian Trade Commission s administration of the Export Market Development Grants (EMDG) scheme, in providing incentives to small and medium Australian enterprises for the development of export markets. To form a conclusion against the audit objective, the ANAO adopted the following high level criteria: effective governance arrangements, including appropriate risk management, performance measurements and reporting processes were in place; an accessible grant application process to maximise the attraction and selection of high quality applications was established; and sound processes for risk assessing, approving and distributing payments, consistent with the EMDG scheme objectives were implemented. Audit Report No 16: Audits of the Financial Statements of Australian Government Entities for the Period Ended 30 June 2014 This report provides a summary of the final results of the audits of the annual financial statements of all Australian Government entities, including the Consolidated Financial Statements for the Australian Government. Audit Report No 17: Recruitment and Retention of Specialist Skills for Navy The audit objective was to examine the effectiveness of the Royal Australian Navy s (Navy) strategy for recruiting and retaining personnel with specialist skills. In particular, the ANAO assessed whether: this strategy supported Navy in maintaining and building military capability and carrying out its mission; and the plans and activities underpinning this strategy were effectively administered and implemented. ANAO AUDIT reports SCHEDULED TO BE TABLED JANuary TO MarCH 2015 Management of the Disposal of Specialist Military Equipment Ethanol Production Grants Program Early Years Quality Fund Administration of Australia s Consular Services Administration of Customs Tariff Concession System Implementation of Defence s Joint ehealth Data and Information Department of Parliamentary Services Management of Parliament House Materiel Sustainment Agreements Indigenous Legal Assistance and Policy Reform Program Administration of the Medical Specialist Training Program Fifth Community Pharmacy Agreement Promoting Organ and Tissue Donation Delivery of Petrol Sniffing Strategy in Remote Indigenous Communities Administration of the Fair Entitlement Guarantee Management of Translating Service Nimmie Caira System Enhanced Environmental Water Delivery Project Administration of the Natural Disaster Relief and Recovery Arrangements 4 OPINIONS Summer 2015

5 ANAO BETTer PRACTICE GUIDES ANAO BETTer PRACTICE GUIDES GUIDES PUBLISHED October TO December 2014 Successful Implementation of Policy Initiatives The ANAO and the Department of the Prime Minister and Cabinet recently published a joint update to the 2006 better practice guide Implementation of Programme and Policy Initiatives. The new guide, titled Successful Implementation of Policy Initiatives, discusses better practice considerations in the implementation of government policy initiatives one of the key responsibilities of government entities so that intended benefits are realised. The guide, which is primarily intended for senior leaders chief executives and senior executives addresses several key developments since the publication of the previous guide, including: changes in the service delivery and regulatory roles of Australian Government entities; continuing pressures on public finances; and new approaches to stakeholders and community engagement. The guide is designed to complement other resources, including guidance available from the Cabinet Implementation Unit, and should also serve as a useful reference for officials supporting senior leaders in the implementation of policy initiatives. Part One of the guide outlines essential preconditions and capabilities for the successful implementation of policy initiatives, including the key role played by an entity s leadership, and also highlights the importance of giving early attention to implementation issues during the policy development stage. Part Two of the guide discusses better practice considerations for successful implementation of policy initiatives across six key elements, namely: governance; managing risk; engaging stakeholders; planning; resources; and monitoring, review and evaluation as a basis for active management. GUIDES EXPECTED TO BE PUBLISHED IN JANuary TO march 2015 Public Sector Audit Committees Preparation of Financial Statements by Public Sector Entities AUSTRALIAN ACCOUNTING STANDARDS BOARD DEVELOPMENTS NEW, REVISED AND AmeNDING ACCOUNTING STANDARDS AND INTerPreTATIONS Copies of the Australian Accounting Standards and Interpretations are available on the AASB website at www. aasb.gov.au or by clicking on the links below. Early adoption of standards and interpretations by Commonwealth entities requires the approval of the Chief Executive of the Department of Finance. AASB 15 Revenue from Contracts with Customers AASB 15 Revenue from Contracts with Customers specifies the accounting treatment for all revenue arising from contracts with customers (except for lease contracts, insurance contracts and financial instruments). AASB 15 will apply to entities currently applying AASB 118 Revenue and/or AASB 111 Construction Contracts. AASB 1004 Contributions will continue to apply to non-reciprocal transactions of notfor-profit entities until the AASB has completed its project on Income from Transactions of NFP Entities. AASB 15 will increase the use of management estimates in revenue recognition and could require significant modification of accounting systems. OPINIONS Summer

6 AASB DEVELOPMENTS The standard uses a five-step model to determine revenue recognition: 1. Identify the contract(s). An entity would apply AASB 15 to a contract with a customer that has commercial substance and meets other specified criteria; one of these is the probability of the entity receiving payment from the customer. The standard provides detailed requirements on contract modifications. A contract modification needs to be accounted for as a separate contract or a modification of the original contract, depending on its features. 2. Identify the performance obligations in the contract. Performance obligations are promises to transfer goods or services that are distinct. A good or service is distinct if the customer can benefit from the good or service on its own or with other resources that are readily available to the customer. Additionally, the good or service needs to be separately identifiable from other promises in the contract. 3. Determine the transaction price. The transaction price is the amount of consideration to which an entity expects to be entitled. It is adjusted for variable consideration, significant financing components and consideration payable to a customer. Variable consideration is only included in the transaction price if it is highly probable that its inclusion will not result in a significant revenue reversal when the uncertainty around the consideration is resolved. 4. Allocate the transaction price. An entity is required to allocate the transaction price to the performance obligations in the contract by reference to their relative stand-alone selling prices. If a stand-alone selling price is not directly observable, the entity will need to estimate it. 5. Recognise revenue when a performance obligation is satisfied. Revenue is recognised when an entity transfers control of the goods and services to the customer. Control is transferred either over time or at a point in time, using the criteria in AASB 15. AASB 15 requires the incremental costs of obtaining a contract to be recognised as an asset if the entity expects to recover those costs. Costs incurred to fulfil a contract are recognised as an asset if the costs: relate directly to a contract; generate or enhance resources of the entity; and are expected to be recovered. AASB 15 requires disclosure of quantitative and qualitative information about: contracts with customers; significant judgements made in applying the requirements; and assets recognised for the costs of obtaining or fulfilling a contract. Upon initial application, entities are required to apply AASB 15 retrospectively to each prior period (subject to practical expedients) or retrospectively to uncompleted contracts at the date of initial application with cumulative effects recognised as an adjustment to the opening balance of retained earnings. AASB 15 applies to annual reporting AASB Amendments to Australian Accounting Standards arising from AASB 15 This Standard incorporates consequential amendments to a number of the Australian Accounting Standards and Interpretations arising from the issuance of AASB 15 Revenue from Contracts with Customers. AASB applies to annual reporting AASB Amendments to Australian Accounting Standards Agriculture: Bearer Plants AASB defines bearer plants and requires them to be accounted for as property, plant and equipment within the scope of AASB 116 Property, Plant and Equipment, rather than AASB 141 Agriculture. Bearer plants are those expected to produce for more than one year and not expected to be sold as living plants and harvested. This Standard also makes various editorial corrections to other Australian Accounting Standards. AASB applies to annual reporting AASB 9 Financial Instruments (December 2014) In December 2014, the Australian Accounting Standards Board issued the final version of AASB 9 Financial Instruments. This new standard supersedes AASB 9 as issued in December 2009 and again 6 OPINIONS Summer 2015

7 AASB DEVELOPMENTS in December This standard incorporates the final requirements from all three phases of the financial instruments project: classification and measurement, impairment and hedge accounting. The previous versions of AASB 9 were discussed in the December 2009 and Summer 2011 issues of the Opinions publication. The latest version of AASB 9 adds detailed rules for impairment and limited amendments to the classification and measurement of financial assets. The main changes are: it is no longer necessary for an identifiable event to occur before impairment losses are recognised. Instead, impairment losses will be recognised based on all reasonable and supportable information about repayment; and financial assets that give rise solely to payments of principal and interest, and that are held for both collecting cash flows and selling financial assets, will be categorised at fair value through other comprehensive income. AASB 9 applies to annual reporting AASB Amendments to Australian Accounting Standards arising from AASB 9 (December 2014) This Standard incorporates consequential amendments to a number of the Australian Accounting Standards and Interpretations arising from the issuance of AASB 9 (December 2014). AASB applies to annual reporting AASB Amendments to Australian Accounting Standards arising from AASB 9 (December 2014) Application of AASB 9 (December 2009) and AASB 9 (December 2010) This Standard makes amendments to AASB 9 (December 2009) and AASB 9 (December 2010) flowing from AASB 9 (December 2014). This Standard permits application of AASB 9 (December 2009) and AASB 9 (December 2010) only to periods before 1 February AASB applies to annual reporting EXPOSure DRAFTS (EDS), INVITATIONS TO COmmeNT (ITCS) AND CONSULTATION PAPerS Exposure Drafts, Invitations to Comment and Consultation Papers mentioned below can be downloaded from the AASB website at or by clicking on the links below. ED 256 Removal of Cross- References from Financial Statements and other Documents October 2014 ED 256 proposes to remove the ability to provide certain disclosures in the financial statements by cross-reference to another document outside the financial statements. The proposal would amend: AASB 1 First-time Adoption of Australian Accounting Standards to remove the ability to provide disclosures by cross-reference from the interim financial report; and AASB 119 Employee Benefits to remove the ability to provide disclosures about defined benefit plans that share risks between entities under common control by cross-referencing to disclosures in another entity s financial statements. This exposure draft proposes that the amendments would apply to annual reporting periods beginning on or after 1 July In addition, retrospective OPINIONS Summer

8 EDS, ITCS AND CONSULTATION PAPerS application of these amendments is proposed in accordance with AASB 108 Accounting Policies, Changes to in Accounting Estimates and Errors. The AASB sought comments on ED 256 by 28 November ED 257 Classification and Measurement of Share-based Payment Transactions - November 2014 ED 257 Classification and Measurement of Share-based Payment Transactions proposes amendments to AASB 2 Share-based Payment. The ED addresses: the effects of vesting conditions on the measurement of a cash-settled share-based payment; the classification of share-based payment transactions with net settlement features; and the accounting for a modification to the terms and conditions of a sharebased payment that changes the classification of the transaction from cash-settled to equity-settled. The AASB seeks comments on ED 257 by 25 February ED 258 Disclosure Initiative (Proposed amendments to AASB 107) December 2014 The Disclosure Initiative is part of the IASB s project to improve disclosures in financial statements. This exposure draft proposes amendments to AASB 107 Statement of Cash Flows. The proposals in this exposure draft require an entity to disclose: a reconciliation between the opening and closing balances of liabilities and assets related to their financing activities; and restrictions that affect the entity s decisions on how to use cash and cash equivalent balances. The AASB seeks comments on ED 258 by 20 March DEPARTmeNT OF FINANCE Copies of Resource Management Guides are available from the Department of Finance website at or by clicking on the link below. Resource Management Guides In support of the implementation of the Public Governance, Performance and Accountability Act 2013, the Department of Finance has issued the following Resource Management Guides: RMG-406 Australian Government Cloud Computing Policy; and RMG-506 The Flexible and Efficient Workplace Design Guidance. CONTACT US Opinions is published by: The Australian National Audit Office GPO Box 707 Canberra ACT 2601 and is available on our website at: Please contact: publications@anao.gov.au ANAO signing officers and audit managers are your first point of contact for technical accounting matters. The Professional Services Branch in the ANAO provides technical and policy advice to financial and performance auditors and also conducts yearly client seminars. DISCLAIMER This publication has been prepared by the Australian National Audit Office. While every effort has been made to ensure its accuracy, neither the Australian National Audit Office nor any of its employees shall be liable on any ground whatsoever to any party in respect of decisions or actions they may take as a result of using this Bulletin. The information in this publication is of a general nature only and is not intended to be relied upon as, or as a substitute for, specific professional advice. OPINIONS Summer