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Joint Committee of Public Accounts and Audit - 14/09/2011 - Auditor-General's reports Nos 16 to 46 (2010-11)

COBCROFT, Mr Roger, Senior Director, Reporting Frameworks, Professional Services Branch, Australian National Audit Office

GIBSON, Mr Peter, Assistant Secretary, Accounting Policy Branch, Department of Finance and Deregulation

HELGEBY, Dr Stein, Deputy Secretary, Financial Management Group, Department of Finance and Deregulation

McPHEE, Mr Ian, Auditor-General, Australian National Audit Office

WATSON, Mr Michael, Group Executive Director, Assurance Audit Services Branch, Australian National Audit Office

Committee met at 11:51

ACTING CHAIR ( Mrs D'Ath ): Welcome, I declare open today's public hearing which examines the Auditor-General's Report No. 22, Audits of the financial statements of Australian government entities for the period ended 30 June 2010. I now welcome representatives from the ANAO and Finance. Participants are asked to remember that only members of the committee can put questions to witnesses if this hearing is to constitute formal proceedings of the parliament and attract parliamentary privilege. If other participants wish to raise issues for discussion, they should direct comments to the committee. It will not be possible for participants to directly respond to each other. Given the short time available, statements and comments by witnesses should be relevant and succinct.

Although the committee does not require you to give evidence under oath, I advise you that these proceedings are formal proceedings of the parliament and warrant the same respect as proceedings of the respective houses. Giving false or misleading evidence is a serious matter and may be regarded as a contempt of parliament. The evidence given today will be recorded by Hansard and attracts parliamentary privilege. Before we proceed to questions, do any of the witnesses wish to present a brief opening statement to the committee?

Mr McPhee : I have one but it is a page. I am happy to go through it or I am happy to table it. I am in your hands.

ACTING CHAIR: If it is a brief statement, I am happy for you to read it into the record.

Mr McPhee : Thank you, Chair. Audit Report No. 22 represents the culmination of a significant amount of work by the Australian National Audit Office. About 60 per cent of the total effort of our office each year is invested in financial statement audits which form the subject matter of this particular report. Often it is our performance audit reports that receive the most public attention, but the work of providing assurance to the parliament that the Australian government and public sector entities are correctly reporting their financial position is critical. It is encouraging to see the committee's interest in this report and in our work in this area.

Recent events in Europe have shown that transparency in financial reporting by government is more important than ever to properly inform their stakeholders of government revenue, expenses, cash flows, and financial position, and to allow assessments to be made of the capacity of governments to meet the cost of current policies and new policies. I should add that the audit of financial statements is designed to give stakeholders confidence that the financial reports of government are presented fairly. This is not to guarantee the absolute accuracy of the information, but to provide assurance that the information is materially correct and presented in accordance with the finance minister's orders, which include the requirements to report in accordance with Australian accounting standards.

The culmination of our financial statement audit work is the audit of the consolidated financial statements of the Australian government. These financial statements combine the transactions and balances of all organisations controlled by the Australian government. Because the consolidated financial statements combine so many different types of organisations, from policy departments to government business enterprises, they are necessarily complex and high level. However, these financial statements provide a comprehensive overview of the financial results and positions of the public sector at the federal level. Audit report No. 22 presents the results of our financial statement audits of the Australian government and the Australian government public sector entities for 2009-10. The report shows that Australian government entities continue to improve their financial reporting processes. No audit opinions on financial statements were qualified in 2009-10, which is a good outcome. The number of significant issues identified in the course of audits has continued to fall also. This reflects sustained efforts by Australian government entities over the last decade to implement accrual accounting and reporting. I and my colleagues are more than happy to respond to any questions the committee may have.

ACTING CHAIR: Thank you very much for that, Auditor-General. I would like to start with your comment about a decline, which is a positive, in relation to significant issues. The ANAO's report did note, however, that there is a potential for increased errors and resources caused by the tight completion requirements or rushed preparation. Is there any evidence that that is occurring, or is there anything in place to try to ensure that we do not have that potential increase for those foreseeable reasons?

Mr McPhee : There are controls around this. Firstly, the chief executive has to sign off on agency financial statements. So they would always look for comfort that the financial statements prepared by their agency are in good shape. Of course, the audit process is designed to make sure that everything is in reasonable shape before we give our opinion.

Having said that, there is a desire by agencies to prepare and complete their financial statements in a fairly timely manner. In fact, at this stage, for the current financial year, most of the departments have had their financial statements signed already. But just occasionally we think agencies are rushing just a little too much to complete. On one hand it is a good thing that they want to be seen to be the timely completers of their financial statements but, equally, because annual reports do not need to be tabled until, I think, the end of October, the reality is that, once the financial statements are completed, they tend to be parked while the rest of the annual report is completed and then tabled in the parliament.

My position is: why rush if it puts at risk the integrity of the process for the sake of another week or two? I do not want to suggest that this is a serious issue and is out of control; it is just a gentle message to agencies: 'Put the focus on making sure you have completed the statements with integrity and let's not rush to completion and put that at risk.'

ACTING CHAIR: Would the department like to comment on that?

Dr Helgeby : I would simply like to agree with the Auditor-General that the overall trend is positive. We see a very responsible process operating across government, where the CFOs and CEOs take these matters seriously. They put significant effort into producing their financial statements. Nevertheless, because the Commonwealth is such a diverse and complex group of entities, there are some financial statements which are more complex than others, and, as the Auditor-General says, in a number of cases—not across the totality but in a number of cases—it might be better to back off a little bit just to make sure that no exposure is coming through, for the sake of meeting a deadline.

ACTING CHAIR: Is that message to slow down a little getting out there? Is the ANAO saying that to the agencies?

Mr McPhee : Yes, it is—but only where required, and it is only in rare circumstances. Basically, the agencies also agree with us. I think the positive thing is that there has been a general movement for agencies to complete their financial statements in a much shorter period in, say, the last five years than before that. The very positive message is: everyone has been able to bring forward the preparation of the statements and the audit. We are just saying, 'Look, let's not overdo this. Everyone's done very well. We don't want to put the whole preparation process at risk.'

Mr ADAMS: In relation to the superannuation liability, the Commonwealth sets that aside or does it just take it from general accounts? We set the figure aside that is the liability? That is a public figure?

Dr Helgeby : We book the liability and we revalue it on a regular basis.

Mr McPhee : No lump of funds is set aside. What Dr Helgeby is saying is we certainly account for the liability to the full extent, and that is based on actuarial assessments. As you probably recall, the Future Fund was designed to build up an asset base to offset, if you like, the obligations arising from superannuation. Apart from the Future Fund, there are no identified assets that match the superannuation liability. You just look at the balance sheet as a whole and the superannuation liability is one of many liabilities. Equally, we have many offsetting assets in the Commonwealth's accounts.

Mr ADAMS: But we know that this is a liability as opposed to our assets—that we have this obligation at any time?

Mr McPhee : Yes. The Commonwealth has sought to manage the superannuation liability. One of the great benefits of the accrual reporting regime is that it is brought these liabilities onto the financial statements. You will recall that in the past there was no visibility over them because we counted on a cash basis and just accounted for the annual cash flows.

Mr ADAMS: I think our states have got some ability in getting their liabilities—

Mr McPhee : We are probably on the right path now, but some other countries that would only account on a cash basis would just be showing the outflows relating to superannuation on an annual basis without showing the global obligation. The good thing about that is that, in the light of the size of the superannuation liability on the Commonwealth books, going back to the early 2000s, the Commonwealth focused on that and was able to deal with some of the obligations it had relating to Telstra and Australia Post. You might recall that there were some employees of Australia Post and Telstra for whom the Commonwealth still had obligations in relation to their superannuation, arising from the days when it was a department.

Mr ADAMS: What about the old railways?

Mr McPhee : And the old railways in South Australia, I think, and in some of the other states. The Commonwealth did assessments and paid out to Telstra and Australia Post—and I think to the states with the railways—and said, 'This is an amount of cash to settle our obligation,' and they reduced accordingly, in their own books, the extent of the superannuation liability. By getting visibility around it and government focus on it, there is a case sometimes to say, 'Can we manage the obligations we have better than we may have done in the past?'

Mr ADAMS: That is good. The international circumstances are starting to be highlighted—that some of the figures may not be as good as people thought they were, in an international sense. We compare ourselves with many countries. You talked about the international standards—how you hold our standards up, which makes us all feel good, and rightfully so. With the international crisis in finance, there was a lot of work done—by G20 and others—to try to get an international standard that everybody agreed to. Where does ours fit in, in the international sense? Can you answer that?

Mr Gibson : Yes, I am happy to answer that. As you say, the G20 has been pushing for better international standards. Our standards probably rate towards the top end of what they were looking for anyway. The standards that we apply, the Australian accounting standards, are based on the international accounting standards that the G20 wants to move everyone to. So while there is always room for improvement—and we always look to that—I think we are fairly comfortable that we are towards the better end of what the G20 and the international financial people are looking for.

Ms BRODTMANN: I have a couple of questions. Picking up the point of Mr Adams on liabilities, can you give me a sense of how government agencies are going with their leave liabilities in terms of managing those? Is that something that you get a sense of through your audits? I know that in the past—say a decade ago—they were not terribly good at it and there were these huge liabilities. I know that there has been a lot of effort put into trying to firm all that up and decrease liabilities. I would be interested to know how it is going.

Mr McPhee : I think there is a two-part response to the question. Firstly, from a straight accounting point of view, there is no doubt the liability is being properly accounted for. I think the more significant element of your question is: what are agencies themselves doing to manage the liability so that it does not continue to grow? Without being an authority in this area, most of the enterprise agreements these days—including, say, for my office—have a cap on the amount of leave that individuals can accrue. In our office we do a pretty good job of enforcing that. When it reaches the cap of leave that people are allowed to accrue, we say to a person, 'Well, have you got a plan to use your leave?' We ask them to develop a plan. We do not say, 'You have to start taking leave from tomorrow.' But we like to see some evidence that they are going to do something about it. I suspect across the board some agencies are not quite as strong as we are in that area, but I do not have visibility over the extent of the problems.

Mr ADAMS: We get a letter as MPs about our staff. We have a cap within our system as well for staff and we MPs do not get holidays—but we do have a cap from our staff perspective, yes.

Mr Gibson : To a certain extent that is managed agency by agency.

Ms BRODTMANN: Yes, that is right. But you get a bit of a bird's eye view.

Mr Gibson : Certainly we do not have any indication of inherent problems and certainly within the Department of Finance and Deregulation we have a system in place similar to what Mr McPhee said applies to the Audit Office. We have a limit above which people are expected to make plans to take their leave.

Senator THISTLETHWAITE: In terms of public sector work across agencies, there appears to be a trend towards whole-of-government service delivery and accounting. I want to know what the guidelines are that the office uses to deal with that now that is reflected in the financial statements.

Mr McPhee : The way the legislation is set up is that each secretary or agency head is required to account for the revenues and expenses et cetera of their particular agency and the assets and the liabilities as well as what we call administered transactions—that is, where they have transactions on behalf of the government; it could be pension payments or whatever. So, even though there is a whole-of-government work proceeding, someone will take responsibility for the elements of that and we expect that if an agency has got certain obligations under a whole-of-government approach they will account for their part of it within their financial statements. So we will get the totality. There is a separate issue which I think has more currency, Senator, and you may be referring to it. I think there is a question about whether we can improve the presentation of some of the whole-of-government initiatives in reports for the parliament's own benefit. Dr Helgeby will be better placed than me to comment in this area, but it is something we have been raising in audit reports. One of the very strong things in our system is the responsibility placed on the CEO to report, in their custodian role, on behalf of their agency. Sometimes, however, you do not want the agency focus; you want the whole-of-government focus. It is a contemporary issue that we are all trying to deal with to get better reports on some of these whole-of-government initiatives, which are very important, including some of the COAG agreements. We are trying to bring together families of information which will always be reported in the traditional silo approach but, with the way the world is moving, there is a case to be made for doing some better reporting in terms of the whole-of-government approach as well.

Dr Helgeby : I might pick up on that. Firstly, one of the things influencing our thinking about this issue is work done by the ANAO under an audit or a better practice guide on agency agreements. It was something along those lines. That report makes it clear that there is a range of things agencies can do and do do that make these arrangements work properly. Largely they go to setting out and agreeing upfront what the mechanisms and responsibilities will be and then following that through an accountability trail. We think that broad approach is one that has a lot of potential if you take it as a direction for further change in this area.

There is, at the moment, a need to make it more visible where these arrangements are in place, at least when they come to the level of reporting to parliament. At the moment, reporting to parliament is typically done through portfolio or departmental structures. It goes through the department's or agency's annual report and through the portfolio budget statement, which, by its definition, takes a portfolio focus. We think there might be some things that could be done to make the cross-read between those documents easier to understand. That is an area where we intend to do some work going forward as to how they relate to each other.

Mr CHEESEMAN: Can I pick up on what was talked about there. Let us say there is a national highway project—it might be a $200 million project—where the Commonwealth agrees to contribute 50 per cent of that $200 million cost to construct that road project and the state puts in the other 50 per cent. How do we know we are getting value for money in that when the work is, in effect, controlled by the state government? How do we know we are contributing 50 per cent of the actual cost rather than 50 per cent of the cost that the state government wants to get? What sort of auditing is done at that level to make sure there is a value-for-money outcome for the Commonwealth?

Mr McPhee : This is a very contemporary issue. There are two points. We always say we expect agencies and departments to make sure that they monitor the agreements that the Commonwealth has with the states and get reporting back. As you will know, under most agreements there is a level of reporting-back required. The Commonwealth agency—in this case, it would be the transport department—will always be getting reports from the state on the progress of, for instance, the roads against schedule and costs et cetera.

One of the issues that you are raising touches on the committee's other recommendation about the Auditor-General being able to see whether the Commonwealth funding has been properly utilised in accordance with the agreement with the states. That would assist as well in providing audit coverage. But I always say that it is important not to expect the Auditor-General to carry the responsibility. It is very important for the agencies and the responsible departments to put in place arrangements to give themselves oversight.

Mr CHEESEMAN: I absolutely agree with you.

Mr McPhee : Often we encourage agencies to go and inspect. One of the problems is that they do not inspect what is going on to make sure of what they are getting and that the reporting is lining up. We have had cases in the past where money has been given for grant purposes expecting that something will happen and in fact nothing indeed has happened. It is very important that agencies do a risk assessment and then put in place arrangements to make sure the Commonwealth does get its value and the states are contributing their share as per the agreements.

Mr CHEESEMAN: I was going to ask if the finance department is comfortable at the moment with those arrangements being in place to make sure that there is value for money where there is that pass through from one government to another?

CHAIR: Can I just cut in again? I apologise; I just came back from another speech but I have to go and do one on carbon, and so I hand back to the deputy chair. I have also handed over a bucket load of questions that can either be taken on notice or if you want to talk about them now I will read the transcript. I do apologise.

Mr McPhee : Thanks Chair. We understand.

Dr Helgeby : In answer to Mr Cheeseman's question the institutional arrangements on the agreements between the states and the Commonwealth: I will not run through individual portfolios. They have generally been robust for a significant period of time, subject to audit. They are subject to quite a degree of scrutiny. In terms of the broader system I am not aware that there would be any systemic issue we would need to deal with. If there were specific questions about particular projects then they would—

Mr CHEESEMAN: I am not asking about particular projects. I am asking about whether there are the systems in place to catch projects where there should be concern?

Dr Helgeby : Broadly speaking the system of decision making, agreement setting, monitoring and audit is a robust system.

Mr CHEESEMAN: Thank you.

Ms BRODTMANN: You mentioned this before: am I correct in saying that there have been some new auditing standards introduced? Are there any more accounting standards? I know it keeps changing, particularly with the fluidity of the environment at the moment. I am interested in how the government agencies are going at picking up on that. I know it is always a challenge for them to get all the systems in place to make sure that their reporting adheres to those new standards. From memory it usually takes about two or three years for it to settle in. How are they going at picking up on those standards?

Mr Gibson : We think they do reasonably well. Some of the standards do present, as you say, challenges in implementation because they may require additional data collection or they may involve complex concepts or what have you. We think they are reasonably good and we actually try to assist them to do that. We provide briefing material and we provide training to them on the content and implications of the standards. Within some limits we try to assist them to get around that. As you say, though, most of the standards have an implementation time of a couple of years and we take advantage of that to ensure that the agencies can get up to speed in that respect.

Mr McPhee : The other thing that is perhaps worth mentioning too is that we have seen the status of accounting positions in agencies rise significantly across the years. Many years ago the most senior accountant would have been an EL2 in the public service in many agencies. These days we have CFOs at the deputy secretary level and certainly commonly at the division head level. We are getting serious executive focus on not only the business but the requirements of the standards et cetera. Of course then they have their own divisions and sections et cetera. There is a fair bit more horsepower for agencies to be across these issues and, as Mr Gibson said, supported by guidance from finance when and as required.

Ms BRODTMANN: Just two more. In the report you mention just the 604 incorrect payments. I would be interested to know in what general areas—this is page 41—and also just that legal and regulatory requirement in terms of the breach of section 83 of the constitution. I would just be interested in knowing those details. Sorry, that was at the tax office—page 41, referring to the tax office; 4.16 and 4.17.

Mr McPhee : This was a fairly technical issue. The tax office got some advice which suggested that these incorrect payments did in fact amount to a breach of the constitution. We as the Audit Office have taken the approach that we will undertake our audits in accordance with Australian auditing standards as you would expect us to do, but as well we say we will look at several matters that the parliament itself and particularly this committee has said is important to it over the years. Firstly, one was obviously spending in accordance with the appropriation authorised by the parliament and otherwise you are in a breach of section 83 of the constitution, so we have always given a particular focus to agencies spending within appropriations. In a couple of other areas we have focused on investments by agencies, because again the committee has asked us or put a focus on investments that agencies may make. So there is a very limited number of things that we also look at in addition to issues that a normal auditor in private practice would look at. Constitutional breaches is something we always focus on and the tax office got advice about these incorrect payments and so they identified them to us—it was not a case of us saying 'we have found this'—and they disclosed it in their financial statements and we reported it as well. There was nothing other than inadvertent overpayments going on here.

Mr Watson : If you go to page 246 there is a more full explanation of the background to the breach.

Ms BRODTMANN: So what was the actual the trigger for the tax office being aware of what happened? I am just looking at the controls that are in place for these sorts of things to be brought to a head.

Mr McPhee : My understanding is that they got legal advice on the matter.

Ms BRODTMANN: But what was the trigger for them to say, 'Oops, we've done this. Should we get the legal advice?' Do you know?

Mr Watson : I just think that in their certificate of compliance they have realised there is an issue there and then said, 'Right, as the Auditor-General says, this is quite a legal issue.' So they have now sought the legal opinion and it verified what they thought.

ACTING CHAIR: I have a number of questions so we will just see how we are going and if we need to take some on notice we can. Overall, how robust is the Australian government's financial reporting system compared to those in similar countries and, considering the events in the USA and Europe, do we have early warning systems to avoid going down a similar path?

Dr Helgeby : I might answer that one. There is quite a bit of discussion in the budget on this broad issue that compares our net debt position and our path to other countries, so the budget papers themselves contain significant disclosure. I would also perhaps draw the committee's attention to external commentary in this area and in particular to a document out of the United States produced by Stanford University and the Comeback America Initiative called the Sovereign Fiscal Responsibility Index 2011, published in March. Essentially, this is an attempt to put America's fiscal position into context. In the course of doing that they have put Australia and 33 other countries into the mix and rated them on three criteria. One is fiscal space, that is, where you are starting from in terms of your debt levels, particularly debt levels to GDP; fiscal path, which is really what your trajectory is—are you managing your situation or not managing your situation?; and fiscal governance, which is institutional arrangements, transparency arrangements and similar kinds of issues.

As I said, it is a report that is basically directed at an American audience. But because it draws together most of the countries which we would normally compare ourselves with it has some relevance to us. Out of the 34 countries that were examined in this study, Greece came last—34th—with Portugal, Iceland, Japan and Ireland literally just above there—many of the countries about which there is considerable concern now. The United States was rated 28th out of the 34, which is a matter of concern and why the report was produced. The top three countries were Australia, New Zealand and Estonia. On those kinds of comparators, and this is a group of countries which on the whole we would often look to—OECD-type countries and other countries—at least there is some independent analysis which suggests that our position is very strong relative to these other nations.

Mrs D'ATH: When you say that, are you including our financial reporting system in that?

Dr Helgeby : Yes.

Mrs D'ATH: Not just our overall fiscal position?

Dr Helgeby : Yes.

Mrs D'ATH: How are the financial impacts of cross-agency governance or contractual arrangements reflected in the financial statements, and are there clear guidelines behind this?

Dr Helgeby : I might describe the process by which the financial statements are put together. That is kind of necessary to unpick that question. The consolidated financial statements take up all of the couple of hundred entities that comprise the Commonwealth. It looks at each of their accounts as stand-alone: what are their revenue sources, what are their assets and what are their liabilities or their expenses? It then takes all of those things and firstly adds them up and then strips out those things which are transactions between one entity and another entity inside the Commonwealth. That is a rigorous process that is really governed by the definition of the sectors that we use, the definition of the type of document we are putting together and accounting standards.

We also disclose exactly what sort of dollar values are being stripped out in this process to write the consolidated result. Somewhere in the CFS we show, for example, the eliminations and netting as a separate item alongside the general government sector and the other sectors. If I just pick one: the cash flow statement from the CFS from last year—page 40, for example. It shows on the cash flow which amounts have been stripped out in that process.

Mrs D'ATH: Can finance explain why some government activities reported in the end-of-year financial reports are apparently excluded from the budget? One example is NBN.

Mr Gibson : For government and statistical purposes all the organisations that are controlled by the government fall into three sectors which, for the record, are the general government sector and two corporation sectors. The budget is only focused on the general government sector because they are trying to measure the impact of the government on the economy. The impact of the government on the economy is defined by the general government sector. For the budget purposes the public corporations are not included in the aggregate budget numbers. That is why NBN is not there.

There is some information in the budget papers about those public corporations, but they are not included in the overall aggregate budget numbers, again, because we are looking at the economic impacts of the government on the economy—the general government sector.

Mr McPhee : If I could just add to Mr Gibson's comment. The consolidated financial statements of the government represent the totality of the Australian government's activities. So it includes all corporations. But the budget papers represent a narrower set of government activities. You just need to be careful when you are comparing the budget papers that you understand, as Peter explained, that they relate largely to the general government sector transactions, whereas the consolidated financial statements include the general government sector as well as the corporations sectors as well. So you have to add them all together to get to the government's full accounts position.

Mr Gibson : I would perhaps add an additional comment. It does not mean that organisations like NBN or other government-owned corporations are totally excluded from the budget. The way they are presented in the budget, they are presented as government investments. So if you looked at the budget papers you would see a line in there saying 'investments in other government bodies'. That will be largely the government-owned corporations—the NBN, the Rail Track Corporation and the like.

Dr Helgeby : So any equity injection that the government put into NBN would be accounted for in the general government sector and therefore in the budget numbers but then it also gets treated in the consolidated financial statements.

ACTING CHAIR: Given the reliance on IMF data when making international comparisons, what assurance processes does the IMF have in place with regard to the data provided by other countries, and how comparable is it to the Australian government data?

Dr Helgeby : I might perhaps start an answer to this and then ask Mr Gibson to add to it. IMF data is constructed on a statistical basis. It reflects an economic view of the world and it is governed by set of standards—they are almost accounting standards—which are translated into something call the system of national accounts. They are consolidated, put together, and governed in Australia by the Australian Bureau of Statistics.

Periodically, the IMF or one of its bodies visits Australia to check that the way we go about producing numbers, the way the ABS is doing numbers, is consistent with the intentions and the framework there. My understanding is that that process is replicated in all other countries that subscribe to or participate in this process.

ACTING CHAIR: So would you say that the data published by the IMF is directly comparable to the Australian government's financial statements?

Dr Helgeby : In large measure, yes, but there are different standards applying to some components of it. So the government's financial statements—the document for which ANAO report No. 22 is a commentary—are produced under accounting standards which, as Mr Gibson explained before, ultimately feed up through to the International Accounting Standards Board. The data which we commonly call GFS data—which goes through this other process through the ABS—is produced on a system which is broadly comparable but not completely comparable. So there is a switch of concepts at some points of detail. Nevertheless, they are reconcilable to each other and they are also reconcilable to the frameworks within which they are constructed.

ACTING CHAIR: Who does that reconciliation?

Dr Helgeby : In preparing its budget and other documents, the government actually produces the material. Typically in the general government sector accounts in the budget papers, for example, there would be a disclosure of where these differences area or where the differences are between what is being published in the budget papers versus either the accounting standard or this alternate standard.

ACTING CHAIR: And will the budget papers also identify where they relate to each other, if they are not comparable?

Dr Helgeby : There has been a very significant move over most of the last decade to harmonise these things. Harmonisation took a very large step about two years ago, with the adoption of a particular Australian accounting standard, which requires reporting on a basis which essentially tries to reconcile all of these differences.

ACTING CHAIR: You will be pleased to know I have only got two more questions left. With AASB's recent developments providing for reduced reporting for small entities, what benefits, if implemented, would there be to government entities? Would these changes affect the robustness of financial statements?

Mr Gibson : I can certainly comment for the finance perspective. One of the continuing difficulties we have with agency financial statements is the complexity and detail. We are more than keen to support the Accounting Standards Board in doing that, and focusing on just the things that matter. We would like to focus just on the things that matter. If there are things that do not matter to particular agencies, we are quite comfortable with those not being reported. That said, I think for the time being we have taken the policy decision that we will not be adopting the reduced disclosure requirements until we have investigated the benefits a little further.

ACTING CHAIR: Anyone else?

Mr McPhee : It is very much a matter for the finance minister as to whether they adopt the reduced disclosure regime. From time to time, though, we do hear a lot of the small agencies questioning why their financial statements need to be as involved as they are. Standard setters and finance departments are forever conscious of the demands being placed on—particularly smaller entities. Certainly the reduced disclosure regime was designed to alleviate some of the burden on some of the smaller reporting agencies. But, as Mr Gibson says, it does require close analysis as to whether it is suitable for the Commonwealth to take on board. At the end of the day, it is the finance minister's decision.

ACTING CHAIR: Does the audit office, though, have any views of whether that affects the robustness of reporting?

Mr McPhee : No, the thing about the reduced disclosure regime—it is very much about disclosure. The actual numbers, the recognition and measurement of the transactions would be the same as has traditionally has been done. The reduced disclosure regime is just to try and reduce the amount of information included in the notes to the financial statement. The judgment has been made by the Australian Accounting Standards Board as to where they believe—in some cases, the information is not so significant in the small entities as to require disclosure. So they have gone through a judgment process. I think it is a good starting point and I would certainly encourage Finance to have a look at it—I know they are, so I do not want to suggest they are not—and see whether there is some net benefit for some of the smaller agencies; because the cost of preparations is now becoming significant and we do need to have regard to the requirements.

ACTING CHAIR: Thank you. Has Finance been meeting published reporting standards in terms of timeliness for the monthly financial statements? Does finance expect the meet the requirements for the publication of the final budget outcome on 30 September?

Dr Helgeby : We publish this in our annual report. We have a key performance indicator which goes to the monthly financial statements and the timeliness of that. We have published against that each year that we have had it. It would be fair to say that there have been some years where it has been a little bit harder to achieve that target than others. We often find that the difference is really almost from month to month. If you like, some months it is easier to achieve that than other months. While our key performance indicator kind of blends everything into a statistical average, in many months we achieve it fairly easily and in others month it is a bit more problematic. But we will be reporting against last years performance in our annual report this year and I am not aware that there would be any problem in the timing of the final budget outcome.

ACTING CHAIR: Well, thank you very much for all attending today and assisting the committee with its inquiry.

Resolved (on motion by Senator Thistlethwaite ):

That this committee authorises publication, including publication on the parliamentary database, of the transcript of the evidence given before it at public hearing this day.

Committee adjourned at 12 : 40