Author
Queensland Audit Office

Each year, the Queensland Audit Office (QAO) measures the timeliness and quality of public sector financial statements.

We report on the results of these measures to parliament.  

We are pleased to say that over time, we have seen improved and enhanced financial reporting practices across the public sector.

We’re working with entities on bringing forward the preparation and delivery of financial statement working papers, and on increasing early close processes. 

Below is an overview of how we will assess and measure entities for 2018–19. We have a new fact sheet that provides more detail֫: Financial statement preparation maturity model.

Timeliness of draft financial statements

We consider whether entities prepare financial statements according to the timetables agreed with QAO. This includes providing auditors with the first complete draft of the financial statements by the agreed date. Noting, a complete draft is one that management is ready to sign and does not expect any material errors or adjustments.

Tips:

  • don’t wait until your entity has prepared a complete set of financial statements before providing working papers, specific notes and disclosures, and trial balances to the auditors. Provide your materials to QAO progressively so we can clear things earlier and to give audit committees more flexibility.
  • agree on progressive delivery timetables with your auditors.

Quality of draft financial statements

We assess the quality of financial statements in terms of adjustments the entity makes between the first complete draft and the final version we receive.

Immaterial adjustments

We continue to encourage entities not to amend their financial statements for immaterial adjustments as it may impact overall timeliness and cost, and increase risk of errors.

Tips:

When considering an adjustment, ask…

  • is it quantitatively material?
  • is it needed by the readers?
  • are there laws, regulations or prescribed requirements that require your entity to change the disclosure?

If the response is no, you are not required to make an adjustment.

Error reporting

We report all corrected errors to management and/or those charged with governance. And we report all uncorrected errors for their agreement that these errors do not materially misstate the financial statements. Common errors we find are usually around:

  • asset valuation, asset accounting and asset disclosures
  • accounting for, and valuing, new transactions.

Tips:

  • ensure asset valuations are timely
  • confirm asset valuation methodologies and models
  • perform asset valuation outcome analysis with a clear understanding of why valuations have changed, and that the changes align with assumption and business changes
  • engage the audit committee on all material valuation methodologies and outcomes for their approval
  • prepare timely position papers with accounting entries and proposed disclosure for management and audit committee review and approval.

Please note, progressive delivery of financial statement working papers will not impact QAO’s measurement or ratings for timeliness or quality.

Year end close process

A robust year end close process enhances the quality and timeliness of financial reporting.

Resolving known accounting issues

We encourage entities to identify and resolve accounting errors by 30 April. Issues usually include:

  • material, complex or significant one-off transactions
  • new accounting standards or changes in accounting policies
  • past issues auditors have identified, including material misstatements and disclosure deficiencies.

Tips:

  • prepare pro-forma financial statements by 30 April
  • resolve known accounting issues with us by 30 April
  • complete non-current asset valuations by 31 May
  • complete early close processes
  • conclude all asset stocktakes by 30 June.

For each accounting issue, prepare a position paper that:

  • identifies key issues—facts and circumstances
  • considers more than the desired point of view, analysing the alternative approaches available under accounting standards
  • refers to detailed requirements of accounting standards and other prescribed requirements, including relevant guidance material
  • considers the actual application of the standards, including quantitative outcomes, such as journals, when the position is practically applied
  • contains any required proposed disclosures.

Also see our fact sheet: Preparing position papers for accounting matters and valuation

Valuation of non-current assets

Completing the valuation of non-current assets early will support a balanced workload for all and earlier completion of financial statements.

Entities should perform valuations (provided they are not based on market-volatile data) before 31 May. A completed asset valuation should:

  • identify assets or asset classes valued
  • have an approved valuation methodology
  • support all key inputs, assumptions and estimates
  • analyse changes in inputs and assumptions (particularly for interim revaluations)
  • contain a depreciation or amortisation methodology (including componentisation), assessment of useful lives and residual values
  • be independently reviewed by management.

Better practice will include:

  • updates to the asset register and general ledger
  • proposed disclosures.

Also see our fact sheet: Preparing position papers for accounting matters and valuation

Early close processes

Nearly all public sector entities plan early close processes. We encourage all entities to continue identifying the additional financial reporting information they can prepare before 30 June.

Tips:

  • review the processes for monthly management reporting, as they will highlight predictable balances
  • perform all asset valuations not dependent on volatile market data
  • prepare calculations and disclosures for new transactions while assessing and approving accounting
  • review last year’s financial statements and identify disclosure notes that can be accurately calculated (such as key management personnel, budget to actual, and estimates and judgements).

Auditors and entities should work together to identify suitable areas and timing specific to each entity.