1.3 Audit process
Statutory requirement: Section 45D of the PFA (1)
(1) A department must forward to the Auditor-General:
(a) its annual financial statements, statement of service performance, and any other information that the Auditor-General has agreed, or is required, to audit within 2 months after the end of each financial year; and
(b) its annual report in a timely manner to enable the Auditor-General to review that report before providing the audit report required under subsection (2)(b).
(2) The Auditor-General must:
(a) audit the statements referred to in subsection (1)(a); and
(b) provide an audit report on them to the department within 3 months after the end of each financial year .
A department must provide the Auditor-General (or the appointed auditor) with its annual financial statements and statement of service performance by the end of August. The auditor must then audit those statements and provide an audit report on them by the end of September for inclusion in the annual report. Disestablished departments may have some extra time (see Annex 4. The overall annual report provides valuable contextual information that assists the auditor in testing the information contained in the financial statements and statement of service performance.
The auditor forms an opinion as to whether the financial statements and specified supplementary schedules comply with GAAP and fairly reflect:
- the financial position of the reporting entity as at the balance date
- the results of the reporting entity's operations and cash flows for the year ended on that date
- the service performance for the year, and
- any assets, liabilities etc managed by the department on behalf of the Crown.
The auditor plans and performs the audit so as to obtain reasonable assurance that the financial statements and statement of service performance do not have material misstatements, whether caused by fraud or error. The auditor also forms an opinion as to whether or not the department has complied with its legislative reporting requirements.
The Auditor-General has issued a revised audit standard (AG-4) which will require the auditor to attest to whether the statement of service performance:
- complies with generally accepted accounting practice in New Zealand, and
- fairly reflects the public entity's service performance for the year.
This is a subtle change in the audit opinion, which requires the auditor to form an opinion on the fair reflection of the statement of service performance per se, rather than to form an opinion merely on whether the statement of service performance fairly reflects the forecast statement of service performance. As such the audit opinion will take into account the appropriateness of the statement of service performance. The auditor may qualify their audit report if the quality of the statement of service performance is deemed significantly deficient.
The Auditor-General has signalled to agencies through the November 2009 training sessions that this revised standard will take effect for different categories of departments and Crown entities over a three year period. The list of when auditors will apply the revised AG4 to departments is in Annex 6. This means that if a department has concerns about the quality of their non-financial performance information in the annual report, they should be working to improve it now.
