Auditor-General's Auditing Standards 2017

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B.28(AS)

Auditor-General’s Auditing

Standards

2017

Presented to the House of Representatives

under section 23(1) of the Public Audit Act 2001

March 2017 ISBN 978-0-478-44259-5

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Preface

Section 23(1) of the Public Audit Act 2001 requires me as Auditor-General to publish (by way

of a report to the House of Representatives) the auditing standards that I apply (or intend to

apply) to the conduct of audits and inquiries and the provision of other auditing services under

Part 3 of the Act. Section 23(2) of the Act requires me to publish those standards at least

once every three years.

I introduce the 2017 edition of the Auditor-General’s Auditing Standards with a discussion

about the role of the Auditor-General and the special nature of public sector auditing.

Martin Matthews

Controller and Auditor-General

23 March 2017

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ContentsPage

1 The Auditor-General 3 - 4

2 Public sector auditing 3 - 5

3 About the Auditor-General’s Auditing Standards 3 - 8

Figures

1 Relationship between the Auditor-General’s Auditing Standards and the

XRB’s professional, ethical, auditing and assurance standards 3 - 9 2 Relationship between the applicable XRB standards, and the

Auditor-General’s Auditing Standards, and the provisions of the

Public Audit Act 2001 3 - 10 3 The Auditor-General’s Auditing Standards 3 - 13

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1 – The Auditor-General

In New Zealand, Parliament authorises all government spending and is the source of the

statutory powers that public entities have. Public sector organisations are therefore

accountable to Parliament for their use of the public resources and powers that Parliament

gives them. As part of this accountability, Parliament seeks assurance from the Auditor-

General that public entities are operating and accounting for their performance in the way

Parliament intended.

It is not the role of the Auditor-General to question the policies of the Government or local

authorities.

Under the Public Audit Act 2001, the Auditor-General is the auditor of all “public entities”,

which includes the Crown, government departments, local authorities, and statutory boards

and other public bodies. In carrying out audit and assurance work, the Auditor-General seeks

the following outcome:

The audit and assurance work carried out on behalf of the Auditor-General improves

the performance of, and the public’s trust in, the public sector.

The Auditor-General’s role is to give Parliament and New Zealanders confidence that the

public sector is effective, efficient and accountable.

To be effective and credible in this role, the Auditor-General must be independent of

executive government. To ensure independence:

the Auditor-General is appointed by the Governor-General on the recommendation of

the House of Representatives;

the Auditor-General reports directly to the House of Representatives (and has the

power to report to anyone else);

the Auditor-General’s salary is payable under a permanent authority from Parliament

and does not require the approval of the Government; and

the Auditor-General makes requests for funding directly to the House of

Representatives (rather than through the Executive) after which the House

recommends the sum required to the Governor-General for inclusion in an

Appropriation Bill.1

For more information about the role of the Auditor-General, and the type of work they do, see

our publication About the Auditor-General at oag.govt.nz

1 Section 26E, Public Finance Act 1989.

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2 – Public sector auditing

In seeking to achieve the outcome of improving the performance of, and the public’s trust in,

the public sector, the Auditor-General carries out a range of work. A lot of this work is

designed to give assurance that public entities are presenting fairly the results of their

activities in their annual reports.

Other work is designed to show whether:

- public entities are carrying out their activities effectively and efficiently;

- public entities are complying with their statutory obligations;

- waste is occurring, or is likely to occur in the future, as a consequence of any act or

omission of a public entity;

- there is indication of, or appearance of, a lack of probity as a result of any act or

omission by a public entity or by one or more of its members, office holders, and

employees; and/or

- there is indication of, or appearance of, a lack of financial prudence as a result of any

act or omission by a public entity or by one or more of its members, office holders,

and employees.

The “routine” audit processes that give effect to these matters are supplemented by:

- other auditing services, which the Auditor-General may, with the agreement of a

public entity, perform for that entity, being any services of a kind that it is reasonable

and appropriate for an auditor to perform (under section 17 of the Public Audit Act

2001); and

- inquiries, which the Auditor-General may carry out into any matter concerning a

public entity’s use of its resources (under section 18 of the Public Audit Act 2001).

The appropriate identification, scoping, investigation, and reporting of audits, other auditing

services, and inquiries is underpinned by the Auditor-General’s Auditing Standards and is

facilitated by various processes carried out within the Office of the Auditor-General and by

Audit Service Providers on behalf of the Auditor-General.

The main types of public sector audit

The Public Audit Act identifies two main types of audit:

- the financial report audit (sections 15 and 19); and

- the performance audit (section 16).

A financial report audit is an audit of the financial statements, accounts, and other information

that a public entity is required to have audited by the Auditor-General. Some public entities

are required to report on both their financial results and the measures that enable an

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assessment to be made of their performance. Therefore, a financial report audit may include

an audit of both financial and performance information.

A performance audit is performed at the discretion of the Auditor-General. It can be performed

in respect of one or more public entities, and can examine matters of:

- effectiveness and efficiency;

- compliance with statutory obligations;

- waste;

- probity; and

- financial prudence.

For practical purposes, when we carry out a financial report audit, we also maintain an

awareness of matters that may be relevant to our performance audit function. We have

termed the combination of the financial report audit and maintaining an awareness of

performance audit matters as the “annual audit”.

An annual audit, therefore, aims to report whether a public entity’s financial statements,

performance information, and any other information that is required to be audited:

- complies with a recognised framework, usually generally accepted accounting

practice (GAAP); and

- presents fairly, in all material respects, the entity’s performance and position.

Any performance audit matters identified during an annual audit may be reported to other

parties, or publicly, at the discretion of the Auditor-General.

From time to time, the Auditor-General may carry out other types of audit (through legislation

or at the Auditor-General’s discretion). An example of another type of public sector audit is the

audits of long-term plans under the Local Government Act 2002.

Reporting on the results of audits

The Auditor-General has broad powers to report on matters arising from audits, and reports in

a range of ways. For all annual audits, the audit report expresses our opinion on, and

accompanies, the published financial and, where relevant, performance information for every

public entity or public entity group. In addition, the knowledge we have from carrying out

annual audits is used from time to time for reporting to Parliament more broadly on the results

of audits for entities or groups of entities. We also use that knowledge to assist select

committees with their scrutiny of public entities.

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Independence

Section 9 of the Public Audit Act 2001 says that the Auditor-General – and, implicitly, all those

who work for the Auditor-General – must act independently in the performance of all the

Auditor-General’s functions, duties, and powers.

Independence in this context includes the professional independence of an auditor, but also

means:

- being free from direction by the Government, any entities we audit, or Parliament;

- having our own powers of access to information; and

- being free to report on any matter arising out of the performance or exercise of his

functions, duties, and powers, that the Auditor-General considers it appropriate to

report on.

To recognise the fundamental importance of independence, the Auditor-General has

prepared an additional statement (over and above the independence requirements that apply

to all assurance practitioners who are required to apply the External Reporting Board’s

professional, ethical, auditing, and assurance standards) that regulates the independence of

auditors who carry out audits, inquiries, and other auditing services on the Auditor-General’s

behalf.

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3 – About the Auditor-General’s Auditing Standards

Basis of the Standards

The Auditor-General’s Auditing Standards (the Standards) are based on the standards issued

by the External Reporting Board (the XRB) that apply to assurance practitioners who carry out

audits in New Zealand.

The Standards are aligned, as shown in Figure 1, to the:

- professional and ethical standards issued by the XRB; and

- auditing and assurance standards issued by the XRB.

Meeting public sector needsHowever, the professional and ethical standards and the auditing and assurance standards of

the XRB do not always take full account of the particular scope and nature of public sector

audits (for example, there is currently no standard issued by the XRB on the audit of

performance reports). Therefore, we create our own standards, which take two forms:

- Auditor-General’s Statements – that add to professional, ethical, auditing, and

assurance standards issued by the XRB on particular topics; and

- Auditor-General’s Standards – that specify standards to be observed on topics for

which there is no equivalent XRB standard.

We create the Statements and Standards in consultation with Appointed Auditors and, where

appropriate, other interested parties.

How the Standards are applied

We use the Standards when carrying out all annual audits and work other than the annual

audit, under the Public Audit Act 2001.

We require all staff and Appointed Auditors and their staff to comply with the relevant

professional, ethical, auditing, and assurance standards issued by the XRB, and our own

statements and specific standards – which collectively form the Standards. The applicability of

the Auditor-General’s Auditing Standards varies depending on the type of work being carried

out, as defined in the Act. Figure 2 shows how the Standards apply to each of the Auditor-

General’s four statutory functions as the auditor of all public entities.

Figure 3 lists the individual standards and statements that we have created.

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Figure 1: Relationship between the Auditor-General’s Auditing Standards and the XRB’s

professional, ethical, auditing and assurance standards

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Figure 2: Relationship between the applicable XRB standards, and the Auditor-General’s

Auditing Standards, and the provisions of the Public Audit Act 2001

Note: Y = The standard applies. N = The standard does not apply.

XRB standards2

Auditor-General’s

Statementsor Standards

Name of Statement or Standard

Fina

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Inqu

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NZAuASBGlossary of

Terms(EG Au4)

AG Glossary of Terms* Glossary of terms Y Y Y Y

PES 1(Revised)3

AG PES 1 *(Revised)

Code of Ethics for Assurance Practitioners Y Y Y Y

PES 3(Amended)4 AG PES 3*

(Amended) Quality control Y Y Y Y

- AG-5*

Performance audits, other auditing services, and

other work carried out by or on behalf of the Auditor-General

N Y Y N

- AG-6*Inquiries carried out by or on behalf of the Auditor-

GeneralN N N Y

ISA (NZ) 200 AG ISA (NZ) 200

Overall objective of the independent auditor andthe conduct of an audit in

accordance with International Standards

on Auditing (New Zealand)

Y N N N


The terms of audit engagements Y N N N

ISA (NZ) 220 -Quality control for an

audit of financial statements

Y N N N

ISA (NZ) 230 - Audit documentation Y N N N


The auditor’s responsibilities relating to fraud in an annual audit

Y N N N


Consideration of laws and regulations Y N N N

ISA (NZ) 260(Revised)

AG ISA (NZ) 260 (Revised)

^

Communication with those charged with

governanceY N N N

ISA (NZ) 265 -Communicating

deficiencies in internal control

Y N N N

ISA (NZ) 300 AG ISA (NZ) 300 Planning the annual audit Y N N N



Identifying and assessing the risks of material

Y N N N

2 The XRB standards are available at www.xrb.govt.nz.3 All individuals carrying out audits, inquiries, and other work on behalf of the Auditor-General are expected to

comply with PES 1 (Revised).4 The XRB standard, PES 3 (Amended), applies to the management of accounting firms and to individual

professional assurance engagements carried out in New Zealand. We expect individuals and the firms to which they belong to comply with PES 3 (Amended) when carrying out audits and other work on behalf of the Auditor-General.

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XRB standards2

Auditor-General’s



Fina

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Inqu

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misstatement through understanding the entity

and its environment


Materiality in planning and performing an annual

auditY N N N


The auditor’s responses to assessed risks Y N N N

ISA (NZ) 402 -Audit considerations

relating to an entity using a service organisation

Y N N N


Evaluation of misstatements identified during the annual audit

Y N N N

ISA (NZ) 500 - Audit evidence Y N N N

ISA (NZ) 501 -Audit evidence - specific

considerations for selected items

Y N N N

ISA (NZ) 505 - External confirmations Y N N N

ISA (NZ) 510 - Initial audit engagements - opening balances Y N N N

ISA (NZ) 520 - Analytical procedures Y N N N

ISA (NZ) 530 - Audit sampling Y N N N

ISA (NZ) 540 - Auditing accounting estimates Y N N N

ISA (NZ) 550 - Related parties Y N N N

ISA (NZ) 560 - Subsequent events Y N N N



^Going concern Y N N N

ISA (NZ) 580 AG ISA (NZ) 580 ^ Written representations Y N N N


Special considerations -audits of group financial

and performanceinformation (including the

work of component auditors)

Y N N N

ISA (NZ) 610(Revised 2013) - Using the work of internal

auditors Y N N N

ISA (NZ) 620 - Using the work of an expert Y N N N

ISA (NZ) 700

(Revised)

AG ISA (NZ)

700 (Revised)

^

Forming an opinion and reporting on financial and performance information

Y N N N

ISA (NZ) 701AG ISA (NZ)

701 ^

Communicating key audit matters in the

independent auditor’s report

Y N N N

ISA (NZ) 705

(Revised)

AG ISA (NZ)

705

(Revised)^

Modifications to the opinion in the

independent auditor’s report

Y N N N

ISA (NZ) 706

(Revised)

AG ISA (NZ)

706

(Revised)^

Emphasis of matter and other matter paragraphs

in the independent auditor’s report

Y N N N

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XRB standards2

Auditor-General’s



Fina

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ISA (NZ) 710 - Comparative information Y N N N

ISA (NZ) 720(Revised) -

The auditor's responsibilities relating to

other informationY N N N


Audits of financial statements prepared in accordance with special

purpose frameworks

Y N N N


Audits of single financial statements and specific elements, accounts or

items of a financial statement

Y N N N


AG ISA (NZ) 810

(Revised)^

Engagements to report on summary financial and non-financial information

Y N N N

- AG-1 Reporting to the OAG Y N N N

- AG-2 The appropriation audit and the controller function Y N N N

-AG-3 The auditor’s approach to

issues of effectiveness and efficiency, waste, and

a lack of probity or financial prudence

Y N N N

- AG-4 The audit of performance reports

Y N N N

^ For balance dates ending on or after 15 December 2016.* Applies from 1 April 2017.

For audits of financial statements and/or performance information for reporting periods beginning on, or after, 1 April 2017.

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Figure 3: The Auditor-General’s Auditing Standards

Note: The page numbers follow the numbering format used in the material provided to Appointed Auditors.

Reference Title PageGlossary of terms * ^ Glossary of terms 3 - 100

AG PES 1 (Revised) * ^ Code of Ethics for Assurance Practitioners 3 - 200

AG PES 3 (Amended) * ^ Quality control 3 - 400

AG-5 * Performance audits, other auditing services, and other work carried out by or on behalf of the Auditor-General 3 - 1000

AG-6 * Inquiries carried out by or on behalf of the Auditor-General 3 - 1100

AG ISA (NZ) 200 ^Overall objective of the independent auditor and the conduct of an audit in accordance with International Standards on Auditing (New Zealand)

3 - 2000

AG ISA (NZ) 210 ^ The terms of audit engagements 3 - 2100

AG ISA (NZ) 240 ^ The auditor’s responsibilities relating to fraud in an annual audit 3 - 2400

AG ISA (NZ) 250 ^ Consideration of laws and regulations 3 - 2500

AG ISA (NZ) 260 (Revised) ^ Communication with those charged with governance 3 - 2600

AG ISA (NZ) 300 ^ Planning the annual audit 3 - 2800

AG ISA (NZ) 315 (Revised) ^ Identifying and assessing the risks of material misstatement through understanding the entity and its environment 3 - 2900

AG ISA (NZ) 320 ^ Materiality in planning and performing an annual audit 3 - 3000

AG ISA (NZ) 330 ^ The auditor’s responses to assessed risks 3 - 3100

AG ISA (NZ) 450 ^ Evaluation of misstatements identified during the annual audit 3 - 3300

AG ISA (NZ) 570 (Revised) ^ Going concern 3 - 4300

AG ISA (NZ) 580 ^ Written representations 3 - 4400

AG ISA (NZ) 600 ^Special considerations – Audits of group financial andperformance information (including the work of component auditors)

3 - 4500

AG ISA (NZ) 700 (Revised) ^ Forming an opinion and reporting on financial and non-financial information 3 - 4800

AG ISA (NZ) 701 ^ Communicating key audit matters in the independent auditor’s report 3 - 4850

AG ISA (NZ) 705 (Revised) ^ Modifications to the opinion in the independent auditor’s report 3 - 4900

AG ISA (NZ) 706 ^ Emphasis of matter paragraphs and other matter paragraphs in the independent auditor’s report 3 - 5000

AG ISA (NZ) 810 (Revised) ^ Engagements to report on summary financial and non-financial information 3 - 5400

AG-1 ^ Reporting to the OAG 3 - 8000

AG-2 ^ The appropriation audit and the controller function 3 - 8100

AG-3 ^ The auditor’s approach to issues of effectiveness and efficiency, waste, and a lack of probity or financial prudence 3 - 8200

AG-4 ^ The audit of performance reports 3 - 8250

* The Auditor-General’s standard or statement applies to engagements other than the annual audit.^ The Auditor-General’s standard or statement applies to the annual audit.

AG ISA (NZ) 240 Fraud

Issued 03/17 Office of the Auditor-General 3 - 2400

AG ISA (NZ) 240

THE AUDITOR-GENERAL’S STATEMENT ON

THE AUDITOR’S RESPONSIBILITIES RELATING TO FRAUD IN ANANNUAL AUDIT

ContentsPage

Introduction 3 - 2401 Scope of this Statement 3 - 2401 Application 3 - 2401

Objectives 3 - 2402

Definitions 3 - 2402

Requirements 3 - 2403 Evaluation of fraud risk factors 3 - 2403 Reporting fraud to the OAG 3 - 2403 Reporting fraud in the audit report 3 - 2405 Reporting fraud to third parties 3 - 2405 Release of information 3 - 2405

Application and other explanatory material 3 - 2405 Background 3 - 2405 Reporting fraud to the OAG 3 - 2408 Reporting fraud in the audit report 3 - 2409 Reporting fraud to third parties 3 - 2409

Appendix 1 – Examples of fraud risk factors 3 - 2410



Introduction

Scope of this Statement

1. This Auditor-General’s Auditing Statement:

(a) establishes the Auditor-General’s requirements in relation to ISA (NZ) 240:

The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial

Statements (ISA (NZ) 240);1 and

(b) provides additional guidance to reflect the public sector perspective.

2. The Auditor-General’s requirements and application material in this Statement

specifically refer to fraud. For convenience, this Statement uses the term “fraud” as

an umbrella term for the range of possible offences involving dishonesty or deception.

For the avoidance of doubt, “fraud” includes bribery or corruption. This Statement

adopts the definition of fraud set down in paragraph 11(a) of ISA (NZ) 240, which

states:

“Fraud is an intentional act by one or more individuals among management, those

charged with governance, employees, or third parties, involving the use of deception

to obtain an unjust or illegal advantage.”

3. The question of whether a criminal offence has been committed may only be finally

determined following a decision by a court of law. As a consequence, the Appointed

Auditor will normally be concerned with suspected, rather than proven, fraud.2

Application

4. Compliance with this Statement is mandatory for Appointed Auditors who carry out

annual audits on behalf of the Auditor-General. This Statement requires compliance

with all of the requirements of ISA (NZ) 240, except to the extent that this Statement

provides otherwise. Where a conflict between this Statement and ISA (NZ) 240

exists, the requirements of this Statement shall prevail.

5. This Statement applies to audits of financial statements and/or performance

information which has been prepared for reporting periods beginning on or after 1

April 2017.

1 The ISA (NZ) auditing standards are scoped so that they apply to audits of “historical financial information”.However, for the purposes of the Auditor-General’s auditing standards and statements, all references to “historical financial information” should be read as the audit of “historical financial and historical performanceinformation”.

2 This Statement contains background information on the scope of this Statement in paragraphs A1 to A13.



6. This Statement applies to all suspected or actual fraud that the Appointed Auditor

becomes aware of, regardless of materiality and irrespective of whether they involve

money or other property of the public entity (including intangible resources such as

information and intellectual property).

Objectives

7. The objectives of the Appointed Auditor are to:

(a) identify and assess the risks of material misstatement of the financial and

performance information due to fraud;

(b) obtain sufficient appropriate audit evidence about the assessed risks of

material misstatement due to fraud, through designing and implementing

appropriate responses; and

(c) respond appropriately to fraud or suspected fraud during the annual audit,

including:

(i) assessing the adequacy of policies and procedures put in place by

the public entity to prevent and detect fraud, and to report any

deficiencies to management and those charged with governance;

(ii) reporting suspected or actual fraud to the OAG; and

(iii) assessing whether the public entity has responded appropriately to

suspected or actual fraud in keeping with the expectations of this

Statement, and to report any deficiencies to management and those

charged with governance.

Definitions

8. For the purpose of this Auditor-General’s Auditing Statement, the defined terms have

the meanings attributed:

(a) in the Glossary of Terms issued by the New Zealand Auditing and Assurance

Standards Board (the NZAuASB glossary) of the External Reporting Board

(although where a term with a specific meaning in the New Zealand public

sector differs from the NZAuASB glossary, the New Zealand public sector

definition shall prevail); and

(b) in the Auditor-General’s Glossary of Terms.



Requirements

Evaluation of fraud risk factors

9. The Appointed Auditor shall evaluate the public entity’s fraud risk factors. The

Appointed Auditor’s evaluation shall take account of the results of procedures carried

out in keeping with ISA (NZ) 240, together with a consideration of any fraud risk

factors identified by the OAG in the audit brief, including examples of fraud risk

factors relating to the public sector in Appendix 1.

10. The Appointed Auditor shall, as part of evaluating fraud risk factors, assess whether

the public entity has proper arrangements for the prevention and detection of fraud

and what the public entity would do if a suspected or actual fraud was discovered.

11. The Appointed Auditor shall report to management and those charged with

governance on areas where the prevention and detection of fraud could be improved.

Reporting fraud to the OAG

12. For all instances of suspected or actual fraud, the Appointed Auditor shall:

(a) inform the OAG immediately that there is an indication that fraud may exist;

(b) report to the OAG the details of the suspected fraud or actual fraud so that

the OAG can identify any fraud risk factors; and

(c) provide other relevant information.

Immediately inform the OAG when there is an indication that fraud may exist

13. The Appointed Auditor shall immediately inform the OAG, through the fraud

notification return in the Audit Status Database’s external interface (the ASD Online),

when they become aware of the possible existence of fraud. The contact person in

the OAG for all fraud questions is the Assistant Auditor-General – Accounting and

Auditing Policy. (See paragraphs A14 - A15)

14. If, as a result of a misstatement resulting from suspected or actual fraud, the

Appointed Auditor encounters exceptional circumstances that bring into question the

Appointed Auditor’s ability to continue performing the annual audit, the Appointed

Auditor shall immediately advise the OAG.

15. Where a suspected or actual fraud is detected by the Appointed Auditor during the

annual audit, the Appointed Auditor shall not communicate the existence of that



suspected or actual fraud detected during the annual audit to the public entity without

first informing and consulting the OAG. (See paragraph A16)

16. Where the Appointed Auditor becomes aware of a suspected or actual fraud through

informants or a third party, the Appointed Auditor shall not communicate to the public

entity the existence of that suspected or actual fraud without first informing and

consulting the OAG. (See paragraph A17)

17. Where the Appointed Auditor is advised of a suspected or actual fraud by those

charged with governance and/or management of a public entity, the Appointed

Auditor shall carry out enquiries to ensure that the appropriate level of management

or, where appropriate, those charged with governance have been, or will be, informed

of the fraud.

18. Where the circumstances of the public entity make it impracticable for the Appointed

Auditor to immediately inform the OAG of each suspected or actual fraud, the

Appointed Auditor shall agree on alternative arrangements with the Assistant Auditor-

General – Accounting and Auditing Policy. (See paragraph A18)

The Protected Disclosures Act 2000

19. If an employee approaches the Appointed Auditor to disclose a fraud under the

Protected Disclosures Act 2000, the Appointed Auditor shall direct the employee to

follow the public entity’s internal procedure for protected disclosures, to the extent

that the Protected Disclosures Act 2000 requires. If the employee does not follow the

public entity’s internal procedure, the employee’s disclosure may not be protected

under the Protected Disclosures Act 2000. If the Appointed Auditor is uncertain about

whether the circumstances require the internal procedure to be followed, the

Appointed Auditor shall seek advice from the OAG (Assistant Auditor-General –

Legal). (See paragraph A19)

Reporting the details of fraud to the OAG

20. The Appointed Auditor shall keep the OAG informed of any significant developments

relating to a suspected or actual fraud following the immediate notification to the

OAG.

21. Once the details of suspected or actual fraud are known, the Appointed Auditor shall

update the fraud notification return in the ASD Online by outlining the matters relevant



to the particular circumstances of the suspected or actual fraud. The updated return

will be used by the OAG to identify any fraud risk factors.

Reporting fraud in the audit report

22. The Appointed Auditor shall obtain approval from the OAG before issuing an audit

report that contains a modification, an emphasis of matter paragraph, or an other

matter paragraph, as a consequence of a suspected or actual fraud. (See paragraph

A20)

Reporting fraud to third parties

23. Reporting of any suspected or actual fraud (or any other matters surrounding a fraud)

to third parties shall be carried out by the OAG directly. (See paragraphs A21 - A22)

Release of information

24. The Appointed Auditor shall not release information to third parties unless prior

written approval is obtained from the OAG. Any enquiries or requests for information

(including any audit-related correspondence, audit evidential working papers/files,

associated documentation, or management reports) from such agencies as the

Police, Serious Fraud Office, Inland Revenue Department, Privacy Commissioner, or

Ombudsmen should be referred to the OAG, which will then advise on the course of

action to be taken.

***

Application and other explanatory material

Background

A1. This Statement recognises that:

- the primary responsibility for the prevention and detection of fraud rests with

both those charged with governance of the entity and management (outlined

in paragraph 4 of ISA (NZ) 240); and

- an Appointed Auditor carrying out an annual audit in keeping with the Auditor-

General’s Auditing Standards is responsible for obtaining reasonable

assurance that the financial and performance information taken as a whole is

free from material misstatement, whether caused by fraud or error. However,

owing to the inherent limitations of an audit, there is an unavoidable risk that



some material misstatements of the financial and performance information

may not be detected, even though the audit is properly planned and

performed in keeping with the Auditor-General’s Auditing Standards.

A2. Fraud, by its nature, always attracts a great deal of interest – irrespective of the scale

of the fraud. Invariably, questions are asked about how the fraud took place and

whether the controls designed to stop fraudulent activity were operating effectively. In

the public sector, the interest in fraud is heightened because public funds are

involved, and because those individuals entrusted with public funds are expected to

exhibit the highest standards of honesty and integrity.

A3. The Auditor-General plays a role in assessing the risk of material fraud and, when a

fraud does occur, considering whether appropriate standards of accountability and

disclosure are applied by those responsible for public entity resources.

A4. The OAG needs to be kept informed of all frauds involving the resources of public

entities. There are a number of reasons for this, including:

- to ensure that, where appropriate, the proper regulatory or enforcement

authorities have been informed;

- to ensure that the effect of the fraud on the financial and performance

information is systematically assessed, and that there is appropriate reporting

and disclosure of the fraud in the financial and performance information and,

if necessary, the audit report;

- understanding whether management and those charged with governance

have given appropriate consideration to preventing further offending;

- the need to be alerted to any limitations or circumstances that occur that

could affect the Appointed Auditor’s professional indemnity insurance over

the period of the engagement, or circumstances that could lead to a potential

claim against the Appointed Auditor or the Auditor-General; and

- the general expectation that the OAG is informed of frauds committed in the

public sector, which can reflect on the reputation of the Auditor-General.

A5. The responsibility for the prevention and detection of fraud rests with public entity

management through the implementation and continued operation of adequate

internal control systems.

A6. The Auditor-General expects that every public entity should formally address the

matter of fraud, and formulate an appropriate policy on how to minimise it and, if it

occurs, how it will be dealt with.



A7. A fraud policy should include, as a minimum, these key elements:

- A system for undertaking regular reviews of transactions, activities, or

locations that may be susceptible to fraud.

- Specifications for fully documenting what happened in a fraud and how it is to

be managed.

- The means for ensuring that every individual suspected of committing fraud

(whether they are an employee or someone external to the entity) is dealt

with consistently and fairly.

- The principle that recovery of the lost money or other property will be pursued

wherever practicable and appropriate.

A8. Management of a public entity needs to be clear about its attitude towards fraud and

make its employees and those who transact with the entity aware of that attitude,

including an awareness of the consequences of transgressing. The only satisfactory

way of communicating that attitude within the entity is by issuing a formal statement

of policies and procedures to everyone in the entity.

A9. Management and those charged with governance must also consider the public

sector context when deciding how to respond to a suspected fraud. The perception of

how fraud and other types of criminal or corrupt activity are dealt with in the public

sector is an important part of maintaining the public’s trust in the public sector.

A10. In any context, a range of factors have to be balanced when deciding whether to refer

suspected offending to law enforcement agencies. These may include the scale and

nature of the wrongdoing, the likelihood of conviction, the time and cost of

enforcement action relative to the wrongdoing, how long ago the events took place,

the attitude and situation of the alleged offender, and any reparation that has been

made.

A11. In the public sector, additional weight also needs to be given to:

- the need to maintain, and to be seen to maintain, the highest possible

standards of honesty and integrity;

- the fact that the public sector is entrusted with taxpayer and ratepayer funds;

- the importance of transparency and accountability for the use of public funds;

and

- the risk of a perception that matters are being “swept under the carpet”.

A12. In effect this means that the threshold for referring a matter to law enforcement

agencies is likely to be lower than it might be in other organisations. It may not be

sufficient for suspected fraud or other wrongdoing to be resolved through an



employment settlement. It can be important for an independent and transparent

decision to be made on whether prosecution is appropriate.

A13. The Auditor-General’s policy is that the management of public entities should

consider carefully whether to refer a suspected fraud to law enforcement agencies in

every case, taking into account their public sector context. If management or those

charged with governance do not consider reporting a suspected fraud, the Auditor-

General will consider doing so.

Reporting fraud to the OAG (See paragraphs 13 - 18)

Immediately inform the OAG when there is an indication that fraud may exist

A14. When an Appointed Auditor becomes aware of a suspected or actual fraud involving

the resources of a public entity, it is imperative that the OAG be notified immediately

so that the OAG and the Appointed Auditor can agree on the course of action to be

followed to ensure that the matter is appropriately addressed.

A15. Once the OAG is informed of the possible existence of a fraud, the OAG and the

Appointed Auditor (through discussion and mutual agreement) will:

- consider the potential effect on the financial and performance information

and, if the fraud could have a material effect, plan any appropriate modified or

additional audit procedures;

- establish the means by which the fraud is to be communicated to the public

entity’s management (if they are unaware of the fraud) and, if necessary, to

any third parties (see paragraphs 41 to 43 of ISA (NZ) 240);

- establish the accounting and disclosure requirements for the financial and

performance information; and

- agree on any additional information that cannot be included in the fraud

notification return to be reported to the OAG.

A16. If those persons ultimately responsible for the overall direction of the public entity may

be implicated in the fraud, the OAG shall determine what reporting action will be

taken. If legal advice is required, this will be sought directly by the OAG. (See

paragraph A65 of ISA (NZ) 240)

A17. In some circumstances, the Appointed Auditor may have no alternative but to inform

the entity’s management of a fraud detected during the annual audit before informing

and consulting with the OAG. For example, this may be necessary if there is an

immediate need to protect accounting records and associated information.



A18. A few public entities experience a significant number of frauds of low monetary value.

For example, public entities responsible for the payment of benefits regularly

encounter situations where beneficiaries have deliberately misrepresented their

circumstances to claim benefits to which they are not entitled. In this situation, it may

be impracticable for the Appointed Auditor to inform the OAG each time they become

aware of a new fraud. As a result, the OAG and the Appointed Auditor will agree a

practical arrangement, so that they are kept informed of frauds, with the management

of the public entity. The arrangements will only be agreed on a case-by-case basis.

The Protected Disclosures Act 2000

A19. If the public entity does not have an internal procedure for protected disclosures, the

Appointed Auditor should advise the employee to make the disclosure to the head of

the public entity. If the employee believes that the head of the entity is or may be

involved in the fraud, or that the disclosure of the fraud is urgent, or that other

exceptional circumstances exist, the Appointed Auditor should contact the Assistant

Auditor-General – Legal for advice.

Reporting fraud in the audit report (See paragraph 21)

A20. If the Appointed Auditor is unable to confirm or dispel a suspicion that a fraud has

occurred, the Appointed Auditor may need to seek legal advice before rendering any

opinion on the financial and performance information for the annual audit. If legal

advice is required, this will be sought directly by the OAG.

Reporting fraud to third parties (See paragraphs 22 - 23)

A21. The public entity should consider whether to report fraud to the appropriate law

enforcement agency, although this will not limit the Auditor-General also considering

whether to do so for the purpose of protecting the interests of the public.

A22. If a third party requests information on a fraud or a suspected fraud, and it is

necessary to obtain a legal opinion on whether it is appropriate to release that

information, the OAG will obtain that legal opinion. (See paragraph 43 of ISA (NZ)

240)



Appendix 1 – Examples of fraud risk factors

The fraud risk factors identified in this appendix are examples of such factors that may be

faced by the Appointed Auditor in a broad range of situations. The examples below are in

addition to the equivalent appendix in ISA (NZ) 240 and take into account public sector

considerations.

It is possible that one or more fraud risk factors may be present in any particular public entity.

Further detail on sector-specific fraud risk factors may be summarised in applicable audit

briefs.

1 Fraud may arise where management or those charged with governance use their

position to obtain or procure a pecuniary benefit. Management or those charged with

governance may over-ride internal controls, particularly where there is little or no

segregation of duties or independent checks or authorisations and approvals of

transactions. In this situation, there may not be adequate oversight over decision-

making processes or full or adequate disclosure of related party transactions. A

common example of this is where an entity makes a significant procurement that may

involve contracting with related parties and where the related party relationship is

deliberately concealed.

2 Fraud may arise where there is a misuse of information. An example may be a public

sector employee who uses their knowledge of a benefits payments system to defeat

or suppress internal controls to facilitate payments of fraudulent benefits to

themselves or their family or friends.

3 Fraud may arise where an individual with authority to spend funds also establishes

the budget for the activity. This creates the opportunity to make provision for

“fraudulent payments” in the budget, and therefore enable fraudulent payments to be

made during the period of the budget without arousing suspicion by way of actual

expenditure exceeding the budget.

4 Fraud may arise where an individual with the authority to spend funds also has the

authority to code payments in the accounting system. This creates the opportunity to

allocate fraudulent payments to an under-utilised budgetary code and therefore

reduce the risk of detection.



5 Fraud may arise where an individual has the authority to commit the public entity to

discretionary expenditure, including travel, accommodation, or entertainment, and

that discretionary expenditure provides personal benefits to the individual.

AG ISA (NZ) 250 Consideration of laws and regulations


AG ISA (NZ) 250THE AUDITOR-GENERAL’S STATEMENT ON

CONSIDERATION OF LAWS AND REGULATIONS1

ContentsPage


Objectives 3 - 2501


Requirements 3 - 2502 Determining those laws and regulations which, if breached, may

be material 3 - 2502 Determining the audit approach to laws and regulations 3 - 2503 When non-compliance is identified 3 - 2504

Application and other explanatory material 3 - 2506 Determining the audit approach to laws and regulations 3 - 2506 When non-compliance is identified 3 - 2507

Appendix 1 – Decision tree for determining the audit approach to laws

and regulations 3 - 2509

Appendix 2 – Decision tree for reporting non-compliance in the audit report 3 - 2510

1 This statement is under review and is likely to be updated later in 2017.



Introduction




Consideration of Laws and Regulations in an Audit of Financial Statements

(ISA (NZ) 250);2 and

(b) establishes additional requirements and provides associated guidance to

reflect the public sector perspective.

2. This Statement and the equivalent auditing standard on which it is based reflect the

requirements for considering laws and regulations when carrying out an annual audit.

Application








April 2017.

5. There are specific issues of compliance with laws and regulations for the Appointed

Auditor to consider when auditing appropriations in government departments (including

planning, carrying out fieldwork, and reporting). For further guidance, the Appointed

Auditor is to refer to AG-2: The appropriation audit and the controller function and/or the

applicable audit brief.

Objectives





(a) obtain sufficient appropriate audit evidence regarding compliance with the

provisions of those laws and regulations generally recognised to have a direct

effect on the determination of material amounts and disclosures in the

financial and performance information;

(b) perform specified audit procedures to help identify instances of non-

compliance with those laws and regulations that, if they are not complied

with, do not have a direct effect on the determination of material amounts and

disclosures in the financial and performance information, but are material

because compliance may be fundamental to the operating aspects of the

entity;

(c) perform specified audit procedures to help identify instances of non-

compliance with those laws and regulations that do not have a direct effect on

the determination of material amounts and disclosures in the financial and

performance information and are not fundamental to the operating aspects of

the entity, but which may still be material because the entity operates in the

public sector;

(d) remain alert during the annual audit for any possible material non-compliance

with other laws or regulations, although they may not have been originally

identified as relevant during audit planning; and

(e) report appropriately on non-compliance with laws and regulations identified

during the audit.

Definitions

7. For the purpose of this Auditor-General’s auditing statement the defined terms have








Requirements

Determining those laws and regulations which, if breached, may be material

8. The Appointed Auditor shall use their judgement when determining which laws and

regulations may give rise to material non-compliance, in keeping with the objective in

paragraph 6(c) of this Statement. As part of meeting the objective in paragraph 6(c), the



Appointed Auditor shall consider whether there is an instance or pattern of non-

compliance with laws and regulations, which may be considered material if it:

(a) undermines basic accountability arrangements (for example, non-compliance

with reporting obligations, or fundamental weaknesses in internal control, or

failure to keep proper accounting records);

(b) is outside the statutory powers of the public entity;

(c) represents a significant abuse or misuse of powers delegated by Parliament (for

example, payments to management or those charged with governance in

excess of authorities granted);

(d) calls into question the probity of a major part or all of the public entity;

(e) relates to an activity that could be of significant interest to the public; or

(f) could be seen to disadvantage the public (for example, through actual or

opportunity cost to the taxpayer or ratepayer).

Determining the audit approach to laws and regulations (See paragraphs A1 - A2 and

Appendix 1)

9. In the public sector the Appointed Auditor shall, as part of meeting the requirements

of paragraph 12 of ISA (NZ) 250:

(a) gain an understanding of any specific laws and regulations that apply to the

public entity;

(b) familiarise themselves with advice from the OAG, including the applicable audit

brief;

(c) maintain a general awareness of current events by monitoring:

(i) the results of any Parliamentary scrutiny of the public entity or the

sector in which it operates;

(ii) the outcome of any reviews by government agencies;

(iii) the outcome of any court proceedings;

(iv) comments in the media; and

(d) monitor the development of any new legislative requirements that are likely to

affect the public entity.

10. The Appointed Auditor shall plan and perform audit procedures in keeping with

paragraph 13 of ISA (NZ) 250 to obtain reasonable assurance that the entity has

complied with the categories of laws and regulations specified in paragraph 6 (a) of

this Statement.

11. The Appointed Auditor shall follow any advice from the OAG, including the applicable

audit brief, when carrying out audit procedures relating to the categories of laws and

regulations specified in paragraphs 6 (b) and (c) of this Statement. Where there is no



advice from the OAG, the Appointed Auditor shall, as a minimum, carry out the audit

procedures in paragraph 14 of ISA (NZ) 250.

12. As part of obtaining an understanding of the legal and regulatory framework, in

keeping with paragraph 9 above and paragraph 12 in ISA (NZ) 250, the following

matters shall be documented in the audit working papers:

(a) a description of the legal and regulatory framework applicable to the entity and

the industry or sector in which it operates;

(b) a description of how the entity complies with that framework;

(c) the specific laws and regulations within each of the three categories of laws

and regulations as specified in paragraphs 6(a), (b), and (c) of this Statement;

and

(d) the audit procedures that the auditor plans to perform to assess compliance with

the specific laws and regulations within each of the three categories of laws and

regulations as specified in paragraphs 6(a), (b), and (c) of this Statement.

13. In meeting the requirements of paragraph 15 of ISA (NZ) 250, the Appointed Auditor

shall remain alert during the annual audit for any possible material non-compliance

with other laws or regulations, although they may not have been originally identified

as relevant during audit planning.

When non-compliance is identified

14. The Appointed Auditor shall not provide opinions (in a legal sense) on a public entity’s

compliance with laws and regulations. Nothing in the Auditor-General’s responsibility to

consider laws and regulations in the annual audit, including references to certain laws

and regulations disclosed in the audit report or the management letter, should be

misconstrued as the auditor providing a legal opinion on the entity's compliance with

relevant laws and regulations. (See paragraph A3)

15. The Appointed Auditor shall not report a public entity’s non-compliance with laws and

regulations to any responsible Minister or to Parliament. The OAG is responsible for

making these decisions and shall consider factors such as the frequency or pattern of

non-compliance, and the effects of non-compliance, when making its decision.

Communication with any Minister about instances of material non-compliance with

laws and regulations that arise during the year shall be done directly by the OAG, in

consultation with the Appointed Auditor.



16. If there is uncertainty about the nature of non-compliance with laws and regulations,

the Appointed Auditor shall request and obtain the public entity’s view, which may

include any legal advice it has obtained, before consulting the OAG.

Immediate reporting of certain types of non-compliance to the OAG

17. The Appointed Auditor shall immediately tell the OAG about any non-compliance with

laws and regulations that:

(a) is material, and for which the OAG has not provided guidance;

(b) calls into question the ethics or behaviour of management and/or those

charged with governance or where fraud is suspected; or

(c) where management and/or those charged with governance are suspected of

being involved in any deliberate non-compliance with a law or regulation.

(Paragraphs A4 - A5)

Reporting instances of non-compliance

18. The Appointed Auditor shall report instances of material non-compliance with laws

and regulations that arise during the year to the appropriate level of management or

those charged with governance as soon as the non-compliance comes to the

Appointed Auditor’s attention.

19. The Appointed Auditor shall immediately inform the appropriate level of management

of any non-compliance that is of such a nature that it can be remedied or repaired (for

example, illegal investments). This provides management with the opportunity to take

prompt action to correct any non-compliance.

20. In addition to the reporting requirements of paragraph 22 of ISA (NZ) 250, the

Appointed Auditor shall report in the management letter (to the appropriate level of

management or those charged with governance) any concerns they have about the

integrity of internal control or other deficiencies that affect the ability of the public

entity to monitor its compliance with laws and regulations.

21. All instances of a public entity's non-compliance with laws and regulations identified

during the annual audit shall be reported to the OAG in the document summarising

the audit conclusions. (Paragraph A6)



Reporting non-compliance in the audit report3

22. The Appointed Auditor shall follow any directions issued by the OAG on reporting

non-compliance in the audit report.

23. Non-compliance that has a pervasive effect on the financial and performance

information4 shall be referred by the Appointed Auditor to the OAG Accounting and

Auditing Policy team. The OAG Accounting and Auditing Policy team may request the

Appointed Auditor to prepare a submission to the Auditor-General’s Opinions Review

Committee (the ORC).

24. The Appointed Auditor shall follow any directions issued by the OAG covering how any

non-compliance is to be reported in the audit report.

25. If the OAG has not issued any directions covering how the non-compliance is to be

reported in the audit report, the Appointed Auditor shall consult the OAG Accounting and

Auditing Policy team about the appropriate audit report to issue when they identify non-

compliance in keeping with paragraph 6(b) to 6(d) of this Statement.

***


Determining the audit approach to laws and regulations (Paragraphs 9 - 13)

A1. The nature and extent of audit procedures is to be determined by the Appointed Auditor,

after considering the likelihood and the effect of non-compliance and any advice from the

OAG, including the applicable audit brief. Types of audit procedures that might be

considered include:

- enquiring of management about any instances of non-compliance, or any new

or unusual activities/transactions (for example, new ventures, tax-based or

investment transactions) carried out during the year, and reviewing those

activities/transactions;

- reviewing minutes of management meetings or the public entity's internal

compliance reports, as applicable;

- reviewing systems and practices designed to monitor and report on compliance,

or with compliance requirements embedded in them, and the adequacy of the

3 Appendix 2 is a decision tree for reporting non-compliance in the audit report.4 In keeping with the objectives in paragraphs 6(a) and (b) in this statement and the requirements in AG ISA (NZ)

700 and AG ISA (NZ) 705.



public entity's policies and procedures governing compliance with relevant

statutory obligations;

- performing random or risk-based transaction tests that incorporate the element

of checking for compliance with laws and regulations; and

- performing substantive tests of particular laws and regulations (such as those

laws and regulations specifying the determination of material amounts and

disclosures in the financial and performance information).

A2. Audit procedures may be substantive in nature or place reliance, where appropriate, on

the systems and practices designed to control and monitor compliance, or on both.

If a substantive approach is taken, Appointed Auditors should apply audit procedures

that provide a reasonable opportunity of detecting instances of material non-compliance.

However, the Appointed Auditor is not expected to review every transaction of the public

entity to be satisfied that compliance with laws and regulations has occurred. Typically,

substantive procedures will be directed to testing material year-end balances for the

purposes of determining their fair presentation and whether they comply with those laws

and regulations identified under paragraphs 6 (a), 6 (b) and 6 (c) where non-compliance

may be material. For example, confirming whether an investment is lawful.

If the focus is primarily on the systems and practices, audit procedures should be

designed to assess the effectiveness of internal control, including the internal control

environment, established by management to minimise the occurrence of non-

compliance.

When non-compliance is identified (Paragraphs 13 - 26)

A3. The OAG, in consultation with the Appointed Auditor, may also write directly to the

Chief Executive or governing body in certain circumstances when non-compliance is

identified.

Immediate reporting of certain non-compliance to the OAG

A4. Assessment of non-compliance requires professional judgement and may need to be

based on legal advice. If there is uncertainty about the fact of non-compliance with laws

and regulations, the public entity should first be asked for its view, which may include

reviewing any legal advice the entity has obtained.5 The Appointed Auditor is to consider

that advice against any existing guidance provided by the OAG. If the OAG has not

5 Note that the entity cannot be compelled to give Appointed Auditors or the OAG its legal advice. However, if an entity refuses to provide legal advice to the Appointed Auditor or to the OAG, this amounts to a limitation in scope and may result in a modification of the audit report.



provided any existing guidance, the Appointed Auditor should consult with the OAG.

The OAG will then provide the Appointed Auditor with the necessary direction and will

determine, as appropriate, the need to report the non-compliance to external parties.

A5. The Appointed Auditor is required to immediately advise the OAG when management

and/or those charged with governance are involved in non-compliance; this is so the

OAG can lead any response to the requirements contained in paragraphs 24 and 28 of

ISA (NZ) 250.

Reporting instances of non-compliance to the OAG

A6. Formal reports made to management on compliance with laws and regulations may be

appended to the document summarising the audit conclusions. However, the essential

action is to give the OAG an account of all non-compliance with laws and regulations

identified at the same time that the audit report and the annual report are issued.



Appendix 1 – Decision tree for determining the audit approach to laws and regulations

Y

N

Y

N

Y

N

Y

N

START

END

Has the OAG issued a specific policy or other guidance?

Would the laws and regulations begenerally recognised to have a direct effect on the determination of material amounts and disclosures in the financial and performance information?(Para 6(a))

Would the laws and regulations be material because compliance may be fundamental to the operating aspects of the entity?(Para 6(b))

Would the laws and regulations be material because the entity operates in the public sector?(Para 6(c))

Remain alert for any possible non-compliance with the laws and regulations that may be material.

Follow the specific policy or guidance.

Obtain sufficient appropriate audit evidence regarding compliance.(Para 10)

Follow any advice from the OAG, including the applicable audit brief. As a minimum, perform audit procedures to help identify material instances of non-compliance.(Para 11)

Follow any advice from the OAG, including the applicable audit brief. As a minimum, perform audit procedures to help identify material instances of non-compliance.(Para 11)



Appendix 2 – Decision tree for reporting non-compliance in the audit report

N

N

N

N

N

N

Y

Y

N

Y

Y

Y

Y

Y

START

Has the OAG provided direction on how the non-compliance is to be reported in the audit report?

Follow the OAG's direction(Para 22)

END

Is there any doubt about whether an instance of non-compliance should be included in the audit report?

Consult the OAG(Para 25)

Does the non-compliance have a direct effect on the determination of material amounts and disclosures in the financial and performance information?(Para 6(a))

Is the non-compliance material because compliance may be fundamental to the operating aspects of the entity?(Para 6(b))

Is the non-compliance material because the entity operates in the public sector?(Para 6(c))

Has the entity disclosed the non-compliance in the financial and performance information?

END

Does the non-compliance have a pervasive effect on the financial and performance information?

Refer to the OAG Accounting and Auditing Policy team. Referral to the OAG Opinions Review Committee may be necessary.(Para 23)

Follow any advice from the OAG, including the applicable audit brief. Otherwise refer to the OAG Accounting and Auditing Policy team.(Para 24)




END

END

END

END

END

AG ISA (NZ) 260 (Revised) Communication with those charged with governance

AG ISA (NZ) 260 (REVISED)THE AUDITOR-GENERAL’S STATEMENT ON

COMMUNICATION WITH THOSE CHARGED WITH GOVERNANCE

ContentsPage


Objectives 3 - 2601


Requirements 3 - 2602 Requirement to prepare a written management letter 3 - 2602 Requirement to inform those charged with governance of all reports

issued 3 - 2602 Precautions in respect of draft versions of the management letter 3 - 2602 Requests for access to versions of the management letter 3 - 2603

Application and other explanatory material 3 - 2603 Requirement to prepare a written management letter 3 - 2603 Precautions in respect of draft versions of the management letter 3 - 2603



Introduction



(a) establishes the Auditor-General’s requirements in relation to ISA (NZ) 260

(Revised): Communication with Those Charged with Governance (ISA (NZ)

260);1 and


Application







information which has been prepared for reporting periods ending on or after 15

December 2016.

Objectives


(a) communicate clearly with those charged with governance the responsibilities

of the Appointed Auditor in relation to the annual audit (including the aspects

of auditing public sector entities) and an overview of the planned scope and

timing of the annual audit;2

(b) obtain from those charged with governance information relevant to the annual

audit;3

(c) provide those charged with governance with timely observations arising from

the annual audit including areas for improving financial and other

management systems; and


2 This objective is consistent with the applicable objectives and requirements in AG ISA (NZ) 210: The terms of audit engagements.

3 This objective is consistent with the applicable objectives and requirements in AG ISA (NZ) 580: Written representations.



(d) promote effective two-way communication between the Appointed Auditor

and those charged with governance.

Definitions

5. For the purpose of this Auditor-General’s Auditing Statement the defined terms have








Requirements

Requirement to prepare a written management letter

6. The Appointed Auditor shall personally communicate the significant matters arising

from the audit in writing, to those charged with governance or, where authorised by

those charged with governance, to the audit committee of the public entity. Where

there are no significant matters to raise, the Appointed Auditor shall report that fact in

writing to those charged with governance or the audit committee. (See paragraph A1)

7. The Appointed Auditor shall ensure that the management letter includes the date it is

signed.

Requirement to inform those charged with governance of all reports issued

8. Reports to those charged with governance or the audit committee of the public entity

shall refer to the other reports issued by the Appointed Auditor to other persons or

bodies within the public entity and the nature of the matters included in those reports.

Precautions in respect of draft versions of the management letter

9. The Appointed Auditor shall mark as “DRAFT” each page of a draft version of the

audit management letter. (See paragraph A2)

10. The Appointed Auditor shall ensure management and those charged with governance

are aware of the importance of preserving the confidentiality of draft versions of the

management letter. (See paragraphs A2 - A6)



Requests for access to versions of the management letter

11. The Appointed Auditor shall refer requests for any version of the management letter

from a third party to the Assistant Auditor-General - Legal at the OAG.

***


Requirement to prepare a written management letter (See paragraph 6)

A1. In many public entities, those charged with governance have a collective

responsibility for governance. Those charged with governance may assign some of

their responsibilities to an audit committee. In other public entities, such as

government departments, there is no governing body as such, but there are other

persons who fulfil the governance role (for example, the chief executive or a

committee of management).

Precautions in respect of draft versions of the management letter (See paragraphs 9 -

10)

A2. Usually a draft management letter is issued when the Appointed Auditor considers it

is appropriate to obtain comments from management before release of the

management letter to those charged with governance. Draft versions of the

management letter are a critical part of the audit process. By their nature, they may

contain information that is factually inaccurate. It is therefore essential that each page

of a draft version of the audit management letter is marked with the word “DRAFT”.

A3. The Appointed auditor should advise management and those charged with

governance that draft management letters are provided to them on a confidential

basis to enable them to provide comment to the Appointed Auditor on whether the

management letters are factually correct, and fair and balanced. The preservation of

the confidentiality of draft management letters enables appropriate changes to be

made in keeping with the principles of natural justice and also ensures that inaccurate

or unfair information is not made public. The Appointed Auditor should also ensure

that management and those charged with governance are aware that preserving the

confidentiality of the draft management letters is important in the interests of ensuring

open communication between the Appointed Auditor and management or those




A4. Where an entity is subject to the Official Information Act 1982 or the Local

Government Official Information and Meetings Act 1987, any correspondence with

that entity may be required to be released under those Acts, this can include draft

and final management letters sent by the auditor. If the entity receives a request for

release of such documents it is required to consider whether it is appropriate to

release them taking into account the statutory requirements, including any applicable

withholding grounds. The entity may consult the auditor about their views about

whether the documents should be released. If this occurs, please contact the

Assistant Auditor-General Legal for assistance.

A5. The precautions about draft versions of the management letter apply to all

management letters issued to individuals in a public entity irrespective of whether the

individuals represent “management” or “those charged with governance”.


AG ISA (NZ) 300 Planning the annual audit


PLANNING THE ANNUAL AUDIT

ContentsPage


Objectives 3 - 2801


Requirements 3 - 2802 Preliminary engagement activities 3 - 2802 Planning activities including the use of audit briefs 3 - 2802 Nature of the public entity’s objectives to be taken into account in

audit planning 3 - 2803

Application and Other Explanatory Material 3 - 2803 Planning activities including the use of audit briefs 3 - 2803 Nature of the public entity’s objectives to be taken into account in

audit planning 3 - 2804



Introduction




Planning an Audit of Financial Statements (ISA (NZ) 300);1 and


Application








April 2017.

Objectives


(a) plan the annual audit so that it will be performed in accordance with the

Auditor-General’s Auditing Standards and in an effective and efficient

manner; and

(b) ensure that the audit plan takes account of the need for the auditor to

maintain an awareness of whether the public entity is:

(i) applying its resources effectively and efficiently;

(ii) minimising waste;

(iii) conducting its business with due regard to probity; and

(iv) acting in a financially prudent manner.




Definitions









Requirements

Preliminary engagement activities

6. The Appointed Auditor shall take into account the acceptance and continuance

procedures outlined in AG PES 3 (Amended) when complying with the requirements

in paragraph 6(a) of ISA (NZ) 300.

Planning activities including the use of audit briefs

7. The Appointed Auditor shall incorporate the requirements of the OAG, including

information and instructions contained in the applicable audit brief, into their overall

audit strategy and audit plan in meeting the requirements of paragraphs 8 and 9 of

ISA (NZ) 300. (See paragraphs A1 - A5)

8. The Appointed Auditor shall consider the relevant public sector perspective when

developing their overall audit strategy and audit plan in accordance with the

requirements of paragraphs 8 and 9 in ISA (NZ) 300. Some of that perspective may

be included in the following standards and statements:

(a) AG-2: The appropriation audit and the controller function;

(b) AG-3: The auditor’s approach to issues of effectiveness and efficiency, waste

and a lack of probity or financial prudence;

(c) AG-4: The audit of performance reports;

(d) AG ISA (NZ) 250: Consideration of laws and regulations;

(e) AG ISA (NZ) 315: Identifying and assessing the risks of material

misstatement through understanding the entity and its environment; or

(f) AG ISA (NZ) 320: Materiality in planning and performing an annual audit.

9. The Appointed Auditor shall personally approve the overall audit strategy.



Nature of the public entity’s objectives to be taken into account in audit planning

10. Paragraphs 8 and 9 of ISA (NZ) 300 prescribe procedures to be performed in

establishing the overall audit strategy and audit plan. In identifying the characteristics

of the engagement that define its scope (as per paragraph 8(a) of ISA (NZ) 300), the

Appointed Auditor shall establish the purpose of the public entity, in particular whether

it primarily provides goods or services for community or social benefit or whether it

has commercial objectives as its primary purpose. (See paragraphs A6 - A8)

***

Application and Other Explanatory Material

Planning activities including the use of audit briefs (See paragraph 7)

A1. Although the Auditor-General is the auditor of every public entity under section 14(1)

of the Public Audit Act 2001 (the Act), the Auditor-General is personally unable to

plan every annual audit of every public entity. This is why the Auditor-General

appoints auditors to carry out those annual audits.

A2. The Auditor-General has approved the approach outlined in paragraphs A3 to A5

below to ensure that the expectations in the Act are incorporated into all planning

activities carried out for every annual audit of every public entity. The approach is

intended to ensure that the requirements of paragraphs 6 to 11 of ISA (NZ) 300

appropriately reflect the public sector perspective.

A3. In the rare situation where the Auditor-General plans to sign the audit report, the

Auditor-General will meet all of the requirements of paragraph 6 to 11 of ISA (NZ)

300, including approving the overall audit strategy.

A4. In the most common situation, where an Appointed Auditor signs the audit report on

behalf of the Auditor-General, the Appointed Auditor will meet the requirements of

paragraphs 6 to 11 of ISA (NZ) 300 by incorporating the instructions of the OAG. The

instructions of the OAG are normally provided to the Appointed Auditor in the form of

an audit brief.

A5. Each audit brief will be based on audit planning that is carried out by the OAG. Each

audit brief may contain:



- those factors identified by the OAG that would be significant in directing the

audit team’s effort, including specific instructions; or

- those factors identified by the OAG that the Appointed Auditor should

consider as part of understanding the entity and its environment, in keeping

with the requirements of ISA (NZ) 315 and AG ISA (NZ) 315, including any

general or specific guidance on the nature and purpose of public entities,

and/or on any sensitivities or risks to be considered in designing the audit

approach.

Nature of the public entity’s objectives to be taken into account in audit planning (See

paragraph 10)

A6. As a general rule, the purpose of public entities will be set out in any enabling

legislation, or elaborated in other government, governing body, or internal policy

statements, or founding documents. These documents will set out the fundamental

objectives of the public entity, and also how it will be resourced to achieve these

objectives.

A7. The primary purpose of most public entities is the provision of goods and services,

often called "public services". In these entities, the primary audit focus is on whether

the entity has in fact provided the goods and services in keeping with Parliament's

intentions. In this situation, the Appointed Auditor will need to consider targeting their

audit effort to the expenditure streams and any associated performance information

of the public entity. Most of these types of public entities are primarily funded by

means of grants from taxpayers’ or ratepayers’ funds.

A8. For those public entities that are self-funding (to a significant extent or totally) through

trading activities, the audit focus may be more on the Statement of Financial Position,

with secondary consideration of revenue and expenditure streams. Examples of

these types of public entities are commonly referred to as the "commercial" sector,

including State-owned enterprises and council-controlled trading organisations.


AG ISA (NZ) 315 (Revised) Understanding the entity and its environment


IDENTIFYING AND ASSESSING THE RISKS OF MATERIAL MISSTATEMENT THROUGH UNDERSTANDING THE

ENTITY AND ITS ENVIRONMENT

ContentsPage


Objectives 3 - 2901


Requirements 3 - 2902 Understanding the entity’s internal control 3 - 2902

Appendix 1 – Examples of conditions and events that may indicate risks of material

misstatement in the financial and performance information 3 - 2904



Introduction




(Revised): Identifying and Assessing the Risks of Material Misstatement

through Understanding the Entity and its Environment (ISA (NZ) 315);1 and


Application








April 2017.

Objectives


(a) identify and assess the risks of material misstatement, whether due to fraud

or error, in the financial statements and performance information at the

assertion level, through understanding the entity and its environment,

including the entity’s internal control, and thereby providing a basis for

designing and implementing responses to the assessed risks of material

misstatement;

(b) maintain alertness and awareness for, and if necessary assess, risks that the

public entity may not:

(i) apply its resources effectively and efficiently;

(ii) minimise waste;

(iii) conduct its business with due regard to probity; and

(iv) act in a financially prudent manner.




(c) obtain, for public entities identified by the OAG, to the level necessary, an

understanding of internal control in a public entity that may be used by the

OAG to report matters to Parliament on the quality of the internal control in

public entities, at an individual, sector, or national level.

Definitions









Requirements

Understanding the entity’s internal control

6. As well as the requirements in paragraph 12 of ISA (NZ) 315 (Revised), the

Appointed Auditor shall consider, where it is appropriate, whether:

(a) there is a long-term planning process that results in credible long-term

business and strategic plans;

(b) planning processes involve the specification of both financial and

performance information that is appropriate both for managing the public

entity and reporting externally;

(c) there is forecast financial and performance information that is consistent with

the public entity's business or strategic plans;

(d) the forecast financial and performance information has been compiled with

input from those charged with governance and appropriate levels of

management; and

(e) the forecast financial and performance information is detailed enough to

enable effective and frequent monitoring of actual performance against it.

7. Also, in addition to the requirements in paragraph 12 of ISA (NZ) 315 (Revised), the

Appointed Auditor shall remain alert for and aware of risks that the public entity may

not take appropriate account of the public sector factors that are the focus of AG-3:

The auditor’s approach to issues of effectiveness and efficiency, waste and a lack of

probity or financial prudence and AG ISA (NZ) 250: Consideration of laws and



regulations. This may involve considering whether the entity’s internal control

provides assurance that the entity has:

(a) applied its resources effectively and efficiently;

(b) complied with its statutory obligations;

(c) minimised waste;

(d) conducted its business with due regard to probity; and

(e) acted in a financially prudent manner.

8. As well as the requirements in paragraph 15 of ISA (NZ) 315 (Revised), the

Appointed Auditor shall consider, where it is appropriate, whether the public entity has

appropriate risk management policies and procedures to manage risks, including

political issues, demographic trends, and natural disasters.

9. In keeping with paragraph 11(d) of ISA (NZ) 315 (Revised), the Appointed Auditor

shall take into account the additional examples of conditions and events that may

indicate risks of material misstatement in Appendix 1.

10. The Appointed Auditor shall, if relevant to gaining an understanding of the public

entity, consider the findings from any other work of the OAG (such as performance

audits, inquiries, or audits of Long-Term Plans) or any external reviews. External

reviews may include:

(a) the involvement of external parties such as industry associations, Ministers,

and control agencies (such as the Treasury and the State Services

Commission) and the extent to which this involvement affects internal control;

or

(b) any other external influences that affect the Appointed Auditor’s

understanding of internal control, such as industry influences; and

(c) the findings of any external reviews conducted on the public entity that may

influence the Appointed Auditor’s understanding of any aspect of internal

control.

11. The Appointed Auditor shall immediately report the findings of any substantial or

significant external reviews of the activities of the public entity to the OAG.



Appendix 1 – Examples of conditions and events that may indicate risks of material misstatement in the financial and performance information

The following are examples of conditions and events that may indicate risks of material

misstatement for public entities. The examples are additional to those in Appendix 2 of ISA

(NZ) 315 (Revised). They include:

- major changes to existing programmes;

- new legislation and regulations or directives;

- new programmes, products or services;

- new performance measures;

- new systems for recording financial and performance information;

- political decisions such as relocation of operations;

- increased public expectations;

- matters of high public interest, which may lead to expectations to meet targets;

- changes in ownership arrangements;

- changes in political leadership;

- public private partnerships;

- outsourcing of government activities;

- higher than normal expectations to meet budget;

- budget overspending due to weak budgetary controls;

- programmes without sufficient allocated resources and funding;

- indications of non-compliance with statutory obligations;

- indications of a lack of effectiveness or efficiency, waste, a lack or probity or financial

prudence; and

- operations subject to special investigations.


AG ISA (NZ) 320 Materiality in planning and performing an annual audit


MATERIALITY IN PLANNING AND PERFORMING AN ANNUAL AUDIT

ContentsPage


Objective 3 - 3001


Requirements 3 - 3002 Materiality to be applied to the annual audit of financial and

performance information 3 - 3002 Additional requirement to consider issues of effectiveness and

efficiency, waste, and a lack of probity or financial prudence 3 - 3003 Appointed Auditors to comply with other OAG instructions on

materiality 3 - 3003 Determining an appropriate materiality base for the financial

information as a whole 3 - 3003

Application and other explanatory material 3 - 3004 Materiality to be applied to the annual audit of financial and

performance information (See paragraph 6) 3 - 3004



Introduction




Materiality in Planning and Performing an Audit (ISA (NZ) 320)1; and


Application








April 2017.

Objective

4. The objective of the Appointed Auditor is to apply the concept of materiality

appropriately, and to reflect the public sector perspective in planning and performing

the annual audit.

Definitions







definition shall prevail);

(b) in the Auditor-General’s Glossary of Terms; and




(c) in the following term.

Material means, for the purposes of forming an opinion on a

public entity’s financial and performance information, a

statement, omission, fact, or item of such a nature or

amount that its disclosure, or the method of treating it,

given full consideration of the circumstances applying

at the time the financial and performance information is

completed, that could reasonably be expected to

influence readers’ overall understanding of the

financial statements and performance information in

making decisions or assessments about the

stewardship and allocation of resources, and the

performance of the public entity.

Requirements

Materiality to be applied to the annual audit of financial and performance information

6. The Appointed Auditor shall consider whether a statement, omission, fact, or item is

material when planning and performing the annual audit of the financial and

performance information prepared by an entity. The consideration of materiality by

the Appointed Auditor shall be taken from several perspectives as follows:

(a) The Appointed Auditor shall apply the general definition of “material”, in

paragraph 5 of this statement, as the overall test of whether a statement,

omission, fact, or item is material when planning and performing the annual

audit of an entity’s financial and performance information.

(b) If an entity prepares performance reports for audit, the Appointed Auditor

shall apply the materiality requirements of AG-4: The audit of performance

reports.

(c) In considering the laws and regulations that apply to an entity, the Appointed

Auditor shall also apply the materiality requirements of ISA (NZ) 250:

Consideration of Laws and Regulations and take into account the

considerations in paragraph 8 of the accompanying Auditor-General’s

Statement AG ISA (NZ) 250.

(d) If a public entity receives a Parliamentary appropriation on behalf of a

Minister, the Appointed Auditor shall apply the materiality requirements of

AG-2: The appropriation audit and the controller function. (See paragraphs

A1 – A3)



Additional requirement to consider issues of effectiveness and efficiency, waste, and a lack of probity or financial prudence

7. Regardless of the requirements in paragraph 6 of this Statement, the Appointed

Auditor shall maintain an alertness and awareness of issues of effectiveness and

efficiency, waste, and a lack of probity or financial prudence when planning and

performing the annual audit. Such alertness and awareness shall be maintained for

the purpose of reporting such issues to the OAG.

8. The Appointed Auditor shall specifically maintain an alertness and awareness of such

issues and, should an issue come to their attention, form an initial view as to whether

to report the issue to the OAG. Issues that are clearly trivial or inconsequential are

not required to be reported to the OAG.

9. The Appointed Auditor shall refer to AG-3: The auditor’s approach to issues of

effectiveness and efficiency, waste and a lack of probity or financial prudence for

further requirements and guidance.

Appointed Auditors to comply with other OAG instructions on materiality

10. The Appointed Auditor shall, as a minimum, comply with any materiality

considerations specified in instructions by the OAG. Irrespective of any materiality

considerations specified by the OAG, the Appointed Auditor shall apply a lower

materiality limit if this is necessary to achieve the objective of this Statement.

Determining an appropriate materiality base for the financial information as a whole

11. The Appointed Auditor shall, when setting materiality for the financial information,

take into account the activities of the public entity. For example:

(a) For public entities whose purpose is primarily to provide public benefits, the

focus is likely to be on the quality of its expenditure. In this instance, gross

expenditure might be an appropriate base for determining the level of

financial materiality.

(b) For public entities whose primary purpose is the pursuit of commercial

objectives, a financial materiality that is consistent with that entity’s

commercial objectives would be more appropriate.

***




Materiality to be applied to the annual audit of financial and performance information

(See paragraph 6)

Limitations in the definition of materiality in the New Zealand financial reporting framework

A1. The financial reporting framework in New Zealand defines materiality. In New

Zealand, New Zealand International Accounting Standard 1 (NZ IAS 1) states:

“Omissions or misstatements of items are material if they could, individually or

collectively, influence the economic decisions that users make on the basis of the

financial statements. Materiality depends on the size and nature of the omission or

misstatement judged in the surrounding circumstances. The size or nature of the item,

or a combination of both, could be the determining factor.”

NZ IAS 1 includes the following additional guidance in respect of public benefit

entities:

“Material. In addition to the definition of ‘Material’ given in paragraph 7, omissions or

misstatements of items are material if they could, individually or collectively, influence

the decisions or assessments of users made on the basis of the financial statements.

Public benefit entities are reporting entities whose primary objective is to provide

goods or services for community or social benefit and where any equity has been

provided with a view to supporting that primary objective rather than for a financial

return to equity holders.”

A2. For the purposes of annual audits, the statement about materiality in NZ IAS 1 is too

narrow for the following reasons:

(a) Limiting the definition to "omissions or misstatements" effectively excludes

concerns identified by the auditor around financial management behaviour

that would not directly impact on the fair presentation (or truth and fairness) of

the financial and performance information. An example of financial

management behaviour that would be material to users but which would not

necessarily result in an omission or misstatement of the financial and

performance information would be when entity management had invested

unlawfully or without authority. In this instance the financial and performance



information may fairly present the investment, although the investment is

unlawful or unauthorised.

(b) Limiting the definition to "economic decisions of users" also fails to recognise

that users may choose to make decisions other than economic decisions,

such as changing the governing body where they have the power to do so. In

the public sector many users do not have the power to make economic

decisions and must therefore resort to other action, such as voting for a

change in their elected representatives.

Auditing in the public sector places greater emphasis on the qualitative aspects (the nature) of materiality

A3. Paragraph A3 of ISA (NZ) 320 describes matters to consider when determining

materiality levels in the public sector. When determining whether a particular class of

transactions, account balance, disclosure, or other assertion that is part of the

financial and performance information is material by virtue of its nature, the Appointed

Auditor should take into account qualitative aspects such as:

(a) The context in which the matter appears, for example if the matter is also

subject to compliance with authorities, legislation, or regulations, or if law or

regulation prohibits overspending of public funds, regardless of the amounts

involved.

(b) The needs of the various stakeholders and how they use the financial and

performance information.

(c) The nature of the transactions that are considered sensitive to users of the

financial and performance information.

(d) Public expectations and public interest, including emphasis placed on the

particular matter by Parliament or other elected representatives, including the

necessity of certain disclosures.

(e) The need for legislative oversight and regulation in a particular area.

(f) The need for openness and transparency.


AG ISA (NZ) 330 The auditor’s responses to assessed risks


THE AUDITOR’S RESPONSES TO ASSESSED RISKS

ContentsPage

Introduction 3 - 3101

Scope of this Statement 3 - 3101

Application 3 - 3101

Objectives 3 - 3101


Requirements 3 - 3102

Maintaining an awareness of public sector matters during the

annual audit 3 - 3102



Introduction




The Auditor’s Responses to Assessed Risks (ISA (NZ) 330);1 and


Application








April 2017.

Objectives


(a) obtain sufficient appropriate audit evidence about the assessed risks of

material misstatement in the financial and performance information, through

designing and implementing appropriate responses to those risks in keeping

with the requirements in ISA (NZ) 330;

(b) maintain an awareness of, and report to the OAG, any additional matters

identified during the audit that may be significant in the context of the public

sector; and

(c) respond to any specific directions, instructions, or requirements issued by the

OAG, which may be issued from time to time.




Definitions









Requirements

Maintaining an awareness of public sector matters during the annual audit

6. In keeping with the objective in paragraphs 4(b) and (c) above, the Appointed Auditor

shall maintain an awareness of, and report to the OAG, any additional matters

identified during the annual audit that may be significant in the context of the public

sector. In particular, the Appointed Auditor shall:

(a) apply the requirements for annual audits that are outlined in:

(i) AG ISA (NZ) 250: Consideration of laws and regulations;

(ii) AG-3: The auditor’s approach to issues of effectiveness and

efficiency, waste and a lack of probity or financial prudence; and

(iii) AG-4: The audit of performance reports.

(b) apply the specific public sector factors where they are applicable to aspects

of the audit work to be carried out that are outlined in AG-2: The appropriation

audit and the controller function; and

(c) apply, where applicable, any requirements that may be specified in directives

from the OAG, such as audit briefs.


AG ISA (NZ) 450 Evaluation of misstatements


EVALUATION OF MISSTATEMENTS IDENTIFIED DURING THE ANNUAL AUDIT

ContentsPage




Objectives 3 - 3301



Evaluating the effect of uncorrected misstatements 3 - 3302

Evaluating issues of non-compliance with laws and regulations 3 - 3302

Evaluating issues of effectiveness and efficiency, waste, or a lack

of probity or financial prudence 3 - 3302



Introduction




Evaluation of Misstatements Identified During the Audit (ISA (NZ) 450);1 and


Application




provides otherwise. Where a conflict between this Statement and ISA (NZ) 200 exists,

the requirements of this Statement shall prevail.



April 2017.

Objectives


(a) evaluate the effect of identified misstatements on the annual audit in keeping

with the requirements of ISA (NZ) 450;

(b) evaluate the effect of uncorrected misstatements, if any, on the financial and

performance information;

(c) evaluate the effect of any identified non-compliance with laws and

regulations; and

(d) evaluate any matters of effectiveness and efficiency, waste, or a lack of

probity or financial prudence identified during the audit.

Definitions












Requirements

Evaluating the effect of uncorrected misstatements

6. In complying with paragraph 10 of ISA (NZ) 450, the Appointed Auditor shall, prior to

evaluating the effect of uncorrected misstatements confirm, when reassessing

materiality determined in keeping with AG ISA (NZ) 320, whether materiality remains

appropriate given the public entity’s actual results.

Evaluating issues of non-compliance with laws and regulations

7. The Appointed Auditor shall evaluate, in consultation with the OAG if necessary, any

issues of non-compliance with statutory obligations that were identified during the

annual audit. Such evaluation is primarily to determine whether further audit

procedures are necessary and/or how the additional matters identified during the

annual audit should be reported. For further guidance refer to AG ISA (NZ) 250:

Consideration of laws and regulations.

Evaluating issues of effectiveness and efficiency, waste, or a lack of probity orfinancial prudence

8. The Appointed Auditor shall evaluate, in consultation with the OAG if necessary, any

issues of effectiveness and efficiency, waste, or a lack of probity or financial prudence

that were identified during the annual audit. Such evaluation is primarily to determine

whether further audit procedures are necessary and/or how the additional matters

identified during the annual audit should be reported.


AG ISA (NZ) 570 (Revised) Going Concern


GOING CONCERN

ContentsPage


Objectives 3 - 4301


Requirements 3 - 4302 Financial statements and performance information not prepared

using the going concern basis of accounting 3 - 4302 Audit reports to be referred to the OAG before they are issued 3 - 4303 Where a public entity is reliant on a letter of support 3 - 4303 Management reporting 3 - 4304

Application and other explanatory material 3 - 4304 Where a public entity is reliant on a letter of support 3 - 4304



Introduction



(a) establishes the Auditor-General’s requirements in relation to ISA (NZ) 570 (Revised):

Going Concern (ISA (NZ) 570)1; and


2. The Appointed Auditor cannot assume that because an entity is operating in the public sector, the

Government will automatically support the entity should it run into financial difficulties. When

assessing the validity of the going concern basis of accounting in relation to a public entity, the

Appointed Auditor needs to ask the question:

Without government or other external assistance over and above that provided to fund normal

operations (including the need to invoke statutory processes to amend an entity’s ability to levy or

rate), will the entity be able to continue operating for at least one year (or for the foreseeable

future) from the date of the approval of the financial statements?

3. From time to time public entities run into financial difficulties. Such difficulties usually mean that,

without additional Government support, the entity would have to cease operating or be unable to

continue to meet its statutory functions.

Application

4. Compliance with this Statement is mandatory for Appointed Auditors who carry out annual audits

on behalf of the Auditor-General. This Statement requires compliance with all of the requirements

of ISA (NZ) 570, except to the extent that this Statement provides otherwise. Where a conflict

between this Statement and ISA (NZ) 570 exists, the requirements of this Statement shall prevail.

5. This Statement applies to audits of financial statements and/or performance information which has

been prepared for reporting periods ending on or after 15 December 2016.

Objectives


(a) obtain sufficient appropriate audit evidence, and conclude on, the appropriateness of the

use of the going concern basis of accounting in the preparation and presentation of the

financial and performance information;

1 The ISA (NZ) auditing standards are scoped so that they apply to audits of “historical financial information”. However, for the purposes of the Auditor-General’s auditing standards and statements, all references to “historical financial information” should be read as the audit of “historical financial and historical performance information”.



(b) conclude, based on the audit evidence obtained, whether a material uncertainty exists

related to events or conditions that may cast significant doubt on the public entity’s ability

to continue as a going concern; and

(c) report in accordance with this statement, and ISA (NZ) 570 (Revised).

Definitions

7. For the purpose of this Auditor-General’s Auditing Statement the defined terms have the

meanings attributed:

(a) in the Glossary of Terms issued by the New Zealand Auditing and Assurance Standards

Board (the NZAuASB glossary) of the External Reporting Board (although where a term

with a specific meaning in the New Zealand public sector differs from the NZAuASB

glossary, the New Zealand public sector definition shall prevail); and


Requirements

Financial statements and performance information not prepared using the going concern basis of accounting

8. Where the financial statements have been prepared on a basis other than on a going concern

basis, the Appointed Auditor shall consider if the other basis is appropriate in the specific

circumstances, and if the financial statements contain the necessary disclosures. In these

circumstances the Appointed Auditor shall not issue a modified opinion. However, the audit report

shall include, when setting out the basis of the opinion, an emphasis of matter paragraph that

describes the other basis of preparation and shall refer to the relevant disclosures in the financial

statements.

9. The Appointed Auditor shall refer their proposed audit report to the Accounting and Auditing Policy

team where there are material errors in the application of an alternative or non-going concern

basis of preparation, such as where the valuation of assets and/or liabilities in financial statements

that have been prepared on an alternative or non-going concern basis are materially misstated.



Audit reports to be referred to the OAG before they are issued

10. The Appointed Auditor shall consult with the Accounting and Auditing Policy team in the OAG

when they have doubt over the validity of the going concern basis of accounting. Specifically, the

Accounting and Auditing Policy team should be consulted:

- where the Appointed Auditor disagrees with the use of the going concern basis of

accounting or there is inadequate disclosure about the going concern basis of accounting;

- where the Appointed Auditor is unable to obtain sufficient audit evidence to support the

use of the going concern basis of accounting; and

- where the Appointed Auditor has identified uncertainities over the use of the going

concern basis of accounting which are outside the control of management and those


11. The Accounting and Auditing Policy team will request the Appointed Auditor to prepare a

submission2 to the Auditor-General’s Opinions Review Committee (the ORC) for the

circumstances in paragraph 10 above, unless there is clear precedent supporting the proposed

audit report.

Where a public entity is reliant on a letter of support

12. Where the entity’s use of the going concern basis of accounting is dependent on a letter of

support, the Appointed Auditor shall ensure the letter of support is sufficient to justify the use of

the going concern basis of accounting. (See paragraphs A1 – A2)

13. The Appointed Auditor shall consult the OAG about the possible inclusion of an emphasis of

matter paragraph, or an other matter paragraph in the auditor’s report:

- when the entity has received a letter of support for the first time;

- when the entity’s financial difficulties have substantially worsened compared to the prior

year, or are expected to substantially worsen in the foreseeable future; and/or

- when it may be in the public interest for the audit report to draw attention to the existence

of the letter of support because the entity is significant (for example, a district health

board).

2 Submissions to the OAG Opinions Review Committee on going concern issues should consider whether the financial statements adequately reflect all expenses and obligations of the entity, whether the levels of equity and working capital arereasonable and sustainable, whether the entity has the ability to pay its debts as they fall due, whether the entity is subject to capital expenditure or other financial commitments, whether the entity has a realistic budget, whether those charged with governance acknowledtge the seriousness of the financial situation of the entity and are taking achievable actions to resolve the entity’s financial difficulties.



Management reporting

14. If the Appointed Auditor has seriously considered the validity of the going concern basis of

accounting, the issue shall be addressed in the management letter to those charged with

governance.

***


Where a public entity is reliant on a letter of support (See paragraph 12)

A1. The Appointed Auditor should consider the following matters as part of ensuring the letter of

support can justify the use of the going concern basis of accounting:

- whether the entity providing the letter of support has the authority to provide the support3;

- whether the letter of support has been signed by a person with appropriate delegated

authority to provide such support;

- whether the entity or entities that will be providing support have the ability to cover the

obligations of the entity receiving the support; and

- whether the financial statements and performance information adequately disclose the

fact that the entity has received the letter of support and whether the disclosures

adequately refer to any conditions or other matters contained in the letter of support4.

A2. Where a letter of support has been obtained by an entity, the Appointed Auditor should ensure

that appropriate reference to this fact, and any other related matters is included in the document

that summarises the audit conclusions and/or the management letter.

3 For example, Local Authorities that issue letters of support to council controlled trading organisations are limited by the restrictions in sections 62 and 63 of the Local Government Act 2002.

4 At a minimum Appointed Auditors should be considering the requirements of paragraphs 25 and 26 of NZ IAS 1, and paragraphs 38 to 41 of PBE IPSAS 1.


AG ISA (NZ) 580 Written representations


WRITTEN REPRESENTATIONS

ContentsPage


Objectives 3 - 4401


Requirements 3 - 4402 Content of representations 3 - 4402 Signatories of representations 3 - 4402 Doubt as to the reliability of written representations 3 - 4403 Requested written representations not provided 3 - 4403

Appendix 1 – Illustrative representation letter for a non-company 3 - 4404

Appendix 2 – Illustrative website publication representation 3 - 4407

Appendix 3 – Illustrative going concern representation where doubt exists as to

the use of the going concern basis of accounting 3 - 4408



Introduction




Written Representations (ISA (NZ) 580);1

(b) provides additional guidance to reflect the public sector perspective; and

(c) provides sample written representation templates for the Appointed Auditor to

use.

Application








December 2016.

Objectives


(a) obtain written representations from those charged with governance2

confirming that they believe that they have fulfilled the fundamental

responsibilities that constitute the premise on which an audit is conducted;

(b) support other audit evidence relevant to the financial and performance

information or specific assertions in that information - by means of written

representations or required by other ISAs (NZ), or by the Auditor-General’s

auditing standards and statements; and

(c) respond appropriately to written representations provided by those charged

with governance, or if those charged with governance do not provide the

written representations requested by the Appointed Auditor.


2 For entities with no formal governance body, such as departments, the Chief Executive may provide the representations.



Definitions









Requirements

Content of representations

6. The written representation letter from a public entity shall, as a minimum:

(a) address all the issues included in the sample written representation letters,

except where they are not applicable in the circumstances; and

(b) be consistent with the intent and meaning of the representations requested in

the sample written representation letters.

Appendix 1 contains an illustrative written representation letter. Additional sample

written representation letters, based on the requirements in this Statement and on the

requirements contained in ISA (NZ) 580, may be provided by the OAG.

7. The Appointed Auditor shall supplement the wording of the written representation

letter by requesting additional representations on material matters that are specific to

the public entity subject to audit. Some examples of additional representations that

may need to be requested include:

(a) a specific representation covering the publication of the audited financial and

performance information and the related audit report on a website (in

Appendix 2); and

(b) an illustrative example of a going concern representation where there is an

indication that the going concern basis of accounting may be in doubt (in

Appendix 3).

Signatories of representations

8. The Appointed Auditor shall request written representations from those charged with

governance with appropriate responsibilities for the financial and performance

information.



The written representation letter may be countersigned by the Chief Executive Officer

and other relevant personnel, such as the Chief Financial Officer.

Doubt as to the reliability of written representations

9. If, in meeting the requirements of paragraphs 16 and 18 of ISA (NZ) 580, the

Appointed Auditor concludes that the written representations are not reliable, the

Appointed Auditor shall refer the matter to the OAG. The OAG, in consultation with

the Appointed Auditor, shall determine the effect on the audit report together with any

other reporting actions.

Requested written representations not provided

10. If, in meeting the requirements of paragraph 19 of ISA (NZ) 580, the Appointed

Auditor is unable to obtain the requested written representations, the Appointed

Auditor shall refer the matter to the OAG. The OAG, in consultation with the

Appointed Auditor, shall determine the effect on the audit opinion together with any

other reporting actions.

***



Appendix 1 – Illustrative representation letter for a non-company

The following illustrative letter, which is based on the requirements in AG ISA (NZ) 580 and

ISA (NZ) 580, is not to be considered as an all-inclusive list of issues to be addressed in the

written representation letter sought from those charged with governance. In all cases where

this illustrative representation letter is used, the contents of the letter should be reviewed for

their relevance and appropriateness, and additions or deletions made to it where considered

necessary.

It is assumed in this illustration that:

- the entity is required to prepare financial statements and a statement of

performance;3 and

- the financial statements and the statement of performance have been prepared using

a fair presentation framework.

[Public entity letterhead]

[Date]

[Appointed Auditor][Audit Service Provider][Address 1][TOWN or CITY]

REPRESENTATION LETTER FOR THE YEAR ENDED [DD MM 20XX]

This representation letter is provided in connection with your audit, carried out on behalf of the Auditor-General, of the financial statements and statement of performance of [Name of public entity] for the year ended [DD MM 20XX] for the purpose of expressing an independent opinion about whether:

The financial statements:

- present fairly, in all material respects:

- the financial position as at [DD MM 20XX]; and

- the financial performance and cash flows for the year then ended; and

- comply with generally accepted accounting practice in New Zealand in accordance with [the applicable financial reporting framework].

The statement of performance:

- presents fairly, in all material respects, the performance for the year ended [DD MM 20XX], including:

- the performance achievements as compared with forecasts included in the statement of performance expectations for the financial year; and

- the actual revenue and expenses as compared with the forecasts included in the statement of performance expectations for the financial year.

- complies with generally accepted accounting practice in New Zealand.

We understand that your audit was carried out in accordance with the Auditing Standards issued by the Auditor-General, which incorporate the International Standards on Auditing (New Zealand).

3 The Appointed Auditor should ensure that the references to the statements that have been audited in the representation letter are consistent with the statements in the audit report where an opinion is provided.



[We understand that because you will be issuing a non-standard audit report, the Auditor-General has the responsibility to refer to that audit report in a report to Parliament in accordance with section 20 of the Public Audit Act 2001.]4

General representations

To the best of our knowledge and belief:- the resources, activities, [and entities] under our control have been operating effectively and efficiently;- we have complied with our statutory obligations including laws, regulations, and contractual requirements;- we have carried out our decisions and actions with due regard to minimising waste;- we have met Parliament’s and the public’s expectations of appropriate standards of behaviour in the public

sector (that is, we have carried out our decisions and actions with due regard to probity); and- any decisions or actions have been taken with due regard to financial prudence.

We also acknowledge that we have responsibility for designing, implementing, and maintaining internal control (to the extent that is reasonably practical given the size of [Name of public entity]) to prevent and detect fraud (a requirement of paragraph NZ40.1(a) in ISA (NZ) 240).

Representations on the financial statements and the statement of performance

We confirm that all transactions have been recorded in the accounting records and are reflected in the financial statements and statement of performance, and that, to the best of our knowledge and belief, having made such inquiries as we considered necessary for the purpose of appropriately informing ourselves:- we have fulfilled our responsibilities for preparing and presenting the financial statements and the

statement of performance as required by [specify the statutory or other requirements for the preparation of the financial statements and statement of performance] and, in particular, that:The financial statements:


- the financial position as at [DD MM 20XX]; and

- the financial performance and cash flows for the year then ended; and


The statement of performance:

- presents fairly, in all material respects, the performance for the year ended [DD MM 20XX],including:

- the performance achievements as compared with forecasts included in the statement of performance expectations for the financial year; and

- the actual revenue and expenses as compared with the forecasts included in the statement of performance expectations for the financial year.


- we believe the significant assumptions used by us in making accounting estimates, including those measured at fair value, are reasonable (a requirement of paragraph NZ22.1 in ISA (NZ) 540);

- we have appropriately accounted for and disclosed the related party relationships and transactions in the financial statements (a requirement of paragraph NZ26.1(b) in ISA (NZ) 550);

- we have adjusted or disclosed all events subsequent to the date of the financial statements and the statement of performance that require adjustment or disclosure (a requirement of paragraph NZ9.1 in ISA (NZ) 560); and

- we believe the effects of uncorrected misstatements are immaterial, both individually and in the aggregate, to the financial statements and statement of performance as a whole. A list of the uncorrected misstatements is attached to this representation letter (a requirement of paragraph NZ14.1 in ISA (NZ) 450).

- we have disclosed all known actual or possible litigation and claims whose effects should be considered when preparing the financial statements. Where applicable, such litigation and claims have been accounted for and disclosed in accordance with [the applicable financial reporting framework] (arequirement of paragraph NZ12.1 in ISA (NZ) 501).

- [Any other matters that the Appointed Auditor may consider appropriate.]

Representations about the provision of information

We confirm that, to the best of our knowledge and belief, having made such enquiries as we considered necessary for the purpose of appropriately informing ourselves:

4 This wording is optional and should only be included in the representation letter if the Appointed Auditor will be issuing a non-standard audit report.



- we have provided you with:- all information, such as records and documentation, and other matters that are relevant to

preparing and presenting the financial statements and the statement of performance; and- unrestricted access to persons within the entity from whom you determined it necessary to obtain

audit evidence.- we have disclosed to you the results of our assessment of the risk that the financial statements and

statement of performance may be materially misstated as a result of fraud (a requirement of paragraph NZ40.1(b) in ISA (NZ) 240);

- we have disclosed to you all information in relation to fraud or suspected fraud that we are aware of and that affects the entity and involves:- management;- employees who have significant roles in internal control; or- others where the fraud could have a material effect on the financial statements and the

statement of performance (a requirement of paragraph NZ40.1(c) in ISA (NZ) 240).- we have disclosed to you all information in relation to allegations of fraud, or suspected fraud, affecting the

entity’s financial statements and statement of performance communicated by employees, former employees, analysts, regulators, or others (a requirement of paragraph NZ40.1(d) in ISA (NZ) 240);

- we have disclosed to you all known instances of non-compliance or suspected non-compliance with laws and regulations whose effects should be considered when preparing financial statements and the statement of performance (a requirement of paragraph NZ17.1 in ISA (NZ) 250 (Revised));

- [we have provided you with all the other documents (“other information”) which will accompany the financial statements and the performance information which are consistent with one another, and the other information does not contain any material misstatements.]5

- we have disclosed the identity of the related parties, all of their relationships, and all of their transactions of which we are aware (a requirement of paragraph NZ26.1(a) in ISA (NZ) 550); and

- [Any other matters that the Appointed Auditor may consider appropriate]

Going concern basis of accounting6

We confirm that, to the best of our knowledge and belief, the [Name of public entity] has adequate resources to continue operations at its current level for the foreseeable future. For this reason, the [Governing body] continues to adopt the going concern basis of accounting in preparing the financial statements and the statement of performance for the year ended [DD MM 20XX]. We have reached this conclusion after making enquiries and having regard to circumstances that we consider likely to affect the [Name of public entity] during the period of one year from [date of signing the financial statements and the statement of performance], and to circumstances that we know will occur after that date which could affect the validity of the going concern basis of accounting. [Insert details of key considerations (for example, operating and cash flow forecasts, forecast borrowing requirements, commitments, and contingencies).]

We consider that the financial statements and the statement of performance adequately disclose the circumstances, and any uncertainties, surrounding the adoption of the going concern basis of accounting by the [Name of public entity].

Throughout the year, the [Name of public entity] has complied with the requirements of its banking arrangements, debenture trust deeds, or negative pledge agreements, including those relating to its net tangible assets ratios (arequirement of paragraph 16(e) in ISA (NZ) 570).

The representations in this letter are made at your request, and to supplement information obtained by you from the records of the [Name of public entity] and to confirm information given to you orally.

Yours faithfully

Chairperson

Chief Executive

5 Include this text in the representation letter is the entity is including all ‘other information’ in the annual report. However, if the ‘other information’ is not available when you issue your audit report, include the following text instead: [we will provide you with the final version of the following documents which will accompany the financial statements and the performance information by [date], which is before the annual report is issued, and we confirm that the information contained in these documents will be consistent with the financial statements and the performance information, and will not contain any material misstatements:

- [list documents to be provided]]6 If there is any doubt about the validity of the going concern basis of accounting, the going concern section in

this representation letter should be replaced with the going concern representation in Appendix 3.



Appendix 2 – Illustrative website publication representation

The following is an illustration of an additional representation that can be included in the

representation letter when the entity intends publishing its audited financial statements and

statement of performance and the related audit report on a website.

Publication of the financial statements [and statement of performance] and related audit report on a website

- The [Governing body] accepts that it is responsible for the electronic presentation of the audited financial statements [and statement of performance].

- The electronic version of the audited financial statements [and statement of performance] and the related audit report presented on the website are the same as the final signed version of the audited financial statements [and statement of performance] and audit report.

- We have clearly differentiated between audited and unaudited information on the website and understand the risk of potential misrepresentation without appropriate controls.

- We have assessed the security controls over audited financial [and performance] information and the related audit report, and are satisfied that procedures are adequate to ensure the integrity of the information provided.

- Where the audit report on the full financial statements [and statement of performance] is provided on a website, the financial statements [and statement of performance] are also provided in full.



Appendix 3 – Illustrative going concern representation where doubt exists as to the use of the going concern basis of accounting

Going concern basis of accounting

The considered view of the [Governing body] is that, after making enquiries, the [Governing body] has a reasonable expectation that the [Name of public entity] has adequate resources to continue operations for the foreseeable future. For this reason, the [Governing body] continues to adopt the going concern basis of accounting in preparing the financial statements and the statement of performance for the year ended [DD MM 20XX].

The [Governing body] has reached this conclusion having regard to circumstances that it considers likely to affect the [Name of public entity] during the period of one year from [date of signing the financial statements and the statement of performance], and to circumstances that it knows will occur after that date which could affect the validity of the going concern basis of accounting. The key considerations are set out below.

Operating and cash flow forecasts

The [Governing body] has considered forecast information relating to operational viability and cash flow requirements. The [Governing body] is satisfied that there will be enough cash flows generated from operating activities to meet the investing and financing cash flow requirements of the [Name of public entity].

Borrowing covenants and forecast borrowing requirements

Throughout the year, the [Name of public entity] has conformed with the requirements of its banking arrangements, debenture trust deeds, or negative pledge agreements, including those relating to its net tangible assets ratios.

The forecasts for the next […] months prepared by the [Governing body] show that the available borrowing facilities exceed the peak borrowing requirements by a margin of [$amount]. Furthermore, the forecast borrowing requirements can be met without breaching covenants or other borrowing restrictions.

Commitments

The [Name of public entity] has commitments that are analysed as follows:

$000

Relating to existing activities: Fixed assets – contracted xx Fixed assets – budgeted but not contracted xx

xx

Relating to expansion: Fixed assets – contracted xx Fixed assets – budgeted but not contracted xx

xx

Total xxx

The commitments for existing activities will be incurred in the next […] months and will be met out of established facilities.

The commitments for future expansion will start to be incurred in […] months’ time and will be met partly out of existing facilities and partly out of new funds.

[Note X] to the financial statements also shows lease commitments. These are to meet existing needs and will be met out of current funds.

Contingencies

[Note X] to the financial statements and the statement of performance explains the [Name of public entity]’s contingencies. As stated, the [Governing body] does not consider that provision for these items is necessary and has not therefore arranged funding to meet the liability should the contingency be realised. The [Governing body] does not consider that the contingency affects the appropriateness of the going concern basis of accounting in preparing the financial statements and the statement of performance for the year ended [DD MM 20XX].

[or alternatively]

[Note X] to the financial statements and the statement of performance states that the [Name of public entity] has no contingencies as at [date]. The [Governing body] is not aware of any undisclosed contingencies that would affect the appropriateness of the going concern basis of accounting in preparing the financial statements and the statement of performance for the year ended [date].



Disclosure

We consider that the financial statements and the statement of performance adequately disclose the circumstances, and any uncertainties, surrounding the adoption of the going concern basis of accounting by the [Name of public entity].


AG ISA (NZ) 600 Audits of groups


SPECIAL CONSIDERATIONS - AUDITS OF GROUP FINANCIAL AND PERFORMANCE INFORMATION (INCLUDING THE WORK OF

COMPONENT AUDITORS)

ContentsPage

Introduction 3 - 4501 Scope of this Statement 3 - 4501


Objectives 3 - 4502


Requirements 3 - 4504 When components are public entities 3 - 4504 When components are not public entities 3 - 4505 When there are difficulties with the audit of a group 3 - 4506



Introduction


1. This Auditor-General’s Auditing Statement applies to group audits where the parent is

a public entity in New Zealand, and:


Special Considerations – Audits of Group Financial Statements (ISA (NZ)

600);1 and


2. This Statement clarifies the extent to which the requirements in ISA (NZ) 600 apply to

the annual audits of public entity groups, which is illustrated in Figure 1. Clarity is

needed because:

(a) ISA (NZ) 600 does not apply to the audits of public entity groups (where all

the entities in the group are public entities) because all public entities are

audited by one auditor, the Auditor-General; and

(b) ISA (NZ) 600 does apply to the audits of some public entity groups, where;

- a New Zealand domiciled component is not a public entity; and

- a public entity group includes a component domiciled in an overseas

jurisdiction (that may be controlled or not controlled).

3. A controlled entity domiciled in an overseas jurisdiction (subsequently referred as a

controlled overseas component) is not a public entity.2 Nonetheless, those charged

with governance and the management of the parent public entity are expected to

ensure that a controlled overseas component operates with regard to the principles of

probity and financial prudence, operates effectively and efficiently, complies with

statutory obligations, and minimises waste. As a result, it is expected that the Group

Appointed Auditor will, as part of meeting the requirements contained in AG-3, request

component auditors to maintain the same level of awareness and alertness for issues

or risks as outlined in AG-3: The auditor’s approach to issues of effectiveness and

efficiency, waste, and a lack of probity or financial prudence.


2 This definition reflects the general principle of statutory interpretation that legislation does not have extraterritorial effect, unless the legislation expressly says that it does, or that extended application is necessary to achieve the purpose of the legislation. The Public Audit Act does not meet these criteria.



Application








April 2017.

Objectives

The Group Appointed Auditor’s objective when a component is a public entity

6. The objective of the Group Appointed Auditor is to:

(a) work co-operatively with Component Appointed Auditors of all components

that are public entities, as if the Group and Component Appointed Auditors

are part of the same audit firm, rather than complying with all of the

requirements of ISA (NZ) 600; and

(b) obtain sufficient and appropriate audit evidence to form an opinion on the

group financial and performance information.

The Component Appointed Auditor’s objective when a component is a public entity

7. The objective of the Component Appointed Auditor is to work co-operatively with the

Group Appointed Auditor, as if the Group and Component Appointed Auditors are

part of the same audit firm, to enable the Group Appointed Auditor to obtain sufficient

and appropriate audit evidence to form an opinion on the group financial and


The Group Appointed Auditor’s objective when a component is not a public entity

8. The objective of the Group Appointed Auditor is to work with the component auditors

of all non-public entity components in accordance with the requirements of ISA (NZ)

600, and the alternative requirements contained in this Statement, in order to obtain



sufficient and appropriate audit evidence to form an opinion on the group financial

and performance information.

The Group Appointed Auditor’s objective when a component is a controlled overseas component

9. In addition to the objective in paragraph 8, the objective of the Group Appointed

Auditor is to ensure that AG-3 is appropriately applied to the audit of the Group,

including controlled overseas components.

Definitions









(c) in the list below.

Component Appointed Auditor means the auditor appointed by the Auditor-General,

who carries out the annual audit of a subsidiary or

component which is a public entity, on behalf of the

Auditor-General.

Component auditor means, as defined in ISA (NZ) 600, an auditor who, at

the request of the group engagement team, performs

work on the financial and performance information

related to a component for the Group audit.

Component that is a public

entity

means a subsidiary or component of a public entity (or

entities) and is a public entity as defined in the Public

Audit Act 2001.

Component that is not a public

entity

means a subsidiary or component of a public entity (or

entities) and is not a public entity as defined in the

Public Audit Act 2001. This may include:

(a) a controlled overseas component; or

(b) a component that is not controlled by a public

entity (or entities) and is domiciled either in New



Zealand or an overseas jurisdiction.

Group Appointed Auditor means the auditor appointed by the Auditor-General

who carries out the annual audit of the public entity

group, on behalf of the Auditor-General.

Figure 1 – Scope and application of this Statement to each component within a public entity group

Requirements

When components are public entities

11. In developing the overall audit strategies and audit plans for the group in accordance

with the requirements in AG ISA (NZ) 300,3 the Group Appointed Auditor shall work

with Component Appointed Auditors as if they are part of the same audit firm to

obtain sufficient and appropriate audit evidence in the most efficient way to be able to

form an opinion on the group financial and performance information. To do this, the

Group Appointed Auditor shall have regard to the requirements contained in ISA (NZ)

600, but take into account the Auditor-General’s processes and standards that apply

to the work of Component Appointed Auditors, including:

(a) Taking account of the engagement acceptance and continuance

requirements in AG PES 3 (Amended): Quality control, instead of meeting the

3 Paragraphs 8 and 9 in AG ISA (NZ) 300 requires all Appointed Auditors to consider the relevant public sector perspective when developing their overall audit strategy and audit plan.

Y N

Y N

Y N

STARTIs the Group Appointed Auditor auditing a public entity that controls a component that is based in New Zealand?

In this situation the component is a public entity, which means the Group Appointed Auditor shall comply with paragraphs 11 and 12 of this Statement.

Is the Group Appointed Auditor auditing a public entity that controls a component that is domiciled in an overseas jurisdiction?

In this situation the component is not a public entity, which means the Group Appointed Auditor shall comply withparagraphs 14, 15 and 16 of this Statement.

Is the Group Appointed Auditor auditing a public entity that has an interest in a component but does not control it (whether or not the uncontrolled component is domiciled in New Zealand or an overseas jurisdiction)?

In this situation the component is not a public entity, which means the Group Appointed Auditor shall comply with paragraph 13 of this Statement.

END



requirements of paragraphs 12 to 13 of ISA (NZ) 600 on acceptance and

continuance.

(b) Taking account of the requirements in AG ISA (NZ) 210: The terms of the

audit engagement to confirm the terms of the audit engagement, instead of

meeting the requirement of paragraph 14 of ISA (NZ) 600 on agreeing the

terms of audit engagement.

(c) Taking account of the requirements in AG ISA (NZ) 300: Planning the annual

audit to incorporate the information and instructions contained in the

applicable audit brief in their overall audit strategy and audit plan, in addition

to the requirements of paragraphs 17 and 18 of ISA (NZ) 600. In meeting this

requirement the Group Appointed Auditor may need to understand the

information and instructions outlined in the applicable audit brief used by

Component Appointed Auditors and work with them in their audit planning

procedures.

(d) Taking account of the fact that Component Appointed Auditors are required to

comply with the ethical and independence requirements in AG PES 1

(Revised): Code of ethics for assurance practitioners, instead of meeting the

requirements of paragraphs 19(a), 40(b), and 41(a) of ISA (NZ) 600, on

obtaining confirmation, that Component Appointed Auditors will comply with

ethical and independence requirements.

(e) Taking account of the fact that Component Appointed Auditors are required to

comply with the professional competence requirements in AG PES 3, instead

of meeting the requirement of 19(b) (also reflected in paragraph 4) of ISA

(NZ) 600, on obtaining confirmation that Component Appointed Auditors will

comply with professional competence requirements.

(f) Taking account of the requirements in AG ISA (NZ) 320: Materiality in

planning and performing an annual audit, when meeting the requirements of

paragraphs 21, 22, and 23 of ISA (NZ) 600.

12. In meeting the requirements of paragraph 11 of this statement, the Group Appointed

Auditor may, in rare circumstances, need to review the audit files of a Component

Appointed Auditor. In this situation the Component Appointed Auditor shall provide

access to the Group Appointed Auditor.

When components are not public entities

The component is not a public entity

13. The Group Appointed Auditor shall carry out their audit in accordance with the

requirements of ISA (NZ) 600 but shall comply with the engagement acceptance and



continuance requirements in AG PES-3 (Amended) instead of meeting the

requirements of paragraphs 12 to 13 of ISA (NZ) 600 on acceptance and continuance

for group audits.4

The component is a controlled overseas component

14. In addition to the requirement in paragraph 13, the Group Appointed Auditor shall

request the component auditor to appropriately consider and report to the Group

Appointed Auditor on any issues or risks required to be identified under AG-3. This

will normally require the Group Appointed Auditor to add additional material to the

instructions sent to the component auditor to ensure that they appropriately consider

and report any issue or risk required to be identified under AG-3.

15. Where this approach is not possible, the Group Appointed Auditor may need to

assess whether those charged with governance of the parent public entity actively

monitor compliance with AG-3 issues and risks within the controlled overseas

component, and determine if any additional auditing procedures and/or reporting is

necessary.

16. The Group Appointed Auditor shall report AG-3 issues and risks raised by the

component auditor, in keeping with the requirements contained in AG-3.

When there are difficulties with the audit of a group

17. Group or Component Appointed Auditors shall immediately contact the Assistant

Auditor-General – Accounting and Auditing Policy, if they:

(a) have any difficulties in applying this Statement;

(b) identify that the work of a Group Appointed Auditor, Component Appointed

Auditor, or component auditor may be insufficient, in accordance with

paragraph 43 in ISA (NZ) 600; or

(c) are considering communicating with management or those charged with

governance concerns about the quality of the component auditor’s work, in

accordance with paragraph 49(c) in ISA (NZ) 600.

4 AG-3 does not apply to uncontrolled components because these entities are not public entities as defined in the Public Audit Act 2001.


AG ISA (NZ) 700 (Revised) Forming and reporting an opinion



FORMING AN OPINION AND REPORTING ON FINANCIAL AND PERFORMANCE INFORMATION

ContentsPage


Objectives 3 - 4801 Definitions 3 - 4802 Requirements 3 - 4802

Presentation of findings arising from the annual audit 3 - 4802 Expression of the opinion 3 - 4802 Use of template audit reports issued by the OAG 3 - 4803 Signing of audit reports 3 - 4803 Dating of audit reports 3 - 4803 Independence and the disclosure of relationships with, or interests in,

the public entity in the audit report 3 - 4803 Audit reports to be referred to the OAG 3 - 4804 Translation of audit reports 3 - 4804 Reporting to the OAG 3 - 4805

Application and other explanatory material 3 - 4805 Presentation of findings arising from the annual audit 3 - 4805 Expression of the opinion 3 - 4805 Use of template audit reports issued by the OAG 3 - 4806 Dating of audit reports 3 - 4806 Independence and the disclosure of relationships with, or interests in,

the public entity in the audit report 3 - 4807 Translation of audit reports 3 - 4808

Appendix 1 – The Auditor-General’s Opinions Review Committee (ORC) 3 -4809 Appendix 2 – Unmodified model audit report for a public entity applying a fair

presentation framework 3 - 4814 Appendix 3 – Unmodified model audit report for a public entity applying a

compliance framework 3 - 4820



Introduction




(Revised): Forming an Opinion and Reporting on Financial Statements (ISA

(NZ) 700);1 and


Application








December 2016.

4. The Auditor-General determines the standard format and wording for audit reports on

the financial and performance information required to be prepared by public entities

for audit. In doing so, the Auditor-General takes into account the objectives and

requirements of the International Standards on Auditing (New Zealand) that are

relevant to the audits of public entities,2 together with the requirements of the Public

Audit Act 2001, to ensure appropriate reporting to readers.

Objectives


(a) form an opinion on the financial and performance information presented by

the entity that is required to be audited, based on an evaluation of the

conclusions drawn from the audit evidence obtained; and


2 Paragraph 18 of ISA (NZ) 200.



(b) report any other material matters in the audit report; and

(c) express that opinion clearly through a written report.

Definitions









Requirements

Presentation of findings arising from the annual audit

7. Audit reports issued on behalf of the Auditor-General shall present the findings of the

annual audit at the beginning of the audit report. (See paragraphs A1 – A2)

Expression of the opinion

8. Audit opinions issued by, or on behalf of, the Auditor-General on financial and

performance information presented in accordance with a fair presentation framework,

shall be expressed in the form of a dual opinion that separately opines on:

(a) the fair presentation of the audited material; and

(b) whether the audited material complies with generally accepted accounting

practice in New Zealand and has been prepared in accordance with [the

applicable financial reporting framework]. (See paragraphs A2 – A5)

9. The audit opinion contained in audit reports issued by, or on behalf of, the Auditor-

General on financial and performance information presented in accordance with a fair

presentation framework, shall use the words “present fairly, in all material respects”.

10. Audit opinions issued by, or on behalf of, the Auditor-General on financial and

performance information presented in accordance with a compliance framework (such

as a non-GAAP standard), shall be expressed using the words:



“In our opinion, the accompanying financial statements and performance information

have been prepared, in all material respects, in accordance with [the applicable

financial reporting framework]” (See paragraph A6)

Use of template audit reports issued by the OAG

11. The Appointed Auditor shall use audit report templates issued by the OAG as the

basis for all audit reports signed on behalf of the Auditor-General. The Appointed

Auditor shall consult with the OAG on any departures (other than those that are trivial

or inconsequential) from the format or style of any audit report template issued by the

OAG. (See paragraph A7 and Appendices 2 and 3)

Signing of audit reports

12. All audit reports, except those audit reports where the Auditor-General directs

otherwise, shall be personally signed by the Appointed Auditor. However, the Auditor-

General reserves the right to sign any audit report after giving due notice to the

Appointed Auditor.

Dating of audit reports

13. In addition to paragraph 49 of ISA (NZ) 700 (Revised), the audit report shall not be

dated before:

(a) the date on which the statement of responsibility or equivalent statement is

signed; or

(b) the date of the written representation, as required by AG ISA (NZ) 580 and

ISA (NZ) 580. (See paragraph A8).

Independence and the disclosure of relationships with, or interests in, the public entity in the audit report

14. The Appointed Auditor shall disclose in the “Independence” section of the audit report

whether their Audit Service Provider (ASP) has any relationship with or interests in

the public entity. (See paragraphs A9 – A12).



Audit reports to be referred to the OAG (See Appendix 1)

15. The Appointed Auditor shall consult with the Accounting and Auditing Policy team

before issuing an audit report:

(a) if the Appointed Auditor seriously considers issuing an audit report containing:

(i) an emphasis of matter or other matter paragraph in relation to an

uncertainty over the use of the going concern assumption;

(ii) an emphasis of matter or other matter paragraph in relation to a matter of

efficiency and effectiveness, waste, or a lack of probity or financial

prudence;

(iii) a disclaimer of opinion; or

(iv) an adverse opinion.

(b) if the Appointed Auditor seriously considers including an emphasis of matter or

other matter paragraph in that audit report where the OAG has not provided

direction or guidance; or

(c) if there is a technical matter related to that audit report that the Appointed

Auditor is unsure about.

16. The Accounting and Auditing Policy team will request the Appointed Auditor to prepare a

submission to the Auditor-General’s Opinions Review Committee (the ORC) for the

circumstances in paragraph 15 above, unless there is clear precedent supporting the

proposed audit report. (See paragraphs 1.8 and 1.9 of Appendix 1).

Translation of audit reports

Translation of audit reports into M ori

17. is an official language of New Zealand. An audit report in M ori shall be

provided by the Appointed Auditor if requested by the entity’s management. (See

paragraphs A13 – A15)

18. If an audit report in English shall

also be provided.

Translation of audit reports into another language

19. If the Appointed Auditor is requested to provide an audit report in a language that is

not an official language of New Zealand (such as Niuean or Tokelaun), they shall

contact the OAG for a translated audit report if that is deemed necessary.



20. If an Appointed Auditor issues an audit report in a language other than English, an

audit report in English shall also be provided.

Reporting to the OAG

21. The Appointed Auditor shall forward to the OAG a copy of all audit reports issued, in

keeping with the requirements set out in AG-1: Reporting to the OAG.

***


Presentation of findings arising from the annual audit (See paragraph 7)

A1. Paragraph 43 of ISA (NZ) 700 (Revised) requires the auditor’s report to clearly

separate the results of the “audit of the financial statements and performance

information” from the auditor’s findings on “other legal and regulatory requirements”.

Under paragraph 43, the auditor’s findings on “other legal and regulatory

requirements” are required to be reported in a separate section of the auditor’s report

following the components of the auditor’s report on the “audit of the financial

statements and performance information”. The Auditor-General has departed from the

requirements of paragraph 43 of ISA (NZ) 700 (Revised) by requiring all findings

arising from the audit to be reported at the beginning of the audit report. This means

that auditors’ reports issued by, or on behalf of, the Auditor-General will report the

auditor’s opinion at the beginning of the audit report together with any other material

findings arising from the annual audit. The findings will be categorised under separate

sub-headings depending on their nature at the beginning of the auditor’s report.

A2. The Auditor-General presents the auditor’s opinion, and other findings arising from

the audit, at the beginning of the audit report because this is the information that is of

most importance to the reader of the auditor’s report.

Expression of the opinion (See paragraphs 8 – 10)

A3. Paragraph 25 of ISA (NZ) 700 (Revised) requires the auditor’s opinion on financial

statements prepared in accordance with a fair presentation framework to use one of

the following phrases, which are regarded as being equivalent:

(a) In our opinion, the accompanying financial statements present fairly, in all

material respects, […] in accordance with [the applicable financial reporting



framework]; or

(b) In our opinion, the accompanying financial statements give a true and fair

view of […] in accordance with [the applicable financial reporting framework].

A4. The Auditor-General has departed from the requirements of paragraph 25 of ISA (NZ)

700 (Revised) by requiring audit opinions issued by, or on behalf of, the Auditor-

General on financial and performance information presented in accordance with a fair

presentation framework to be expressed in the form of a dual opinion. The dual

opinion separately opines on:

(a) the fair presentation of the audited material; and

(b) whether the audited material complies with generally accepted accounting

practice in New Zealand and has been prepared in accordance with [the

applicable financial reporting framework].

A5. The Auditor-General has adopted the dual opinion approach because:

(a) preparation of the financial statements and performance information in

accordance with [the applicable financial reporting framework] does not

automatically mean that the audited information is fairly presented; and

(b) [the applicable financial reporting framework] does not adequately address

some important aspects of financial statements and performance information in

the public sector. The most prominent omission is in the area of performance

reporting.

A6. An example of a compliance framework in New Zealand is “Public Benefit Entity

Simple Format Reporting – Cash (Public Sector)”.

Use of template audit reports issued by the OAG (See paragraph 11)

A7. Example audit reports are provided in this statement, AG ISA (NZ) 705 (Revised), AG

ISA (NZ) 706 (Revised), on the Auditor’s Homepage, and in other directions issued

by the OAG from time to time.

Dating of audit reports (See paragraph 13)

A8. The financial and performance information on which the Appointed Auditor has issued

the audit report may be included in a subsequently published annual report.

Sometimes the annual report will be formally approved after the date that the financial

and performance information was approved. The date of the audit report does not

normally need to be changed solely because the date that the annual report was



approved is after the date that the financial and performance information was

approved.

Independence and the disclosure of relationships with, or interests in, the public entity in the audit report (See paragraph 14)

A9. Where the ASP does not have a relationship with, or interests in, the entity (other than

as auditor) the audit report should include a disclosure in the Independence section

that states:

“We are independent of the [entity type] in accordance with the independence

requirements of the Auditor-General’s Auditing Standards, which incorporate the

independence requirements of Professional and Ethical Standard 1 (Revised): Code of

Ethics for Assurance Practitioners issued by the New Zealand Auditing and Assurance

Standards Board.

Other than the audit, we have no relationship with, or interests in, the [entity type].”

A10. AG PES 1 (Revised) permits the Appointed Auditor to distinguish between assurance

engagements and other engagements when reporting any “other” work in the audit

report. Appointed Auditors are requested to pay particular attention to the disclosures

made by the public entity in the note to the accounts that discloses the fees paid to

the auditor. The note is required to fully describe the nature of the other services

carried out by the ASP. Ideally the disclosure should separately distinguish fees

earned from assurance engagements from fees earned from non-assurance

engagements.

A11. Whether or not an Appointed Auditor makes a distinction between assurance work

and non-assurance work in the audit report is at their discretion. If the ASP has

carried out engagements for the entity in addition to the annual audit, and the

Appointed Auditor decides not to distinguish between assurance engagements and

non-assurance engagements in the audit report, the audit report may simply state:

“In addition to the audit, we have carried out engagements in the areas of [insert

description of engagements], which are compatible with those independence

requirements. Other than the audit and these engagements, we have no relationship

with, or interests in, the [entity type].”

A12. If the Appointed Auditor wishes to distinguish between assurance and non-assurance

engagements in the audit report, they should report this using the following reporting

format:



“In addition to the audit, we have carried out an assurance engagement in the area of

[insert description of engagement]. We have also carried out a non-assurance

engagement in the area of [insert description of engagement]. These engagements

are compatible with those independence requirements. Other than the audit and

these engagements, we have no relationship with, or interests in, the [entity type].”

Translation of audit reports

Translation of audit reports into M ori (See paragraph 17)

A13. The M ori Language Act 1987 established M ori as an official language of New

Zealand. Although the M ori Language Act 1987 enhances and promotes the use of

M ori, it does not require documents and reports to be written in M ori. If the annual

written

A14. Some public entities may request the audit report to be issued in M ori. A M ori

translation of the audit report can be provided by the OAG on request.

A15. The Auditor-General provides practical support where an entity requires an audit

report in M ori. M ori translations of standard unqualified audit reports are included in

some sections of the Auditors’ Homepage. Where a standard audit report in M ori is

not provided by the OAG, or the wording is “non-standard” (that is, it includes

additional wording such as an emphasis of matter paragraph or an other matter

paragraph or is modified), the Accounting and Auditing Policy Group will arrange for

the M ori translation to be completed and will meet the costs of the translation.



Appendix 1 – The Auditor-General’s Opinions Review Committee (ORC)

1.1 The objectives of the Auditor-General’s ORC are to:

- manage audit risk;

- provide assurance as to the consistency of non-standard audit reports; and

- ensure a consistent approach to major accounting and auditing policy issues.

Membership of the ORC

1.2 The ORC comprises the following members:

- the Assistant Auditor-General – Accounting and Auditing Policy as Chair;

- the Auditor-General;

- the relevant Sector Manager; and

- the Assistant Auditor-General – Legal.

1.3 A designated representative can be substituted for any of the above members.

1.4 The ORC will be convened as and when required by the Assistant Auditor-General –

Accounting and Auditing Policy. The Appointed Auditor may be asked to attend or be

available.

1.5 A quorum comprises the Assistant Auditor-General – Accounting and Auditing Policy,

the Auditor-General, the Assistant Auditor-General – Legal, and the relevant Sector

Manager.

Appointed Auditor procedures

1.6 It is preferable that issues be referred to the ORC as early as possible. This may be

before the financial and performance information is prepared for audit; for example,

an issue may become apparent at the planning stage.

1.7 If the Appointed Auditor is uncertain as to whether or not a matter should be referred

to the ORC, the Appointed Auditor should approach the Accounting and Auditing

Policy Group for advice.

1.8 The following information shall be submitted by the Appointed Auditor to the ORC at

least three working days before a decision is required:

- ORC checklist (see the end of this Appendix). Until all items required by

the ORC are received by the Accounting and Auditing Policy Group, the

submission will not be considered.



- A copy of the financial and performance information for annual auditthat has been audited (or is required to be audited). If the financial and

performance information for annual audit is not available, the latest available

information should be provided to enable the issue to be considered in

perspective.

- Outline of the issue(s) that may require a non-standard audit report. If

there is more than one issue, each issue should be addressed separately,

including the background, audit concerns, and the effect on the financial and


- Technical support for the Appointed Auditor’s opinion. Technical support

includes financial reporting and auditing standards, other guidance issued by

relevant statutory and professional bodies, direction and advice from the

OAG, legislation, and any other relevant technical guidance as appropriate.

- The entity's view on the issue(s). The issue(s) and the potential effect on

the audit report shall be discussed, where appropriate, with the entity (at no

lower than chief executive level), and its position shall be clearly documented.

If the entity disagrees with the Appointed Auditor’s opinion, the rationale and

any technical support for the entity's view shall be provided. The onus is on

the entity to produce whatever technical support it believes is necessary to

justify its position. This support may range from seeking an opinion from its

own advisors to the Appointed Auditor simply recording (and considering the

reasonableness of) the entity's rationale. The Auditor-General does not

require the entity to obtain and pay for technical advice to support its position.

- A copy of the recommended audit report.

1.9 If the Appointed Auditor has seriously considered the validity of the going concern

assumption, the following information (in addition to the information specified above)

shall be provided in the Appointed Auditor’s submission to the ORC:

- consideration of the requirements of AG ISA (NZ) 570 (Revised);

- a budget for the next year;

- year-to-date financial and performance information;

- analysis of the entity’s working capital position and its ability to meet its

obligations as they fall due (this will normally include projected cash flow

information); and

- any other information relevant to the assessment of the going concern

assumption (for example, in the case of schools, historical and projected roll

information).



Procedures within the OAG

1.10 The ORC submission shall be referred to a member of the Accounting and Auditing

Policy Group, who will be responsible for checking for precedents, researching the

technical issues, and preparing a "technical report" for the ORC.

1.11 The ORC shall meet, discuss the submission and technical report, and reach and

document a consensus of opinion. This will usually be done within three days of

having received the complete ORC submission. If a consensus is not reached, then

the Auditor-General shall decide.

1.12 The ORC may, in addition to determining the wording of the audit report, decide to

carry out any one or any combination of the following:

- request the Appointed Auditor to include a comment in the management

letter;

- raise the issue in a letter from the Sector Manager or Auditor-General to the

governing body;

- inform any Responsible Minister, Ministry, or department of the issue;

- inform any other body (for example, a regulator) as appropriate; and

- report to Parliament.

The above list is not definitive. It indicates the types of action beyond the audit report that

the ORC may take in relation to audit findings. Other action shall only be taken after

consultation with the Appointed Auditor.

Notification of decisions to the Appointed Auditor

1.13 The Appointed Auditor will usually be advised in writing of the ORC's decision. If the

ORC’s decision differs from the Appointed Auditor’s recommendation, an explanation

and reasons will be given.

1.14 If an issue is of wider application, a general policy directive may be provided to the

Appointed Auditor and other parties.

1.15 Where the Appointed Auditor disagrees with the decision made by the ORC and is

unwilling to sign the audit report, the Appointed Auditor shall advise the Accounting

and Auditing Policy Group. The report shall then be signed by the Auditor-General or

a designated representative. This situation is highly unusual, and every effort will be

made to reconcile the positions of the Appointed Auditor and the ORC before such

action is taken.



1.16 The Auditor-General accepts full responsibility for any implications that may arise on

those matters reflected in audit reports signed by the Auditor-General (or a

designated representative) that depart from the audit report recommended by the

Appointed Auditor.



OAG ORC CHECKLIST

Public entity Name

Balance Date

Information included in submission to ORC Included

For all submissions to the ORC:

Copy of financial and performance information (including accounting policies

and notes).

Yes No

Outline of the issue(s). Yes No

Reference to technical support (that is, the appropriate financial reporting and

auditing standards).

Yes No

View of the entity on the issue and the proposed audit report. Yes No

Copy of the recommended audit report. Yes No

For submissions with issues of going concern

A budget for the next year. Yes No

Year-to-date financial and performance information. Yes No

Analysis of working capital position and ability to meet obligations as they fall

due. (This should include projected cash flow information.)

Yes No

Any other relevant details (for example, in the case of schools, historical and

projected roll information).

Yes No

Copy of the recommended audit report on summary financial and

performance information?

Yes No

Appointed Auditor

Date

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tific

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aud

ited

info

rmat

ion

by p

age

num

ber w

ill as

sist

read

ers

to id

entif

y th

e in

form

atio

n to

w

hich

the

audi

t rep

ort r

efer

s.

In o

ur o

pini

on:

-th

e fin

anci

al s

tate

men

ts o

f the

[ent

ity ty

pe]o

n pa

ges

[…] t

o […

]:

-pr

esen

t fai

rly, i

n al

l mat

eria

l res

pect

s:

-its

fina

ncia

l pos

ition

as

at [D

DM

M 2

0XX

]; an

d

-its

fina

ncia

l per

form

ance

and

cas

h flo

ws

for t

he y

ear t

hen

ende

d;

-co

mpl

y w

ith g

ener

ally

acc

epte

d ac

coun

ting

prac

tice

in N

ew Z

eala

nd in

ac

cord

ance

with

[the

app

licab

le fi

nanc

ial r

epor

ting

fram

ewor

k].

A “d

ual”

opin

ion

is in

clud

ed in

aud

it re

ports

issu

ed b

y, o

r on

beha

lf of

, the

Aud

itor-G

ener

al. R

efer

to

para

grap

hs A

3 to

A5

of th

is s

tate

men

t for

the

reas

ons

for i

nclu

ding

the

dual

opi

nion

.

-th

e st

atem

ent o

f per

form

ance

of t

he [e

ntity

type

]on

page

s […

] to

[…]:

-pr

esen

ts fa

irly,

in a

ll m

ater

ial r

espe

cts,

the

[ent

ity ty

pe]’s

per

form

ance

fo

r the

yea

r end

ed [D

DM

M 2

0XX]

, inc

ludi

ng:

-its

per

form

ance

ach

ieve

men

ts a

s co

mpa

red

with

fore

cast

s in

clud

ed in

the

stat

emen

t of p

erfo

rman

ce e

xpec

tatio

ns fo

r the

fin

anci

al y

ear;

and

-its

act

ual r

even

ue a

nd e

xpen

ses

as c

ompa

red

with

the

fore

cast

s in

clud

ed in

the

stat

emen

t of p

erfo

rman

ce

expe

ctat

ions

for t

he fi

nanc

ial y

ear.

-co

mpl

ies

with

gen

eral

ly a

ccep

ted

acco

untin

g pr

actic

e in

New

Zea

land

.

The

audi

t opi

nion

on

the

perfo

rman

ce in

form

atio

n sh

all b

e ex

pres

sed

usin

g th

e sa

me

term

s us

ed to

ex

pres

s th

e op

inio

n on

the

finan

cial

sta

tem

ents

. The

term

“pre

sent

fairl

y, in

all

mat

eria

l res

pect

s” is

us

ed w

hen

expr

essi

ng th

e op

inio

ns o

n bo

th th

e fin

anci

al s

tate

men

ts a

nd o

nth

e pe

rform

ance

in

form

atio

n.

Our

aud

it w

as c

ompl

eted

on

[Dat

e]. T

his

is th

e da

te a

t whi

ch o

ur o

pini

on is

exp

ress

ed.

In a

dditi

on to

par

agra

ph 4

9 of

ISA

(NZ)

700

(Rev

ised

), th

e au

dit r

epor

t sha

ll no

t be

date

d be

fore

:-

the

date

on

whi

ch th

e st

atem

ent o

f res

pons

ibilit

y or

equ

ival

ent s

tate

men

t is

sign

ed; o

r-

the

date

of t

he w

ritte

n re

pres

enta

tion,

as

requ

ired

by A

G IS

A (N

Z) 5

80 a

nd IS

A (N

Z) 5

80.

The

Appo

inte

d Au

dito

r, in

nor

mal

circ

umst

ance

s, s

hall

not s

ign

and

date

the

audi

t rep

ort u

ntil

all o

ther

in

form

atio

n (o

ther

than

the

audi

ted

finan

cial

and

per

form

ance

info

rmat

ion)

that

will

be in

clud

ed in

the

entit

y’s

annu

al re

port

has

been

rece

ived

and

con

side

red

by th

e au

dito

r in

acco

rdan

ce w

ith IS

A (N

Z)

720

(Rev

ised

).

The

basi

s fo

rour

opi

nion

is e

xpla

ined

bel

ow. I

n ad

ditio

n, w

e ou

tline

the

resp

onsi

bilit

ies

of th

e Au

dit r

epor

ts is

sued

by,

or o

n be

half

of, t

he A

udito

r-Gen

eral

sha

ll in

clud

e a

sepa

rate

sec

tion

unde

r the

AG

ISA

(NZ)

700

(Rev

ised

) For

min

g an

d re

porti

ng a

n op

inio

n

Issu

ed 0

3/17

Offi

ce o

f the

Aud

itor-G

ener

al3

-481

6

[Gov

erni

ng b

ody]

and

our

resp

onsi

bilit

ies

rela

ting

to th

e fin

anci

al s

tate

men

ts a

nd th

e st

atem

ent

of p

erfo

rman

ce, w

e co

mm

ent o

n ot

her i

nfor

mat

ion,

and

we

expl

ain

our i

ndep

ende

nce.

head

ing

“Inde

pend

ence

”. Th

is is

a d

epar

ture

from

par

agra

phs

28(c

), N

Z28(

c), N

Z28.

1,an

dN

Z40(

b)(1

) of I

SA (N

Z) 7

00 (R

evis

ed) t

hat r

equi

re s

tate

men

ts a

bout

the

audi

tor’s

inde

pend

ence

to b

e in

clud

ed u

nder

the

head

ings

“Bas

is fo

r Opi

nion

” and

“Aud

itor’s

Res

pons

ibilit

ies

for t

he A

udit

of th

e Fi

nanc

ial S

tate

men

ts”.

The

Audi

tor-G

ener

al is

spe

cific

ally

requ

ired

to a

ct in

depe

nden

tly u

nder

sec

tion

9 of

the

Publ

ic A

udit

Act 2

001.

The

hei

ghte

ned

expe

ctat

ion

that

the

Audi

tor-G

ener

al m

ust a

ct, a

nd b

e se

en to

act

, in

depe

nden

tly, c

ombi

ned

with

the

reco

gniti

on th

at in

depe

nden

ce is

fund

amen

tal t

o th

e Au

dito

r-G

ener

al h

as le

d th

e Au

dito

r-Gen

eral

to ra

isin

g th

e pr

omin

ence

of i

ndep

ende

nce

by in

clud

ing

a se

para

te s

ectio

n un

der t

he h

eadi

ng “I

ndep

ende

nce”

.

Bas

is fo

ropi

nion

We

carri

ed o

utou

r aud

it in

acc

orda

nce

with

the

Audi

tor-G

ener

al’s

Aud

iting

Sta

ndar

ds,w

hich

in

corp

orat

e th

ePr

ofes

sion

al a

nd E

thic

al S

tand

ards

and

the

Inte

rnat

iona

l Sta

ndar

ds o

n Au

ditin

g (N

ew Z

eala

nd)i

ssue

d by

the

New

Zea

land

Aud

iting

and

Ass

uran

ce S

tand

ards

Boa

rd. O

ur

resp

onsi

bilit

ies

unde

r tho

se s

tand

ards

are

furth

er d

escr

ibed

in th

e R

espo

nsib

ilitie

s of

the

audi

tor

sect

ion

of o

ur re

port.

We

have

fulfi

lled

our r

espo

nsib

ilitie

s in

acc

orda

nce

with

the

Audi

tor-G

ener

al’s

Aud

iting

St

anda

rds.

We

belie

ve th

at th

e au

dit e

vide

nce

we

have

obt

aine

d is

suf

ficie

nt a

nd a

ppro

pria

te to

pro

vide

a

basi

s fo

r our

opi

nion

.

The

Basi

s fo

r Opi

nion

sec

tion

com

plie

s w

ith th

e re

quire

men

ts o

f par

agra

ph 2

8(a)

, (b)

, and

(d) o

f ISA

(N

Z) 7

00 (R

evis

ed).

This

sec

tion

also

com

plie

s w

ith th

e re

quire

men

t in

para

grap

h 28

(c) o

f ISA

(NZ)

70

0 (R

evis

ed) f

or th

e au

dito

r to

stat

e th

at th

ey h

ave

fulfi

lled

thei

r oth

er e

thic

al re

spon

sibi

litie

s (in

ad

ditio

n to

the

inde

pend

ence

requ

irem

ents

) und

er th

e re

leva

nt e

thic

al re

quire

men

ts. B

ecau

se

asse

rtion

of c

ompl

ianc

e w

ith th

e au

dito

r’s in

depe

nden

ce re

quire

men

ts is

mad

e un

der t

he

“Inde

pend

ence

” hea

ding

of t

he a

udit

repo

rt, th

e re

quire

men

t for

the

audi

tor t

o as

sert

com

plia

nce

with

th

eir o

ther

eth

ical

resp

onsi

bilit

ies

is n

eede

d. T

his

requ

irem

ent i

s en

com

pass

ed in

the

stat

emen

t “W

e ha

ve fu

lfille

d ou

r res

pons

ibilit

ies

in a

ccor

danc

e w

ith th

e Au

dito

r-Gen

eral

’s A

uditi

ng S

tand

ards

” whi

ch

enco

mpa

sses

the

audi

tor’s

oth

er e

thic

al re

spon

sibi

litie

s.

The

requ

ired

stat

emen

ts a

bout

inde

pend

ence

und

er p

arag

raph

s 28

(c),

NZ2

8(c)

,and

NZ2

8.1

have

be

en in

clud

ed u

nder

a s

epar

ate

Inde

pend

ence

hea

ding

.

Res

pons

ibili

ties

of th

e [G

over

ning

bod

y]fo

r the

fina

ncia

l sta

tem

ents

and

the

stat

emen

t of

per

form

ance

The

[Gov

erni

ng b

ody]

is re

spon

sibl

e on

beh

alf o

f the

[ent

ity ty

pe]f

or p

repa

ring

finan

cial

st

atem

ents

and

a st

atem

ent o

f per

form

ance

that

are

fairl

ypr

esen

ted

and

that

com

ply

with

ge

nera

lly a

ccep

ted

acco

untin

g pr

actic

e in

New

Zea

land

.

The

[Gov

erni

ng b

ody]

is re

spon

sibl

e fo

r suc

h in

tern

al c

ontro

l as

itde

term

ines

is n

eces

sary

to

enab

leit

topr

epar

efin

anci

al s

tate

men

ts a

nd a

sta

tem

ent o

f per

form

ance

that

are

free

from

m

ater

ial m

isst

atem

ent,

whe

ther

due

to fr

aud

or e

rror.

In p

repa

ring

the

finan

cial

sta

tem

ents

and

the

stat

emen

t ofp

erfo

rman

ce, t

he [G

over

ning

bod

y]is

resp

onsi

ble

on b

ehal

f of t

he[e

ntity

type

]for

ass

essi

ng th

e [e

ntity

type

]’s a

bilit

yto

con

tinue

as

a go

ing

conc

ern.

The

[Gov

erni

ng b

ody]

is a

lso

resp

onsi

ble

ford

iscl

osin

g, a

s ap

plic

able

, mat

ters

re

late

d to

goi

ng c

once

rn a

nd u

sing

the

goin

g co

ncer

n ba

sis

of a

ccou

ntin

g,un

less

the

[Gov

erni

ng b

ody]

inte

nds

to li

quid

ate

the

[ent

ity ty

pe]o

r to

ceas

e op

erat

ions

, or h

asno

real

istic

al

tern

ativ

e bu

t to

do s

o.

The

[Gov

erni

ng b

ody]

’s re

spon

sibi

litie

s ar

ise

from

the

[Nam

e of

rele

vant

Act

(s)].

Para

grap

hs 3

3 to

36

of IS

A (N

Z) 7

00 (R

evis

ed) s

peci

fy th

e m

atte

rs to

be

incl

uded

in th

e au

dito

r’s

repo

rt un

der t

he h

eadi

ng “R

espo

nsib

ilitie

s of

Tho

se C

harg

ed w

ith G

over

nanc

e fo

r the

Fin

anci

al

Stat

emen

ts”.

The

wor

ding

of t

his

sect

ion

of th

e m

odel

aud

it re

port

com

plie

s w

ith p

arag

raph

s 33

to 3

6 of

ISA

(NZ)

700

(Rev

ised

), ha

ving

bee

n am

ende

d fo

rthe

pub

lic s

ecto

r.

The

audi

t rep

ort s

hall

refe

r to

the

rele

vant

legi

slat

ion

requ

iring

the

gove

rnin

g bo

dy to

pre

pare

the

finan

cial

sta

tem

ents

. It i

s no

t nec

essa

ry to

mak

e re

fere

nce

to s

peci

fic s

ectio

ns w

ithin

the

rele

vant

le

gisl

atio

n.

Res

pons

ibili

ties

of th

e au

dito

rfor

the

audi

t of t

he fi

nanc

ial s

tate

men

ts a

nd th

e st

atem

ent

of p

erfo

rman

ce

Our

obj

ectiv

es a

re to

obt

ain

reas

onab

le a

ssur

ance

abo

ut w

heth

er th

e fin

anci

al s

tate

men

tsan

d

Para

grap

hs 3

7 to

42

of IS

A (N

Z) 7

00 (R

evis

ed) s

peci

fy th

e co

nten

t req

uire

men

ts o

f the

sec

tion

of th

e au

dito

r’s re

port

with

the

head

ing

“Aud

itor’s

Res

pons

ibilit

ies

for t

he A

udit

of th

e Fi

nanc

ial S

tate

men

ts”.

Para

grap

h 38

(a) o

fISA

(NZ)

700

(Rev

ised

) req

uire

s th

e au

dito

r’s re

port

to s

tate

that

the

obje

ctiv

es o

f

AG

ISA

(NZ)

700

(Rev

ised

) For

min

g an

d re

porti

ng a

n op

inio

n

Issu

ed 0

3/17

Offi

ce o

f the

Aud

itor-G

ener

al3

-481

7

the

stat

emen

t of p

erfo

rman

ce,a

s a

who

le,a

re fr

ee fr

om m

ater

ial m

isst

atem

ent,

whe

ther

due

to

fraud

or e

rror,

and

to is

sue

an a

udito

r’s re

port

that

incl

udes

our

opi

nion

.

Rea

sona

ble

assu

ranc

e is

a h

igh

leve

l of a

ssur

ance

, but

is n

ot a

gua

rant

ee th

at a

n au

dit c

arrie

d ou

tin

acco

rdan

ce w

ith th

e Au

dito

r-Gen

eral

’s A

uditi

ng S

tand

ards

will

alw

ays

dete

ct a

mat

eria

l m

isst

atem

ent w

hen

it ex

ists

. Mis

stat

emen

ts a

re d

iffer

ence

s or

om

issi

ons

of a

mou

nts

ordi

sclo

sure

s,an

d ca

n ar

ise

from

frau

d or

erro

r. M

isst

atem

ents

are

con

side

red

mat

eria

l if,

indi

vidu

ally

or i

n th

e ag

greg

ate,

they

cou

ld re

ason

ably

be

expe

cted

to in

fluen

ce th

e de

cisi

ons

of

read

ers

take

n on

the

basi

s of

thes

e fin

anci

al s

tate

men

ts a

ndst

atem

ent o

fper

form

ance

.

the

audi

tor a

re to

obt

ain

reas

onab

le a

ssur

ance

abo

ut w

heth

er th

e fin

anci

al s

tate

men

ts, a

s a

who

le,

are

free

from

mat

eria

l mis

stat

emen

t, w

heth

er d

ue to

frau

d or

erro

r, an

dto

issu

e an

aud

itor’s

repo

rt th

at in

clud

es th

e au

dito

r’s o

pini

on.

Para

grap

h 38

(b) o

f ISA

(NZ)

700

(Rev

ised

) req

uire

s th

e au

dito

r’s re

port

to s

tate

that

reas

onab

le

assu

ranc

e is

a h

igh

leve

l of a

ssur

ance

, but

is n

ot a

gua

rant

ee th

at a

n au

dit c

ondu

cted

in a

ccor

danc

e w

ith IS

As (N

Z) w

ill al

way

s de

tect

a m

ater

ial m

isst

atem

ent w

hen

it ex

ists

. All

audi

t rep

orts

issu

ed b

y,

or o

n be

half

of, t

he A

udito

r-Gen

eral

incl

ude

a st

atem

ent t

hat d

escr

ibes

wha

t is

mea

nt b

y th

e te

rm

“mis

stat

emen

t”.

Para

grap

h 38

(c) o

f ISA

(NZ)

700

(Rev

ised

) req

uire

s th

e au

dito

r’s re

port

to s

tate

that

mis

stat

emen

ts

can

aris

e fro

m fr

aud

or e

rror a

nd a

re c

onsi

dere

d m

ater

ial i

f, in

divi

dual

ly o

r in

the

aggr

egat

e, th

ey c

ould

re

ason

ably

be

expe

cted

to in

fluen

ce th

e ec

onom

ic d

ecis

ions

of u

sers

take

n on

the

basi

s of

thes

e fin

anci

al s

tate

men

ts. B

ecau

se th

e au

dit r

epor

t is

addr

esse

d to

read

ers,

dec

isio

ns w

ill no

t be

limite

d to

“e

cono

mic

dec

isio

n”, h

ence

the

chan

ge to

refe

r to

“dec

isio

ns o

f rea

ders

”.

For t

he b

udge

t inf

orm

atio

n re

porte

d in

the

finan

cial

sta

tem

ents

and

the

stat

emen

t of

perfo

rman

ce, o

ur p

roce

dure

s w

ere

limite

d to

che

ckin

g th

at th

e in

form

atio

n ag

reed

to th

e [e

ntity

type

]’s [s

tate

men

t of p

erfo

rman

ce e

xpec

tatio

ns].

We

did

not e

valu

ate

the

secu

rity

and

cont

rols

ove

r the

ele

ctro

nic

publ

icat

ion

of th

e fin

anci

al

stat

emen

ts a

ndth

e st

atem

ento

f per

form

ance

.

Publ

ic e

ntiti

es a

re o

ften

requ

ired

to in

clud

e “b

udge

t inf

orm

atio

n” fo

r the

per

iod

subj

ect t

o au

dit i

n th

eir

finan

cial

sta

tem

ents

and

per

form

ance

info

rmat

ion.

The

pur

pose

of t

he s

tate

men

t in

the

audi

t rep

ort i

s to

cla

rify

the

exte

nt o

f wor

k ca

rried

out

on

budg

et in

form

atio

n.

All a

udit

repo

rts is

sued

by,

or o

n be

half

of th

e Au

dito

r-Gen

eral

incl

ude

a st

atem

ent t

hat t

he a

udito

r is

not r

espo

nsib

le fo

r eva

luat

ing

the

secu

rity

and

cont

rols

ove

r the

ele

ctro

nic

publ

icat

ion

of th

e au

dite

d in

form

atio

n. T

he p

rimar

y re

ason

for t

his

stat

emen

t is

that

aud

ited

info

rmat

ion

is o

ften

publ

ishe

d by

pu

blic

ent

ities

in e

lect

roni

c fo

rm, a

nd m

ay a

lso

be in

clud

ed o

n on

e or

mor

e w

ebsi

tes.

As p

art o

f an

audi

t in

acco

rdan

ce w

ithth

e Au

dito

r-Gen

eral

’s A

uditi

ng S

tand

ards

, we

exer

cise

pr

ofes

sion

al ju

dgem

ent a

nd m

aint

ain

prof

essi

onal

sce

ptic

ism

thro

ugho

ut th

e au

dit.

Also

:

-W

e id

entif

y an

d as

sess

the

risks

of m

ater

ial m

isst

atem

ent o

f the

fina

ncia

l sta

tem

ents

and

the

stat

emen

tofp

erfo

rman

ce, w

heth

er d

ue to

frau

d or

erro

r, de

sign

and

per

form

au

dit p

roce

dure

s re

spon

sive

to th

ose

risks

, and

obt

ain

audi

t evi

denc

e th

at is

suf

ficie

nt

and

appr

opria

te to

pro

vide

a b

asis

for o

ur o

pini

on. T

he ri

sk o

f not

det

ectin

g a

mat

eria

l m

isst

atem

ent r

esul

ting

from

frau

d is

hig

her t

han

for o

ne re

sulti

ng fr

om e

rror,

as fr

aud

may

invo

lve

collu

sion

, for

gery

, int

entio

nal o

mis

sion

s, m

isre

pres

enta

tions

, or t

he

over

ride

of in

tern

al c

ontro

l.

-W

e ob

tain

an

unde

rsta

ndin

g of

inte

rnal

con

trol r

elev

ant t

o th

e au

dit i

n or

der t

o de

sign

au

dit p

roce

dure

s th

at a

re a

ppro

pria

te in

the

circ

umst

ance

s, b

ut n

ot fo

r the

pur

pose

of

expr

essi

ng a

n op

inio

n on

the

effe

ctiv

enes

s of

the

[ent

ity ty

pe]’s

inte

rnal

con

trol.

-W

e ev

alua

te th

e ap

prop

riate

ness

of a

ccou

ntin

g po

licie

s us

ed a

nd th

e re

ason

able

ness

of

acc

ount

ing

estim

ates

and

rela

ted

disc

losu

res

mad

e by

the

[Gov

erni

ng b

ody]

.

-W

e ev

alua

te th

e ap

prop

riate

ness

of t

he re

porte

d pe

rform

ance

info

rmat

ion

with

in th

e [e

ntity

type

]’s fr

amew

ork

for r

epor

ting

its p

erfo

rman

ce;

-W

e co

nclu

de o

n th

e ap

prop

riate

ness

of t

he u

se o

f the

goi

ng c

once

rn b

asis

of

acco

untin

g by

the

[Gov

erni

ng b

ody]

and,

bas

ed o

n th

e au

dit e

vide

nce

obta

ined

, w

heth

er a

mat

eria

l unc

erta

inty

exi

sts

rela

ted

to e

vent

s or

con

ditio

ns th

at m

ay c

ast

sign

ifica

nt d

oubt

on

the

[ent

ity ty

pe]’s

abi

lity

to c

ontin

ue a

s a

goin

g co

ncer

n. If

we

Para

grap

h 39

(a) o

f ISA

(NZ)

700

(Rev

ised

) req

uire

s th

e au

dito

r’s re

port

to s

tate

as p

art o

f an

audi

t in

acco

rdan

ce w

ith th

e IS

As (N

Z), t

he a

udito

r exe

rcis

es p

rofe

ssio

nal j

udge

men

t and

mai

ntai

ns

prof

essi

onal

sce

ptic

ism

thro

ugho

ut th

e au

dit.

Para

grap

h 39

(b)(i

) of I

SA (N

Z) 7

00 (R

evis

ed) r

equi

res

the

audi

tor’s

repo

rt to

des

crib

e th

e au

dito

r’s

resp

onsi

bilit

y to

iden

tify

and

asse

ss th

e ris

ks o

f mat

eria

l mis

stat

emen

t, de

sign

and

per

form

aud

it pr

oced

ures

resp

onsi

ve to

thos

e ris

ks, a

nd o

btai

n au

dit e

vide

nce

that

is s

uffic

ient

and

app

ropr

iate

to

prov

ide

a ba

sis

for t

he a

udito

r’s o

pini

on. T

he ri

sk o

f not

det

ectin

g a

mat

eria

l mis

stat

emen

t res

ultin

g fro

m fr

aud

is h

ighe

r tha

n fo

r one

resu

lting

from

erro

r, as

frau

d m

ay in

volv

e co

llusi

on, f

orge

ry,

inte

ntio

nal o

mis

sion

s, m

isre

pres

enta

tions

, or t

he o

verri

de o

f int

erna

l con

trol.

Para

grap

h 39

(b)(i

i) of

ISA

(NZ)

700

(Rev

ised

) req

uire

s th

e au

dito

r’s re

port

to d

escr

ibe

the

audi

tor’s

re

spon

sibi

lity

toob

tain

an

unde

rsta

ndin

g of

inte

rnal

con

trol r

elev

ant t

o th

e au

dit i

n or

der t

o de

sign

au

dit p

roce

dure

s th

at a

re a

ppro

pria

te in

the

circ

umst

ance

s, b

ut n

ot fo

r the

pur

pose

of e

xpre

ssin

g an

op

inio

n on

the

effe

ctiv

enes

s of

the

entit

y’s

inte

rnal

con

trol.

Para

grap

h 39

(b)(i

ii) o

f ISA

(NZ)

700

(Rev

ised

) req

uire

s th

e au

dito

r’s re

port

to d

escr

ibe

the

audi

tor’s

re

spon

sibi

lity

toev

alua

te th

e ap

prop

riate

ness

of a

ccou

ntin

g po

licie

s us

ed a

nd th

e re

ason

able

ness

of

acco

untin

g es

timat

es a

nd re

late

d di

sclo

sure

s m

ade

by m

anag

emen

t.

Audi

t rep

orts

issu

ed b

y, o

r on

beha

lf of

, the

Aud

itor-G

ener

al th

at e

xpre

ss a

n op

inio

n on

per

form

ance

in

form

atio

n de

scrib

e th

at th

e au

dito

r eva

luat

es th

eap

prop

riate

ness

of t

he re

porte

d pe

rform

ance

in

form

atio

n w

ithin

the

entit

y’s

fram

ewor

k fo

r rep

ortin

g its

per

form

ance

.

Para

grap

h 39

(b)(i

v) o

f ISA

(NZ)

700

(Rev

ised

) req

uire

s th

e au

dito

r’s re

port

to d

escr

ibe

the

audi

tor’s

re

spon

sibi

lity

toco

nclu

de o

n th

e ap

prop

riate

ness

of m

anag

emen

t’s u

se o

f the

goi

ng c

once

rn b

asis

of

acc

ount

ing.

AG

ISA

(NZ)

700

(Rev

ised

) For

min

g an

d re

porti

ng a

n op

inio

n

Issu

ed 0

3/17

Offi

ce o

f the

Aud

itor-G

ener

al3

-481

8

conc

lude

that

a m

ater

ial u

ncer

tain

ty e

xist

s, w

e ar

e re

quire

d to

dra

w a

ttent

ion

in o

ur

audi

tor’s

repo

rt to

the

rela

ted

disc

losu

res

in th

e fin

anci

al s

tate

men

tsan

dth

e st

atem

ent

of p

erfo

rman

ceor

, if s

uch

disc

losu

res

are

inad

equa

te, t

o m

odify

our

opi

nion

. Our

co

nclu

sion

s ar

e ba

sed

on th

e au

dit e

vide

nce

obta

ined

up

to th

e da

te o

f our

aud

itor’s

re

port.

How

ever

, fut

ure

even

ts o

r con

ditio

ns m

ay c

ause

the

[ent

ity ty

pe]t

o ce

ase

to

cont

inue

as

a go

ing

conc

ern.

-W

e ev

alua

te th

e ov

eral

l pre

sent

atio

n, s

truct

ure

and

cont

ent o

f the

fina

ncia

l sta

tem

ents

and

the

stat

emen

t ofp

erfo

rman

ce,i

nclu

ding

the

disc

losu

res,

and

whe

ther

the

finan

cial

st

atem

ents

and

the

stat

emen

t of p

erfo

rman

ce re

pres

ent t

he u

nder

lyin

g tra

nsac

tions

and

even

ts in

a m

anne

r tha

t ach

ieve

s fa

ir pr

esen

tatio

n.

Onl

y in

clud

e fo

r a g

roup

aud

it-

We

obta

in s

uffic

ient

app

ropr

iate

aud

it ev

iden

ce re

gard

ing

the

finan

cial

stat

emen

tsan

dth

e st

atem

ent o

f per

form

ance

of t

he e

ntiti

es o

r bus

ines

s ac

tiviti

es w

ithin

the

Gro

up to

exp

ress

an

opin

ion

on th

e co

nsol

idat

ed fi

nanc

ial s

tate

men

tsan

d th

e co

nsol

idat

ed s

tate

men

t of p

erfo

rman

ce. W

e ar

e re

spon

sibl

e fo

r the

dire

ctio

n,

supe

rvis

ion

and

perfo

rman

ce o

f the

gro

up a

udit.

We

rem

ain

sole

ly re

spon

sibl

e fo

r ou

r aud

it op

inio

n.

Para

grap

h 39

(b)(v

) of I

SA (N

Z) 7

00 (R

evis

ed) r

equi

res

the

audi

tor’s

repo

rt to

des

crib

e th

e au

dito

r’s

resp

onsi

bilit

y to

eval

uate

the

over

all p

rese

ntat

ion,

stru

ctur

e an

d co

nten

t of t

he fi

nanc

ial s

tate

men

ts,

incl

udin

g th

e di

sclo

sure

s, a

nd w

heth

er th

e fin

anci

al s

tate

men

ts re

pres

ent t

he u

nder

lyin

g tra

nsac

tions

an

d ev

ents

in a

man

ner t

hat a

chie

ves

fair

pres

enta

tion.

Para

grap

h 39

(c) o

f ISA

(NZ)

700

(Rev

ised

) req

uire

s th

e au

dito

r’s re

port

of a

gro

up to

sta

te th

e au

dito

r’s re

spon

sibi

litie

s ar

e to

obt

ain

suffi

cien

t app

ropr

iate

aud

it ev

iden

ce re

gard

ing

the

finan

cial

in

form

atio

n of

the

entit

ies

or b

usin

ess

activ

ities

with

in th

e G

roup

to e

xpre

ss a

n op

inio

n on

the

cons

olid

ated

fina

ncia

l sta

tem

ents

, tha

t the

aud

itor i

s re

spon

sibl

e fo

r the

dire

ctio

n, s

uper

visi

on a

nd

perfo

rman

ce o

f the

gro

up a

udit,

and

that

the

audi

tor r

emai

ns s

olel

y re

spon

sibl

e fo

r the

aud

it op

inio

n.

We

com

mun

icat

e w

ith th

e[G

over

ning

bod

y]re

gard

ing,

am

ong

othe

r mat

ters

, the

pla

nned

sc

ope

and

timin

g of

the

audi

t and

sig

nific

ant a

udit

findi

ngs,

incl

udin

g an

y si

gnifi

cant

def

icie

ncie

s in

inte

rnal

con

trol t

hat w

e id

entif

y du

ring

our a

udit.

Our

resp

onsi

bilit

ies

aris

es fr

omth

ePu

blic

Aud

it Ac

t 200

1.

Para

grap

h 40

(a) o

f ISA

(NZ)

700

(Rev

ised

) req

uire

s th

e au

dito

r’s re

port

to s

tate

that

the

audi

tor

com

mun

icat

es to

thos

e ch

arge

d w

ith g

over

nanc

e re

gard

ing,

am

ong

othe

r mat

ters

, the

pla

nned

sco

pe

and

timin

g of

the

audi

t and

sig

nific

ant a

udit

findi

ngs,

incl

udin

g an

y si

gnifi

cant

def

icie

ncie

s in

inte

rnal

co

ntro

l tha

t the

aud

itor i

dent

ifies

dur

ing

the

audi

t.

For t

he a

nnua

l aud

it of

a p

ublic

ent

ity, r

efer

ence

sho

uld

be m

ade

to th

e Pu

blic

Aud

it Ac

t 200

1 in

eve

ry

audi

t rep

ort.

Oth

er In

form

atio

n

The

[Gov

erni

ng b

ody]

isre

spon

sibl

efo

r the

oth

er in

form

atio

n. T

he o

ther

info

rmat

ion

com

pris

es

the

info

rmat

ion

incl

uded

on p

ages

[XX

to Y

Y], b

ut d

oes

not i

nclu

de th

e fin

anci

al s

tate

men

ts a

ndth

e st

atem

ent o

f per

form

ance

, and

our

aud

itor’s

repo

rt th

ereo

n.

Our

opi

nion

on

the

finan

cial

sta

tem

ents

and

the

stat

emen

tofp

erfo

rman

cedo

es n

ot c

over

the

othe

r inf

orm

atio

n an

d w

e do

not

exp

ress

any

form

of a

udit

opin

ion

or a

ssur

ance

con

clus

ion

ther

eon.

In c

onne

ctio

n w

ith o

ur a

udit

of th

e fin

anci

al s

tate

men

ts a

ndth

e st

atem

ent o

fper

form

ance

, our

re

spon

sibi

lity

is to

read

the

othe

r inf

orm

atio

n. In

doi

ng s

o, w

e co

nsid

er w

heth

er th

e ot

her

info

rmat

ion

is m

ater

ially

inco

nsis

tent

with

the

finan

cial

sta

tem

ents

and

the

stat

emen

t of

perfo

rman

ce o

r our

kno

wle

dge

obta

ined

in th

e au

dit,

or o

ther

wis

e ap

pear

s to

be

mat

eria

lly

mis

stat

ed. I

f, ba

sed

onou

rwor

k, w

e co

nclu

de th

at th

ere

is a

mat

eria

l mis

stat

emen

t of t

his

othe

r in

form

atio

n, w

e ar

e re

quire

d to

repo

rt th

at fa

ct. W

e ha

ve n

othi

ng to

repo

rt in

this

rega

rd.

Para

grap

h 32

of I

SA (N

Z) 7

00 (R

evis

ed) r

equi

res

the

audi

tor t

o re

port

in a

ccor

danc

e w

ith IS

A (N

Z)

720

(Rev

ised

). IS

A (N

Z) 7

20 (R

evis

ed) a

ckno

wle

dges

the

poss

ibilit

y th

at th

e ot

her i

nfor

mat

ion

may

no

t be

avai

labl

e be

fore

the

audi

t has

been

com

plet

ed, a

nd s

peci

fies

the

audi

t rep

ort r

equi

rem

ents

in

this

situ

atio

n.

Inde

pend

ence

We

are

inde

pend

ent o

f the

[ent

ity ty

pe]i

n ac

cord

ance

with

the

inde

pend

ence

requ

irem

ents

of

Para

grap

hs 2

8(c)

, NZ2

8(c)

,and

NZ2

8.1

requ

ire s

tate

men

ts to

be

mad

e in

the

audi

tor’s

repo

rt, u

nder

th

e “B

asis

for O

pini

on” h

eadi

ng, a

bout

the

audi

tor’s

inde

pend

ence

. The

sta

tem

ents

requ

ired

are:

AG

ISA

(NZ)

700

(Rev

ised

) For

min

g an

d re

porti

ng a

n op

inio

n

Issu

ed 0

3/17

Offi

ce o

f the

Aud

itor-G

ener

al3

-481

9

the

Audi

tor-G

ener

al’s

Aud

iting

Sta

ndar

ds, w

hich

inco

rpor

ate

the

inde

pend

ence

requ

irem

ents

of

Prof

essi

onal

and

Eth

ical

Sta

ndar

d 1

(Rev

ised

):C

ode

of E

thic

s fo

r Ass

uran

ce P

ract

ition

ers

issu

ed b

y th

e N

ew Z

eala

nd A

uditi

ng a

nd A

ssur

ance

Sta

ndar

ds B

oard

.

Oth

er th

anth

e au

dit,

we

have

no

rela

tions

hip

with

, or i

nter

ests

in, t

he [e

ntity

type

].

Or

[In a

dditi

on to

the

audi

t,w

e ha

ve c

arrie

d ou

t eng

agem

ents

in th

e ar

eas

of [i

nser

t des

crip

tion

of

enga

gem

ents

], w

hich

are

com

patib

le w

ith th

ose

inde

pend

ence

requ

irem

ents

. Oth

er th

an th

e au

dit a

nd th

ese

enga

gem

ents

, we

have

no

rela

tions

hip

with

,or i

nter

ests

in,t

he [e

ntity

type

].]

28(c

)

Th

at th

e au

dito

r is

inde

pend

ent o

f the

ent

ity in

acc

orda

nce

with

the

rele

vant

eth

ical

re

quire

men

ts re

latin

g to

the

audi

t …N

Z28(

c)

In N

ew Z

eala

nd, t

he s

tate

men

t req

uire

d by

par

agra

ph 2

8(c)

sha

ll re

fer t

o Pr

ofes

sion

al

and

Ethi

cal S

tand

ard

1 (R

evis

ed) C

ode

of E

thic

s fo

r Ass

uran

ce P

ract

ition

ers

issu

ed b

y th

e N

ew Z

eala

nd A

uditi

ng a

nd A

ssur

ance

Sta

ndar

ds B

oard

. N

Z28.

1

The

exi

sten

ce o

f any

rela

tions

hip

(oth

er th

an th

at o

f aud

itor)

whi

ch th

e au

dito

r has

with

, or

any

inte

rest

s w

hich

the

audi

tor h

as in

, the

ent

ity.

In a

udit

repo

rts is

sued

by,

or o

n be

half

of, t

he A

udito

r-Gen

eral

the

requ

ired

stat

emen

ts a

bout

in

depe

nden

ce u

nder

par

agra

phs

28(c

), N

Z28(

c),a

nd N

Z28.

1 ar

e in

clud

ed u

nder

a s

epar

ate

“Inde

pend

ence

” hea

ding

.

[Sig

natu

re o

f App

oint

ed A

udito

r][N

ame

of A

ppoi

nted

Aud

itor]

[Nam

e of

Aud

iting

Firm

]O

n be

half

of th

e Au

dito

r-Gen

eral

[City

], N

ew Z

eala

nd

Para

grap

h N

Z46.

1 of

ISA

(NZ)

700

(Rev

ised

) req

uire

s th

at th

e na

me

of th

e en

gage

men

t par

tner

sha

ll be

incl

uded

in th

e au

dito

r’s re

port

on fi

nanc

ial s

tate

men

ts o

f FM

C e

ntiti

es c

onsi

dere

d to

hav

e a

high

er

leve

l of p

ublic

acc

ount

abilit

y. T

he A

udito

r-Gen

eral

requ

ires

the

nam

e of

the

Appo

inte

d Au

dito

r to

be

incl

uded

in th

e au

dit r

epor

ts o

f all

entit

ies,

follo

wed

by

the

nam

e of

the

firm

of t

he A

ppoi

nted

Aud

itor.

Para

grap

h 47

of I

SA (N

Z) 7

00 (R

evis

ed) r

equi

res

that

the

audi

tor’s

repo

rt sh

all b

e si

gned

.The

Au

dito

r-Gen

eral

requ

ires

the

sign

atur

e of

the

Appo

inte

d Au

dito

r. If

the

Appo

inte

d Au

dito

r wan

ts to

in

clud

e th

e si

gnat

ure

of th

e Au

dit F

irm, t

his

may

be

incl

uded

alo

ngsi

de th

e si

gnat

ure

of th

e Ap

poin

ted

Audi

tor a

s fo

llow

s:__

____

____

____

____

____

____

____

____

____

____

____

____

___

____

____

____

____

____

____

____

____

____

____

____

____

____

[Sig

natu

re o

f App

oint

ed A

udito

r]

[S

igna

ture

of A

uditi

ng F

irm]

Nam

e of

App

oint

edAu

dito

r]

[N

ame

of A

uditi

ng F

irm]

On

beha

lf of

the

Audi

tor-G

ener

al[C

ity],

New

Zea

land

Ref

er to

par

agra

ph 1

2 of

this

Sta

tem

ent f

or re

quire

men

ts o

n si

gnin

g th

e au

dit r

epor

t.

Para

grap

h 48

of I

SA (N

Z) 7

00 (R

evis

ed) r

equi

res

that

the

audi

tor’s

repo

rt sh

all n

ame

the

loca

tion

whe

re th

e au

dito

r pra

ctis

es.

AG

ISA

(NZ)

700

(Rev

ised

) For

min

g an

d re

porti

ng a

n op

inio

n

Issu

ed 0

3/17

Offi

ce o

f the

Aud

itor-G

ener

al3

-482

0

App

endi

x 3

–U

nmod

ified

mod

el a

udit

repo

rt fo

r a p

ublic

ent

ity a

pply

ing

a co

mpl

ianc

e fr

amew

ork

The

follo

win

g au

dit r

epor

t is

for a

n en

tity,

whi

ch is

not

a F

MC

repo

rting

ent

ity (u

nder

the

Fina

ncia

l Mar

kets

Con

duct

Act

201

3), t

hat i

s re

quire

d to

repo

rt

perfo

rman

ce in

form

atio

n in

a s

tate

men

t of p

erfo

rman

ce.

Unm

odifi

edm

odel

aud

it re

port

–C

ompl

ianc

e Fr

amew

ork

ISA

(NZ)

700

(Rev

ised

) req

uire

men

ts a

nd c

orre

spon

ding

OAG

pol

icie

s

[Firm

’s le

tterh

ead]

The

audi

t rep

ort s

hall

be p

rinte

d on

the

lette

rhea

d of

the

audi

ting

firm

.

IND

EPEN

DEN

T AU

DIT

OR

’S R

EPO

RT

Para

grap

h 21

of I

SA (N

Z) 7

00 (R

evis

ed) r

equi

res

that

the

audi

tor’s

repo

rt sh

all h

ave

a tit

le th

at c

lear

ly

indi

cate

s th

at it

is th

e re

port

of a

n in

depe

nden

t aud

itor.

TO T

HE

[REA

DER

S] O

F[N

AM

E O

F EN

TITY

]’SPa

ragr

aph

22 o

f ISA

(NZ)

700

(Rev

ised

) req

uire

s th

at th

e au

dito

r’s re

port

shal

l be

addr

esse

d, a

s ap

prop

riate

, bas

ed o

n th

e ci

rcum

stan

ces

of th

e en

gage

men

t.

Unl

ess

an e

xem

ptio

n ha

s be

en s

peci

fical

ly p

rovi

ded

for b

y th

e O

AG, a

ll au

dit r

epor

ts is

sued

by

the

Audi

tor-G

ener

al s

hall

be a

ddre

ssed

to th

e “re

ader

s” b

ecau

se p

ublic

ent

ities

are

acc

ount

able

to a

wid

e co

nstit

uenc

y an

d th

e Au

dito

r-Gen

eral

has

bro

ad re

spon

sibi

litie

s to

repo

rt to

this

con

stitu

ency

. In

divi

dual

exc

eptio

ns m

ay in

clud

e si

tuat

ions

whe

re th

ere

is a

min

ority

priv

ate

sect

or in

tere

st in

the

entit

y. F

or e

xam

ple,

whe

re th

e en

tity

is a

join

t ven

ture

and

one

of t

he p

artn

ers

is fr

om th

e pr

ivat

e se

ctor

, the

n th

e au

dit r

epor

t sha

ll be

add

ress

ed to

the

“join

t ven

ture

rs”.

Whe

re a

n au

dit r

epor

t is

addr

esse

d to

a p

arty

oth

er th

an to

“the

read

ers”

, the

aud

it re

port

will

norm

ally

in

clud

e th

e fo

llow

ing

wor

ding

:

TO T

HE

[SH

AR

EHO

LDER

S/JO

INT

VEN

TUR

ERS/

PAR

TNER

S] O

F [N

AM

E O

F EN

TITY

]

FIN

ANC

IAL

STAT

EMEN

TS A

ND

STA

TEM

ENT

OF

PER

FOR

MAN

CE

FOR

TH

E YE

AR E

ND

ED [D

DM

M 2

0XX]

The

term

inol

ogy

used

to d

escr

ibe

the

acco

unta

bilit

y st

atem

ents

sha

ll be

the

sam

e as

that

use

d by

the

publ

ic e

ntity

pro

vide

d it

appr

opria

tely

des

crib

es th

e m

ater

ial t

hat h

as b

een

audi

ted.

The

bala

nce

date

is n

orm

ally

det

erm

ined

by

legi

slat

ion

or b

y th

e go

vern

ing

body

with

in th

e co

nstra

ints

of

any

legi

slat

ion.

The

Audi

tor-G

ener

al is

the

audi

tor o

f [N

ame

of E

ntity

](th

e [e

ntity

type

]). T

he A

udito

r-Gen

eral

ha

s ap

poin

ted

me,

[Nam

e of

App

oint

ed A

udito

r], u

sing

the

staf

f and

reso

urce

s of

[Nam

e of

Au

ditin

g Fi

rm],

to c

arry

out

the

audi

t of t

he fi

nanc

ial s

tate

men

ts a

nd s

tate

men

t of p

erfo

rman

ceof

the

[ent

ity ty

pe]o

n hi

s be

half.

The

Pub

lic A

udit

Act

200

1 (s

ectio

n 32

) dea

ls w

ith th

e ap

poin

tmen

t of a

udito

rs. T

he A

udito

r-Gen

eral

m

ay fr

om ti

me

to ti

me

appo

int –

in w

ritin

g –

a su

itabl

e pe

rson

or b

ody

to a

ct a

s an

aud

itor o

n th

e A

udito

r-Gen

eral

’s b

ehal

f.

Opi

nion

Par

agra

ph 2

3 of

ISA

(NZ)

700

(Rev

ised

) req

uire

s th

at th

e au

dito

r’s re

port

shal

l inc

lude

the

audi

tor’s

op

inio

n, a

nd s

hall

have

the

head

ing

“Opi

nion

”.

We

have

aud

ited:

-th

e fin

anci

al s

tate

men

ts o

f the

[ent

ity ty

pe] o

n pa

ges

[…] t

o […

], th

at c

ompr

ise4

the

Par

agra

ph 2

4 of

ISA

(NZ)

700

(Rev

ised

) req

uire

s th

at th

e O

pini

on s

ectio

n of

the

audi

tor’s

repo

rt sh

all a

lso:

-id

entif

y th

e en

tity

who

se fi

nanc

ial s

tate

men

ts h

ave

been

aud

ited;

4E

nsur

e th

at th

e na

mes

that

are

use

d in

the

finan

cial

sta

tem

ents

and

perfo

rman

ce in

form

atio

n ar

e re

plic

ated

in th

e au

dit r

epor

t.

AG

ISA

(NZ)

700

(Rev

ised

) For

min

g an

d re

porti

ng a

n op

inio

n

Issu

ed 0

3/17

Offi

ce o

f the

Aud

itor-G

ener

al3

-482

1

[sta

tem

ent o

f fin

anci

al p

ositi

on] a

s at

[DD

MM

20XX

], th

e [s

tate

men

t of c

ompr

ehen

sive

in

com

e, s

tate

men

t of c

hang

es in

equ

ity a

nd s

tate

men

t of c

ash

flow

s] fo

r the

yea

r end

ed

on th

at d

ate,

and

[the

not

es to

the

finan

cial

sta

tem

ents

,tha

t inc

lude

acco

untin

g po

licie

san

d ot

her e

xpla

nato

ry in

form

atio

n]; a

nd

-th

e st

atem

ent o

f per

form

ance

3of

the

[ent

ity ty

pe] o

n pa

ges

[…] t

o […

].

-st

ate

that

the

finan

cial

sta

tem

ents

hav

e be

en a

udite

d;-

iden

tify

the

title

of e

ach

stat

emen

t tha

t com

pris

es th

e fin

anci

al s

tate

men

ts;

-re

fer t

o th

e no

tes,

incl

udin

g th

e su

mm

ary

of s

igni

fican

t acc

ount

ing

polic

ies;

and

-sp

ecify

the

date

or p

erio

d co

vere

d by

eac

h fin

anci

al s

tate

men

t com

pris

ing

the

finan

cial

st

atem

ents

.

Iden

tific

atio

n of

aud

ited

info

rmat

ion

by p

age

num

ber w

ill as

sist

read

ers

to id

entif

y th

e in

form

atio

n to

w

hich

the

audi

t rep

ort r

efer

s.

In o

ur o

pini

on th

e fin

anci

al s

tate

men

ts a

nd th

est

atem

ent o

f per

form

ance

of t

he [e

ntity

type

]ha

ve b

een

prep

ared

, in

all m

ater

ial r

espe

cts,

in a

ccor

danc

e w

ith [t

he a

pplic

able

fina

ncia

l re

porti

ng fr

amew

ork]

.

Whe

n fin

anci

al s

tate

men

ts a

nd p

erfo

rman

ce in

form

atio

n ha

ve b

een

prep

ared

in a

ccor

danc

e w

ith a

co

mpl

ianc

e fra

mew

ork

the

audi

tor i

s no

t req

uire

d to

asse

ss th

e fa

ir pr

esen

tatio

n of

thos

e st

atem

ents

. As

a re

sult,

a“d

ual”

opin

ion

is n

ot e

xpre

ssed

forf

inan

cial

sta

tem

ents

and

per

form

ance

info

rmat

ion

prep

ared

in a

ccor

danc

e w

ith a

com

plia

nce

fram

ewor

k.

Our

aud

it w

as c

ompl

eted

on

[Dat

e]. T

his

is th

e da

te a

t whi

ch o

ur o

pini

on is

exp

ress

ed.

In a

dditi

on to

par

agra

ph 4

9 of

ISA

(NZ)

700

(Rev

ised

), th

e au

dit r

epor

t sha

ll no

t be

date

d be

fore

:-

the

date

on

whi

ch th

e st

atem

ent o

f res

pons

ibilit

y or

equ

ival

ent s

tate

men

t is

sign

ed; o

r-

the

date

of t

he w

ritte

n re

pres

enta

tion,

as

requ

ired

by A

G IS

A (N

Z) 5

80 a

nd IS

A (N

Z) 5

80.

The

Appo

inte

d Au

dito

r, in

nor

mal

circ

umst

ance

s, s

hall

not s

ign

and

date

the

audi

t rep

ort u

ntil

all o

ther

in

form

atio

n (o

ther

than

the

audi

ted

finan

cial

and

per

form

ance

info

rmat

ion)

that

will

be in

clud

ed in

the

entit

y’s

annu

al re

port

has

been

rece

ived

and

con

side

red

by th

e au

dito

r in

acco

rdan

ce w

ith IS

A (N

Z)

720

(Rev

ised

).

The

basi

s fo

r our

opi

nion

is e

xpla

ined

bel

ow. I

n ad

ditio

n, w

e ou

tline

the

resp

onsi

bilit

ies

of th

e [G

over

ning

bod

y] a

nd o

ur re

spon

sibi

litie

s re

latin

g to

the

finan

cial

sta

tem

ents

and

the

stat

emen

t of

per

form

ance

, we

com

men

t on

othe

r inf

orm

atio

n, a

nd w

e ex

plai

n ou

r ind

epen

denc

e.

Audi

t rep

orts

issu

ed b

y, o

r on

beha

lf of

, the

Aud

itor-G

ener

al s

hall

incl

ude

a se

para

te s

ectio

n un

der t

hehe

adin

g “In

depe

nden

ce”.

This

is a

dep

artu

re fr

om p

arag

raph

s 28

(c),

NZ2

8(c)

, NZ2

8.1

and

NZ4

0(b)

(1)

of IS

A (N

Z) 7

00 (R

evis

ed) t

hat r

equi

re s

tate

men

ts a

bout

the

audi

tor’s

inde

pend

ence

to b

e in

clud

ed

unde

r the

hea

ding

s “B

asis

for O

pini

on” a

nd “A

udito

r’s R

espo

nsib

ilitie

s fo

r the

Aud

it of

the

Fina

ncia

l St

atem

ents

.

The

Audi

tor-G

ener

al is

spe

cific

ally

requ

ired

to a

ct in

depe

nden

tly u

nder

sec

tion

9 of

the

Publ

ic A

udit

Act 2

001.

The

hei

ghte

ned

expe

ctat

ion

that

the

Audi

tor-G

ener

al m

ust a

ct, a

nd b

e se

en to

act

, in

depe

nden

tly, c

ombi

ned

with

the

reco

gniti

on th

at in

depe

nden

ce is

fund

amen

tal t

o th

e Au

dito

r-G

ener

al h

as le

d th

e Au

dito

r-Gen

eral

to ra

isin

g th

e pr

omin

ence

of i

ndep

ende

nce

by in

clud

ing

a se

para

te s

ectio

n un

der t

he h

eadi

ng “I

ndep

ende

nce”

.

Bas

is fo

r opi

nion

We

carri

ed o

ut o

ur a

udit

in a

ccor

danc

e w

ith th

e Au

dito

r-Gen

eral

’s A

uditi

ng S

tand

ards

, whi

ch

inco

rpor

ate

the

Prof

essi

onal

and

Eth

ical

Sta

ndar

ds a

nd th

e In

tern

atio

nal S

tand

ards

on

Audi

ting

(New

Zea

land

) iss

ued

by th

e N

ew Z

eala

nd A

uditi

ng a

nd A

ssur

ance

Sta

ndar

ds B

oard

. Our

re

spon

sibi

litie

s un

der t

hose

sta

ndar

ds a

re fu

rther

des

crib

ed in

the

Res

pons

ibilit

ies

of th

e au

dito

r se

ctio

n of

our

repo

rt.

We

have

fulfi

lled

our r

espo

nsib

ilitie

s in

acc

orda

nce

with

the

Audi

tor-G

ener

al’s

Aud

iting

St

anda

rds.

We

belie

ve th

at th

e au

dit e

vide

nce

we

have

obt

aine

d is

suf

ficie

nt a

nd a

ppro

pria

te to

pro

vide

a

basi

s fo

r our

opi

nion

.

The

Basi

s fo

r Opi

nion

sec

tion

com

plie

s w

ith th

e re

quire

men

ts o

f par

agra

ph 2

8(a)

, (b)

, and

(d) o

f ISA

(N

Z) 7

00 (R

evis

ed).

This

sec

tion

also

com

plie

s w

ithth

e re

quire

men

t in

para

grap

h 28

(c) o

f ISA

(NZ)

70

0 (R

evis

ed) f

or th

e au

dito

r to

stat

e th

at th

ey h

ave

fulfi

lled

thei

r oth

er e

thic

al re

spon

sibi

litie

s (in

ad

ditio

n to

the

inde

pend

ence

requ

irem

ents

) und

er th

e re

leva

nt e

thic

al re

quire

men

ts. B

ecau

se

asse

rtion

of c

ompl

ianc

e w

ith th

e au

dito

r’s in

depe

nden

ce re

quire

men

ts is

mad

e un

der t

he

“Inde

pend

ence

” hea

ding

of t

he a

udit

repo

rt, th

e re

quire

men

t for

the

audi

tor t

o as

sert

com

plia

nce

with

th

eir o

ther

eth

ical

resp

onsi

bilit

ies

is n

eede

d. T

his

requ

irem

ent i

s en

com

pass

ed in

the

stat

emen

t “W

e ha

ve fu

lfille

d ou

r res

pons

ibilit

ies

in a

ccor

danc

e w

ith th

e Au

dito

r-Gen

eral

’s A

uditi

ng S

tand

ards

” whi

ch

enco

mpa

sses

the

audi

tor’s

oth

er e

thic

al re

spon

sibi

litie

s.

The

requ

ired

stat

emen

ts a

bout

inde

pend

ence

und

er p

arag

raph

s 28

(c),

NZ2

8(c)

and

NZ2

8.1

have

be

en in

clud

ed u

nder

a s

epar

ate

Inde

pend

ence

hea

ding

.

AG

ISA

(NZ)

700

(Rev

ised

) For

min

g an

d re

porti

ng a

n op

inio

n

Issu

ed 0

3/17

Offi

ce o

f the

Aud

itor-G

ener

al3

-482

2

Res

pons

ibili

ties

of th

e [G

over

ning

bod

y] fo

r the

fina

ncia

l sta

tem

ents

and

the

stat

emen

t of

per

form

ance

The

[Gov

erni

ng b

ody]

is re

spon

sibl

e on

beh

alf o

f the

[ent

ity ty

pe] f

or th

epr

epar

atio

n of

the

finan

cial

sta

tem

ents

and

the

stat

emen

t of p

erfo

rman

cein

acc

orda

nce

with

[the

app

licab

le

finan

cial

repo

rting

fram

ewor

k].

The

[Gov

erni

ng b

ody]

is re

spon

sibl

e fo

r suc

h in

tern

al c

ontro

l as

it de

term

ines

is n

eces

sary

to

enab

le it

to p

repa

refin

anci

al s

tate

men

ts a

nd a

sta

tem

ent o

f per

form

ance

that

are

free

from

m

ater

ial m

isst

atem

ent,

whe

ther

due

to fr

aud

or e

rror.

In p

repa

ring

the

finan

cial

sta

tem

ents

and

the

stat

emen

t of p

erfo

rman

ce, t

he [G

over

ning

bod

y]is

resp

onsi

ble

on b

ehal

f of t

he [e

ntity

type

] for

ass

essi

ng th

e [e

ntity

type

]’s a

bilit

y to

con

tinue

as

a go

ing

conc

ern.

The

[Gov

erni

ng b

ody]

is a

lso

resp

onsi

ble

ford

iscl

osin

g, a

s ap

plic

able

, mat

ters

re

late

d to

goi

ng c

once

rn a

nd u

sing

the

goin

g co

ncer

n ba

sis

of a

ccou

ntin

g, u

nles

s th

e [G

over

ning

bod

y] in

tend

s to

liqu

idat

e th

e [e

ntity

type

] or t

o ce

ase

oper

atio

ns, o

r has

no re

alis

tic

alte

rnat

ive

but t

o do

so.

The

[Gov

erni

ng b

ody]

’s re

spon

sibi

litie

s ar

ise

from

the

[Nam

e of

rele

vant

Act

(s)].

Para

grap

hs 3

3 to

36

of IS

A (N

Z) 7

00 (R

evis

ed) s

peci

fy th

e m

atte

rs to

be

incl

uded

in th

e au

dito

r’s

repo

rt un

der t

he h

eadi

ng “R

espo

nsib

ilitie

s of

Tho

se C

harg

ed w

ith G

over

nanc

e fo

r the

Fin

anci

al

Stat

emen

ts”.

The

wor

ding

of t

his

sect

ion

of th

e m

odel

aud

it re

port

com

plie

s w

ith p

arag

raph

s 33

to 3

6 of

ISA

(NZ)

700

(Rev

ised

), ha

ving

bee

n am

ende

d to

refle

ct th

e pu

blic

sec

tor c

onte

xt.

The

audi

t rep

ort s

hall

refe

r to

the

rele

vant

legi

slat

ion

requ

iring

the

gove

rnin

g bo

dy to

pre

pare

the

finan

cial

sta

tem

ents

. It i

s no

t nec

essa

ry to

mak

e re

fere

nce

to s

peci

fic s

ectio

ns w

ithin

the

rele

vant

le

gisl

atio

n.

Res

pons

ibili

ties

of th

e au

dito

r for

the

audi

t of t

he fi

nanc

ial s

tate

men

ts a

nd th

e st

atem

ent

of p

erfo

rman

cePa

ragr

aphs

37

to 4

2 of

ISA

(NZ)

700

(Rev

ised

) spe

cify

the

cont

ent r

equi

rem

ents

of t

he s

ectio

n of

the

audi

tor’s

repo

rt w

ith th

e he

adin

g “A

udito

r’s R

espo

nsib

ilitie

s fo

r the

Aud

it of

the

Fina

ncia

l Sta

tem

ents

”.

Our

obj

ectiv

es a

re to

obt

ain

reas

onab

le a

ssur

ance

abo

ut w

heth

er th

e fin

anci

al s

tate

men

ts a

nd

the

stat

emen

t of p

erfo

rman

ce, a

s a

who

le, a

re fr

ee fr

om m

ater

ial m

isst

atem

ent,

whe

ther

due

to

fraud

or e

rror,

and

to is

sue

an a

udito

r’s re

port

that

incl

udes

our

opi

nion

.

Rea

sona

ble

assu

ranc

e is

a h

igh

leve

l of a

ssur

ance

, but

is n

ot a

gua

rant

ee th

at a

n au

dit c

arrie

d ou

tin

acco

rdan

ce w

ith th

e Au

dito

r-Gen

eral

’s A

uditi

ng S

tand

ards

will

alw

ays

dete

ct a

mat

eria

l m

isst

atem

ent w

hen

it ex

ists

.Mis

stat

emen

ts a

re d

iffer

ence

s or

om

issi

ons

of a

mou

nts

and

disc

losu

res,

and

can

aris

e fro

m fr

aud

or e

rror.

Mis

stat

emen

ts a

re c

onsi

dere

d m

ater

ial i

f, in

divi

dual

ly o

r in

the

aggr

egat

e, th

ey c

ould

reas

onab

ly b

e ex

pect

ed to

influ

ence

the

deci

sion

s of

re

ader

s ta

ken

on th

e ba

sis

of th

ese

finan

cial

sta

tem

ents

and

sta

tem

ent o

f per

form

ance

.

Para

grap

h 38

(a) o

f ISA

(NZ)

700

(Rev

ised

) req

uire

s th

e au

dito

r’s re

port

to s

tate

that

the

obje

ctiv

es o

f th

e au

dito

r are

to o

btai

n re

ason

able

ass

uran

ce a

bout

whe

ther

the

finan

cial

sta

tem

ents

, as

a w

hole

, ar

e fre

e fro

m m

ater

ial m

isst

atem

ent,

whe

ther

due

to fr

aud

or e

rror,

and

to is

sue

an a

udito

r’s re

port

that

incl

udes

the

audi

tor’s

opi

nion

.

Para

grap

h 38

(b) o

f ISA

(NZ)

700

(Rev

ised

) req

uire

s th

e au

dito

r’s re

port

to s

tate

that

reas

onab

le

assu

ranc

e is

a h

igh

leve

l of a

ssur

ance

, but

is n

ot a

gua

rant

ee th

at a

n au

dit c

ondu

cted

in a

ccor

danc

e w

ith IS

As (N

Z) w

ill al

way

s de

tect

a m

ater

ial m

isst

atem

ent w

hen

it ex

ists

.All

audi

t rep

orts

issu

ed b

y, o

r on

beh

alf o

f, th

e Au

dito

r-Gen

eral

incl

ude

a st

atem

ent t

hat d

escr

ibes

wha

t is

mea

nt b

y th

e te

rm

“mat

eria

l mis

stat

emen

t”.

Para

grap

h 38

(c) o

f ISA

(NZ)

700

(Rev

ised

) req

uire

s th

e au

dito

r’s re

port

to s

tate

that

mis

stat

emen

ts

can

aris

e fro

m fr

aud

or e

rror a

nd a

re c

onsi

dere

d m

ater

ial i

f, in

divi

dual

ly o

r in

the

aggr

egat

e, th

ey c

ould

re

ason

ably

be

expe

cted

to in

fluen

ce th

e ec

onom

ic d

ecis

ions

of u

sers

take

n on

the

basi

s of

thes

e fin

anci

al s

tate

men

ts. B

ecau

se th

e au

dit r

epor

t is

addr

esse

d to

read

ers,

dec

isio

ns w

ill no

t be

limite

d to

“e

cono

mic

dec

isio

n”, h

ence

the

chan

ge to

refe

r to

“dec

isio

ns o

f rea

ders

”.

[For

the

budg

et in

form

atio

n re

porte

d in

the

finan

cial

sta

tem

ents

and

the

stat

emen

t of

perfo

rman

ce, o

ur p

roce

dure

s w

ere

limite

d to

che

ckin

g th

at th

e in

form

atio

n ag

reed

to th

e [e

ntity

type

]’s [s

tate

men

t of p

erfo

rman

ce e

xpec

tatio

ns].]

We

did

not e

valu

ate

the

secu

rity

and

cont

rols

ove

r the

ele

ctro

nic

publ

icat

ion

of th

e fin

anci

al

stat

emen

ts a

ndth

e st

atem

ent o

f per

form

ance

.

Publ

ic e

ntiti

es a

re o

ften

requ

ired

to in

clud

e “b

udge

t inf

orm

atio

n” fo

r the

per

iod

subj

ect t

o au

dit i

n th

eir

finan

cial

sta

tem

ents

and

per

form

ance

info

rmat

ion.

The

pur

pose

of t

he s

tate

men

t in

the

audi

t rep

ort i

s to

cla

rify

the

exte

nt o

f wor

k ca

rried

out

on

budg

et in

form

atio

n.Th

is te

xt s

houl

d on

ly b

e in

clud

ed in

the

audi

t rep

ort w

hen

the

finan

cial

sta

tem

ents

and

the

stat

emen

t of p

erfo

rman

ce in

clud

e bu

dget

in

form

atio

n.

All a

udit

repo

rts is

sued

by,

or o

n be

half

of th

e Au

dito

r-Gen

eral

incl

ude

a st

atem

ent t

hat t

he a

udito

r is

AG

ISA

(NZ)

700

(Rev

ised

) For

min

g an

d re

porti

ng a

n op

inio

n

Issu

ed 0

3/17

Offi

ce o

f the

Aud

itor-G

ener

al3

-482

3

not r

espo

nsib

le fo

r eva

luat

ing

the

secu

rity

and

cont

rols

ove

r the

ele

ctro

nic

publ

icat

ion

of th

e au

dite

d in

form

atio

n. T

he p

rimar

y re

ason

for t

his

stat

emen

t is

that

aud

ited

info

rmat

ion

is o

ften

publ

ishe

d by

pu

blic

ent

ities

in e

lect

roni

c fo

rm, a

nd m

ay a

lso

be in

clud

ed o

n on

e or

mor

e w

ebsi

tes.

As p

art o

f an

audi

t in

acco

rdan

ce w

ithth

e Au

dito

r-Gen

eral

’s A

uditi

ng S

tand

ards

, we

exer

cise

pr

ofes

sion

al ju

dgem

ent a

nd m

aint

ain

prof

essi

onal

sce

ptic

ism

thro

ugho

ut th

e au

dit.

Also

:

-W

e id

entif

y an

d as

sess

the

risks

of m

ater

ial m

isst

atem

ent o

f the

fina

ncia

l sta

tem

ents

and

the

stat

emen

t of p

erfo

rman

ce, w

heth

er d

ue to

frau

d or

erro

r, de

sign

and

per

form

au

dit p

roce

dure

s re

spon

sive

to th

ose

risks

, and

obt

ain

audi

t evi

denc

e th

at is

suf

ficie

nt

and

appr

opria

te to

pro

vide

a b

asis

for o

ur o

pini

on. T

he ri

sk o

f not

det

ectin

g a

mat

eria

l m

isst

atem

ent r

esul

ting

from

frau

d is

hig

her t

han

for o

ne re

sulti

ng fr

om e

rror,

as fr

aud

may

invo

lve

collu

sion

, for

gery

, int

entio

nal o

mis

sion

s, m

isre

pres

enta

tions

, or t

he

over

ride

of in

tern

al c

ontro

l.

-W

e ob

tain

an

unde

rsta

ndin

g of

inte

rnal

con

trol r

elev

ant t

o th

e au

dit i

n or

der t

o de

sign

au

dit p

roce

dure

s th

at a

re a

ppro

pria

te in

the

circ

umst

ance

s, b

ut n

ot fo

r the

pur

pose

of

expr

essi

ng a

n op

inio

n on

the

effe

ctiv

enes

s of

the

[ent

ity ty

pe]’s

inte

rnal

con

trol.

-W

e ev

alua

te th

e ap

prop

riate

ness

of a

ccou

ntin

g po

licie

s us

ed a

nd th

e re

ason

able

ness

of

acc

ount

ing

estim

ates

and

rela

ted

disc

losu

res

mad

e by

the

[Gov

erni

ng b

ody]

.

-W

e ev

alua

te th

e ap

prop

riate

ness

of t

he re

porte

d pe

rform

ance

info

rmat

ion

with

in th

e [e

ntity

type

]’s fr

amew

ork

for r

epor

ting

its p

erfo

rman

ce;

-W

e co

nclu

de o

n th

e ap

prop

riate

ness

of t

he u

se o

f the

goi

ng c

once

rn b

asis

of

acco

untin

g by

the

[Gov

erni

ng b

ody]

and,

bas

ed o

n th

e au

dit e

vide

nce

obta

ined

, w

heth

er a

mat

eria

l unc

erta

inty

exi

sts

rela

ted

toev

ents

or c

ondi

tions

that

may

cas

t si

gnifi

cant

dou

bt o

n th

e [e

ntity

type

]’s a

bilit

y to

con

tinue

as

a go

ing

conc

ern.

If w

e co

nclu

de th

at a

mat

eria

l unc

erta

inty

exi

sts,

we

are

requ

ired

to d

raw

atte

ntio

n in

our

au

dito

r’s re

port

to th

e re

late

d di

sclo

sure

s in

the

finan

cial

sta

tem

ents

and

the

stat

emen

t of

per

form

ance

or,

if su

ch d

iscl

osur

es a

re in

adeq

uate

, to

mod

ify o

ur o

pini

on. O

ur

conc

lusi

ons

are

base

d on

the

audi

t evi

denc

e ob

tain

ed u

p to

the

date

of o

ur a

udito

r’s

repo

rt. H

owev

er, f

utur

e ev

ents

or c

ondi

tions

may

cau

se th

e [e

ntity

type

] to

ceas

e to

co

ntin

ue a

s a

goin

g co

ncer

n.

Para

grap

h 39

(a) o

f ISA

(NZ)

700

(Rev

ised

) req

uire

s th

e au

dito

r’s re

port

to s

tate

as p

art o

f an

audi

t in

acco

rdan

ce w

ith th

e IS

As (N

Z), t

he a

udito

r exe

rcis

es p

rofe

ssio

nal j

udge

men

t and

mai

ntai

ns

prof

essi

onal

sce

ptic

ism

thro

ugho

ut th

e au

dit.

Para

grap

h 39

(b)(i

) of I

SA (N

Z) 7

00 (R

evis

ed) r

equi

res

the

audi

tor’s

repo

rt to

des

crib

e th

e au

dito

r’s

resp

onsi

bilit

y to

iden

tify

and

asse

ss th

e ris

ks o

f mat

eria

l mis

stat

emen

t, de

sign

and

per

form

aud

it pr

oced

ures

resp

onsi

ve to

thos

e ris

ks, a

nd o

btai

n au

dit e

vide

nce

that

is s

uffic

ient

and

app

ropr

iate

to

prov

ide

a ba

sis

for t

he a

udito

r’s o

pini

on. T

he ri

sk o

f not

det

ectin

g a

mat

eria

l mis

stat

emen

t res

ultin

g fro

m fr

aud

is h

ighe

r tha

n fo

r one

resu

lting

from

erro

r, as

frau

d m

ay in

volv

e co

llusi

on, f

orge

ry,

inte

ntio

nal o

mis

sion

s, m

isre

pres

enta

tions

, or t

he o

verri

de o

f int

erna

l con

trol.

Para

grap

h 39

(b)(i

i) of

ISA

(NZ)

700

(Rev

ised

) req

uire

s th

e au

dito

r’s re

port

to d

escr

ibe

the

audi

tor’s

re

spon

sibi

lity

toob

tain

an

unde

rsta

ndin

g of

inte

rnal

con

trol r

elev

ant t

o th

e au

dit i

n or

der t

o de

sign

au

dit p

roce

dure

s th

at a

re a

ppro

pria

te in

the

circ

umst

ance

s, b

ut n

ot fo

r the

pur

pose

of e

xpre

ssin

g an

op

inio

n on

the

effe

ctiv

enes

s of

the

entit

y’s

inte

rnal

con

trol.

Para

grap

h 39

(b)(i

ii) o

f ISA

(NZ)

700

(Rev

ised

) req

uire

s th

e au

dito

r’s re

port

to d

escr

ibe

the

audi

tor’s

re

spon

sibi

lity

toev

alua

te th

e ap

prop

riate

ness

of a

ccou

ntin

g po

licie

s us

ed a

nd th

e re

ason

able

ness

of

acco

untin

g es

timat

es a

nd re

late

d di

sclo

sure

s m

ade

by m

anag

emen

t.Au

dit r

epor

ts is

sued

by,

or o

n be

half

of, t

he A

udito

r-Gen

eral

that

exp

ress

an

opin

ion

on p

erfo

rman

ce

info

rmat

ion

desc

ribe

that

the

audi

tor e

valu

ates

the

appr

opria

tene

ss o

f the

repo

rted

perfo

rman

ce

info

rmat

ion

with

in th

e en

tity’

s fra

mew

ork

for r

epor

ting

its p

erfo

rman

ce.

Para

grap

h 39

(b)(i

v) o

f ISA

(NZ)

700

(Rev

ised

) req

uire

s th

e au

dito

r’s re

port

to d

escr

ibe

the

audi

tor’s

re

spon

sibi

lity

toco

nclu

de o

n th

e ap

prop

riate

ness

of m

anag

emen

t’s u

se o

f the

goi

ng c

once

rn b

asis

of

acc

ount

ing.

Para

grap

h 39

(c) o

f ISA

(NZ)

700

(Rev

ised

) req

uire

s th

e au

dito

r’s re

port

of a

gro

up to

sta

te th

e au

dito

r’s re

spon

sibi

litie

s ar

e to

obt

ain

suffi

cien

t app

ropr

iate

aud

it ev

iden

ce re

gard

ing

the

finan

cial

in

form

atio

n of

the

entit

ies

or b

usin

ess

activ

ities

with

in th

e G

roup

to e

xpre

ss a

n op

inio

n on

the

cons

olid

ated

fina

ncia

l sta

tem

ents

, tha

t the

aud

itor i

s re

spon

sibl

e fo

r the

dire

ctio

n, s

uper

visi

on a

nd

perfo

rman

ce o

f the

gro

up a

udit,

and

that

the

audi

tor r

emai

ns s

olel

y re

spon

sibl

e fo

r the

aud

it op

inio

n.

We

com

mun

icat

e w

ith th

e [G

over

ning

bod

y]re

gard

ing,

am

ong

othe

r mat

ters

, the

pla

nned

sc

ope

and

timin

g of

the

audi

t and

sig

nific

ant a

udit

findi

ngs,

incl

udin

g an

y si

gnifi

cant

def

icie

ncie

s in

inte

rnal

con

trol t

hat w

e id

entif

y du

ring

our a

udit.

Our

resp

onsi

bilit

y ar

ises

from

the

Publ

ic A

udit

Act2

001.

Para

grap

h 40

(a) o

f ISA

(NZ)

700

(Rev

ised

) req

uire

s th

e au

dito

r’s re

port

to s

tate

that

the

audi

tor

com

mun

icat

es to

thos

e ch

arge

d w

ith g

over

nanc

e re

gard

ing,

am

ong

othe

r mat

ters

, the

pla

nned

sco

pe

and

timin

g of

the

audi

t and

sig

nific

ant a

udit

findi

ngs,

incl

udin

g an

y si

gnifi

cant

def

icie

ncie

s in

inte

rnal

co

ntro

l tha

t the

aud

itor i

dent

ifies

dur

ing

the

audi

t.

For t

he a

nnua

l aud

it of

a p

ublic

ent

ity, r

efer

ence

sho

uld

be m

ade

to th

e Pu

blic

Aud

it Ac

t 200

1 in

eve

ry

audi

t rep

ort.

Oth

er In

form

atio

n

The

[Gov

erni

ng b

ody]

isre

spon

sibl

e fo

r the

oth

er in

form

atio

n. T

he o

ther

info

rmat

ion

com

pris

es

the

info

rmat

ion

incl

uded

on

page

s [X

Xto

YY]

, but

doe

s no

t inc

lude

the

finan

cial

sta

tem

ents

and

th

e st

atem

ent o

f per

form

ance

, and

our

aud

itor’s

repo

rt th

ereo

n.

Para

grap

h 32

of I

SA (N

Z)70

0 (R

evis

ed) r

equi

res

the

audi

tor t

o re

port

in a

ccor

danc

e w

ith IS

A (N

Z)

720

(Rev

ised

). IS

A (N

Z) 7

20 (R

evis

ed) a

ckno

wle

dges

the

poss

ibilit

y th

at th

e ot

her i

nfor

mat

ion

may

no

t be

avai

labl

e be

fore

the

audi

t has

bee

n co

mpl

eted

, and

spe

cifie

s th

e au

dit r

epor

treq

uire

men

ts in

th

is s

ituat

ion.

AG

ISA

(NZ)

700

(Rev

ised

) For

min

g an

d re

porti

ng a

n op

inio

n

Issu

ed 0

3/17

Offi

ce o

f the

Aud

itor-G

ener

al3

-482

4

Our

opi

nion

on

the

finan

cial

sta

tem

ents

and

the

stat

emen

t of p

erfo

rman

ce d

oes

not c

over

the

othe

r inf

orm

atio

n an

d w

e do

not

exp

ress

any

form

of a

udit

opin

ion

or a

ssur

ance

con

clus

ion

ther

eon.

In c

onne

ctio

n w

ith o

ur a

udit

of th

e fin

anci

al s

tate

men

ts a

ndth

e st

atem

ent o

f per

form

ance

, our

re

spon

sibi

lity

is to

read

the

othe

r inf

orm

atio

n. In

doi

ng s

o, w

e co

nsid

er w

heth

er th

e ot

her

info

rmat

ion

is m

ater

ially

inco

nsis

tent

with

the

finan

cial

sta

tem

ents

and

the

stat

emen

t of

perfo

rman

ce o

r our

kno

wle

dge

obta

ined

in th

e au

dit,

or o

ther

wis

e ap

pear

s to

be

mat

eria

lly

mis

stat

ed. I

f, ba

sed

on o

urw

ork,

we

conc

lude

that

ther

e is

a m

ater

ial m

isst

atem

ent o

f thi

s ot

her

info

rmat

ion,

we

are

requ

ired

to re

port

that

fact

. We

have

not

hing

to re

port

in th

is re

gard

.

Inde

pend

ence

We

are

inde

pend

ent o

f the

[ent

ity ty

pe] i

n ac

cord

ance

with

the

inde

pend

ence

requ

irem

ents

of

the

Audi

tor-G

ener

al’s

Aud

iting

Sta

ndar

ds, w

hich

inco

rpor

ate

the

inde

pend

ence

requ

irem

ents

of

Prof

essi

onal

and

Eth

ical

Sta

ndar

d 1

(Rev

ised

): C

ode

of E

thic

s fo

r Ass

uran

ce P

ract

ition

ers

issu

ed b

y th

e N

ew Z

eala

nd A

uditi

ng a

nd A

ssur

ance

Sta

ndar

ds B

oard

..

Oth

er th

an th

e au

dit,

we

have

no

rela

tions

hip

with

, or i

nter

ests

in, t

he [e

ntity

type

].

Or

[In a

dditi

on to

the

audi

t,w

e ha

ve c

arrie

d ou

t eng

agem

ents

in th

e ar

eas

of [i

nser

t des

crip

tion

of

enga

gem

ents

], w

hich

are

com

patib

le w

ith th

ose

inde

pend

ence

requ

irem

ents

. Oth

er th

an th

e au

dit a

nd th

ese

enga

gem

ents

, we

have

no

rela

tions

hip

with

, or i

nter

ests

in, t

he [e

ntity

type

].]

Para

grap

hs 2

8(c)

, NZ2

8(c)

and

NZ2

8.1

requ

ire s

tate

men

ts to

be

mad

e in

the

audi

tor’s

repo

rt, u

nder

th

e “B

asis

for O

pini

on” h

eadi

ng, a

bout

the

audi

tor’s

inde

pend

ence

. The

sta

tem

ents

requ

ired

are:

28(c

)

Th

at th

e au

dito

r is

inde

pend

ent o

f the

ent

ity in

acc

orda

nce

with

the

rele

vant

eth

ical

re

quire

men

ts re

latin

g to

the

audi

t …N

Z28(

c)

In N

ew Z

eala

nd, t

he s

tate

men

t req

uire

d by

par

agra

ph 2

8(c)

sha

ll re

fer t

o Pr

ofes

sion

al

and

Ethi

cal S

tand

ard

1 (R

evis

ed) C

ode

of E

thic

s fo

r Ass

uran

ce P

ract

ition

ers

issu

ed b

y th

e N

ew Z

eala

nd A

uditi

ng a

nd A

ssur

ance

Sta

ndar

ds B

oard

. N

Z28.

1

The

exi

sten

ce o

f any

rela

tions

hip

(oth

er th

an th

at o

f aud

itor)

whi

ch th

e au

dito

r has

with

, or

any

inte

rest

s w

hich

the

audi

tor h

as in

, the

ent

ity.

In a

udit

repo

rts is

sued

by,

or o

n be

half

of, t

he A

udito

r-Gen

eral

the

requ

ired

stat

emen

ts a

bout

in

depe

nden

ce u

nder

par

agra

phs

28(c

), N

Z28(

c) a

nd N

Z28.

1 ar

e in

clud

ed u

nder

a s

epar

ate

“Inde

pend

ence

” hea

ding

.

[Sig

natu

re o

f App

oint

ed A

udito

r][N

ame

of A

ppoi

nted

Aud

itor]

[Nam

e of

Aud

iting

Firm

]O

n be

half

of th

e Au

dito

r-Gen

eral

[City

], N

ew Z

eala

nd

Para

grap

h N

Z46.

1 of

ISA

(NZ)

700

(Rev

ised

) req

uire

s th

at th

e na

me

of th

e en

gage

men

t par

tner

sha

ll be

incl

uded

in th

e au

dito

r’s re

port

on fi

nanc

ial s

tate

men

ts o

f FM

C e

ntiti

es c

onsi

dere

d to

hav

e a

high

er

leve

l of p

ublic

acc

ount

abilit

y. T

he A

udito

r-Gen

eral

requ

ires

the

nam

e of

the

Appo

inte

d Au

dito

r to

be

incl

uded

in th

e au

dit r

epor

ts o

f all

entit

ies,

follo

wed

by

the

nam

e of

the

firm

of t

he A

ppoi

nted

Aud

itor.

Para

grap

h 47

of I

SA (N

Z) 7

00 (R

evis

ed) r

equi

res

that

the

audi

tor’s

repo

rt sh

all b

e si

gned

.The

Au

dito

r-Gen

eral

requ

ires

the

sign

atur

e of

the

Appo

inte

d Au

dito

r. If

the

Appo

inte

d Au

dito

r wan

ts to

in

clud

e th

e si

gnat

ure

of th

e Au

dit F

irm, t

his

may

be

incl

uded

alo

ngsi

de th

e si

gnat

ure

of th

e Ap

poin

ted

Audi

tor a

s fo

llow

s:__

____

____

____

____

____

____

____

____

____

____

____

____

___

____

____

____

____

____

____

____

____

____

____

____

____

____

[Sig

natu

re o

f App

oint

ed A

udito

r]

[S

igna

ture

of A

uditi

ng F

irm]

Nam

e of

App

oint

ed A

udito

r]

[N

ame

of A

uditi

ng F

irm]

On

beha

lf of

the

Audi

tor-G

ener

al[C

ity],

New

Zea

land

Ref

er to

par

agra

ph 1

2 of

this

Sta

tem

ent f

or re

quire

men

ts o

n si

gnin

g th

e au

dit r

epor

t.

Para

grap

h 48

of I

SA (N

Z) 7

00 (R

evis

ed) r

equi

res

that

the

audi

tor’s

repo

rt sh

all n

ame

the

loca

tion

whe

re th

e au

dito

r pra

ctis

es.

AG ISA (NZ) 701 Key audit matters


COMMUNICATIING KEY AUDIT MATTERS IN THE INDEPENDENT AUDITOR’S REPORT

ContentsPage


Objectives 3 - 4851


Requirements 3 - 4852 Determining key audit matters 3 - 4852

Application and Other Explanatory Material 3 - 4852 Determining key audit matters 3 - 4852



Introduction




Communicating Key Audit Matters in the Independent Auditor’s Report (ISA (NZ)

701);1 and


Application

2. Compliance with this Statement is mandatory for Appointed Auditors who carry out annual

audits on behalf of the Auditor-General where they are communicating key audit matters in

the audit report. This Statement requires compliance with all of the requirements of ISA (NZ)

701, except to the extent that this Statement provides otherwise. Where a conflict between

this Statement and ISA (NZ) 701 exists, the requirements of this Statement shall prevail.

3. This Statement applies to audits of financial statements and/or performance information which

has been prepared for reporting periods ending on or after 15 December 2016.

Objectives

4. The objectives of the Appointed Auditor are to determine key audit matters and, having

formed an opinion on the financial statements and, where applicable, performance

information, communicate those matters by describing them in the auditor’s report.2

Definitions

5. For the purpose of this Auditor-General’s Auditing Statement the defined terms have the

meanings attributed:


Standards Board (the NZAuASB glossary) of the External Reporting Board (although

where a term with a specific meaning in the New Zealand public sector differs from

the NZAuASB glossary, the New Zealand public sector definition shall prevail); and


1 The ISA (NZ) auditing standards are scoped so that they apply to audits of “historical financial information”. However, for the purposes of the Auditor-General’s auditing standards and statements, all references to “historical financial information” should be read as the audit of “historical financial and performance information”.

2 The objective should be read in addition to the objectives in AG ISA (NZ) 700.



Requirements

Determining key audit matters

6. Appointed Auditors of public entities that are public benefit entities, whose primary purpose

is to provide goods and/or services to New Zealand citizens, shall also apply the

requirements in paragraphs 9 and 10 of ISA (NZ) 701 to performance information that is

reported, or should be reported, by the public entity. (See paragraph A1)

***

Application and Other Explanatory Material

Determining key audit matters (See paragraph 6)

A1. The purpose of public entities that are public benefit entities is to provide goods and/or

services in the public interest. Where the audit report of a public entity, which is also a public

benefit entity, will include key audit matters the Appointed Auditor will need to consider the

application of the requirements of paragraphs 9 and 10 of ISA (NZ) 701 to both financial and

performance information. In doing so, Appointed Auditors should consider consulting with the

OAG Sector Manager about the key audit matters that are proposed to be reported.


AG ISA (NZ) 705 (Revised) Modifications to the opinion



MODIFICATIONS TO THE OPINION IN THE INDEPENDENT AUDITOR’S REPORT

ContentsPage




Objective 3 - 4901


Requirements 3 - 4902 Authority for Appointed Auditors to issue modified audit reports

without prior OAG approval 3 - 4902 Matters to consider when preparing a modified audit report 3 - 4902 Audit reports to be referred to the OAG before they are issued 3 - 4903 Reporting modified audit reports to the OAG 3 - 4903

Appendix 1 – Examples of modified audit reports 3 - 4904

Application and other explanatory material 3 - 4903



Introduction


1. This Auditor General’s Auditing Statement sets out the Auditor-General’s

requirements for issuing modified audit reports, and provides examples of modified

audit reports (in Appendix 1) that are based on the requirements of:

(a) AG ISA (NZ) 700 (Revised): Forming an Opinion and Reporting on Financial

and Performance Information; and

(b) ISA (NZ) 705 (Revised): Modifications to the Opinion in the Independent

Auditor’s Report (ISA (NZ) 705).1

Application








December 2016.

Objective

4. The objective of the Appointed Auditor is to express clearly an appropriately modified

opinion on the financial and performance information that is necessary when:

(a) the Appointed Auditor concludes, based on the audit evidence obtained, that

the financial and performance information as a whole is not free from material

misstatement; or

(b) the Appointed Auditor is unable to obtain sufficient appropriate audit evidence

to conclude that the financial and performance information as a whole is free

from material misstatement.

5. In meeting the objective in paragraph 4, the Appointed Auditor shall make reasonable

endeavours to provide assurance on those aspects of the financial and performance

1 The ISA (NZ) auditing standards are scoped so that they apply to audits of “historical financial information”.However, for the purposes of the Auditor-General’s auditing standards and statements, all references to“historical financial information” should be read as the audit of “historical financial and historical performanceinformation”.



information where such assurance can be readily provided. For example, the

Appointed Auditor is often able to provide assurance on the statement of cash flows,

whilst being unable to form an unmodified opinion on other aspects of an entity’s

financial and performance information.

Definitions









Requirements

Authority for Appointed Auditors to issue modified audit reports without prior OAGapproval

7. Unless there is an instruction from the OAG, Appointed Auditors are authorised to

issue modified audit reports without prior OAG approval unless the misstatement

giving rise to the modification is, or may be, pervasive to the reported financial and

performance information. This authority does not preclude the Appointed Auditor from

seeking advice from the OAG prior to issuing a modified audit report.

8. Where the misstatement giving rise to the modification is, or may be, pervasive to the

reported financial and performance information, Appointed Auditors shall refer the

matter to the Accounting and Auditing Policy team at the OAG in accordance with

paragraph 15 in AG ISA (NZ) 700.

Matters to consider when preparing a modified audit report

9. When preparing a modified audit report, the Appointed Auditor shall ensure that they

apply any requirements:

(a) issued by the OAG in respect of particular audits or sectors;

(b) contained in AG ISA (NZ) 700 (Revised) – particularly when serious

consideration is given to issuing a modified audit report that is required to be



referred to the Accounting and Auditing Policy team at the OAG for approval

before it is issued; and

(c) contained in AG ISA (NZ) 705 (Revised) and ISA (NZ) 705 (Revised).

10. In addition to the requirements in paragraph 9, Appointed Auditors shall refer to the

example modified audit reports in Appendix 1 for guidance on presentation and

format. (See paragraph A1)


11. In certain circumstances where the auditor proposes to issue a modified audit report,

the Appointed Auditor shall refer the audit report to the Accounting and Auditing

Policy team at the OAG before the audit report is issued. This requirement usually

arises when the Appointed Auditor seriously considers issuing a modified audit report

because of a matter that is potentially pervasive to the reported financial and

performance information. The procedures for referring such audit reports to the OAG

are specified in AG ISA (NZ) 700 (Revised).

12. Other instances where modified audit reports are required to be referred to the

Accounting and Auditing Policy team at the OAG for approval before they are issued

may be advised to Appointed Auditors through audit briefs or other instructions.

Reporting modified audit reports to the OAG

13. The Appointed Auditor shall forward to the OAG a copy of all audit reports issued,

including modified audit reports, in keeping with the requirements set out in AG-1:

Reporting to the OAG.


A1. In formatting a modified audit report, the desired outcome is an audit report that

clearly reports the findings from the audit to the readers. This should usually be able

to be achieved by following the requirements of ISA (NZ) 705 (Revised). However, if

the formatting requirements of ISA (NZ) 705 (Revised) limit the clear communication

of audit findings, Appointed Auditors may present their findings using a different

format. In doing so, Appointed Auditors are requested to consult with the Accounting

and Auditing Policy team at the OAG before issuing the modified audit report.



Appendix 1 – Examples of modified audit reports

1.1 There are four examples of modified audit reports in this Appendix. The examples

have been prepared to assist Appointed Auditors in presenting and formatting a

modified audit report.

1.2 The examples are all based on a public entity that has prepared financial and

performance information in accordance with a fair presentation framework. The

examples are:

Example 1. A qualified opinion where the Appointed Auditor has obtained sufficient

appropriate audit evidence and concludes that misstatements, individually or in the

aggregate, are material but not pervasive.

Nature of the matter giving rise to the modification

Auditor’s judgement about the pervasiveness of the effects or possible effects on the financial and performance information

Material but not pervasive Material and pervasive

The financial and performance information is materially misstated

Qualified opinion Adverse opinion

Inability to obtain sufficient appropriate audit evidence

Qualified opinion Disclaimer of opinion

Example 2. A qualified opinion when the Appointed Auditor is unable to obtain

sufficient appropriate audit evidence on which to base the opinion and concludes that

the possible effects of undetected misstatements, if any, could be material but not

pervasive.










Example 3. An adverse opinion where the Appointed Auditor has obtained sufficient

appropriate audit evidence and concludes that misstatements, individually or in the

aggregate, are both material and pervasive.








Example 4. A disclaimer of opinion when the Appointed Auditor is unable to obtain

sufficient appropriate audit evidence on which to base an opinion, and concludes that

the possible effects of undetected misstatements, if any, could be both material and

pervasive.










Example 1 – Qualification – Disagreement – Material but not pervasive –Non-disclosure of related party transactions

[Firm’s letterhead]

INDEPENDENT AUDITOR’S REPORTTO THE [READERS] OF [NAME OF ENTITY]’S

FINANCIAL STATEMENTS AND STATEMENT OF PERFORMANCEFOR THE YEAR ENDED [DD MM 20XX]

The Auditor-General is the auditor of [Name of Entity] (the [entity type]). The Auditor-General has appointed me, [Name of Appointed Auditor], using the staff and resources of [Name of Auditing Firm], to carry out the audit of the financial statements and statement of performance of the [entity type] on his behalf.

We have audited:

- the financial statements of the [entity type] on pages […] to […], that comprise the [statement of financialposition] as at [DD MM 20XX], the [statement of comprehensive income, statement of changes in equityand statement of cash flows] for the year ended on that date, and [the notes to the financial statements thatincluded accounting policies and other explanatory information]; and

- the statement of performance of the [entity type] on pages […] to […].

Qualified opinion

Qualified opinion on the financial statements – Non-disclosure of related party transactions

In our opinion, except for the matter described in the Basis for our qualified opinion section of our report, the financial statements of the [entity type] on pages […] to […]:


- its financial position as at [DD MM 20XX]; and

- its financial performance and cash flows for the year then ended; and

- comply with generally accepted accounting practice in New Zealand in accordance with [the applicablefinancial reporting framework].

Unmodified opinion on the statement of performance

In our opinion, the statement of performance of the [entity type] on pages […] to […]:

- presents fairly, in all material respects, the [entity type]’s performance for the year ended [DD MM 20XX],including:

- its performance achievements as compared with forecasts included in the statement ofperformance expectations for the financial year; and

- its actual revenue and expenses as compared with the forecasts included in the statement ofperformance expectations for the financial year.


Our audit of the financial statements and the statement of performance was completed on [Date]. This is the date at which our qualified opinion is expressed.

The basis for our qualified opinion is explained below. In addition, we outline the responsibilities of the [Governing body]and our responsibilities relating to the financial statements and the statement of performance, we comment on other information, and we explain our independence.

Basis for our qualified opinion

The [entity type] has not provided us with evidence that the other remuneration and compensation paid to key management personnel and to close members of key management personnel has been charged to the [entity type]on normal commercial terms. If other remuneration and compensation of this nature is not charged on normal commercial terms, [entity type] is required to disclose the total amount of other remuneration and compensation paid to key management personnel and to close members of key management personnel in accordance with Public Benefit Entity International Public Sector Accounting Standard 20: Related Party Disclosures.



We carried out our audit in accordance with the Auditor-General’s Auditing Standards, which incorporate the Professional and Ethical Standards and the International Standards on Auditing (New Zealand) issued by the New Zealand Auditing and Assurance Standards Board. Our responsibilities under those standards are further described in the Responsibilities of the auditor section of our report.

We have fulfilled our responsibilities in accordance with the Auditor-General’s Auditing Standards.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualifiedopinion.

Responsibilities of the [Governing body] for the financial statements and the statement of performance

The [Governing body] is responsible on behalf of the [entity type] for preparing financial statements and a statement of performance that are fairly presented and that comply with generally accepted accounting practice in New Zealand.

The [Governing body] is responsible for such internal control as it determines is necessary to enable it to preparefinancial statements and a statement of performance that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements and the statement of performance, the [Governing body] is responsible on behalf of the [entity type] for assessing the [entity type]’s ability to continue as a going concern. The [Governing body] is also responsible for disclosing, as applicable, matters related to going concern and using the going concern basis of accounting, unless the [Governing body] intends to liquidate the [entity type] or to cease operations, or has no realistic alternative but to do so.

The [Governing body]’s responsibilities arise from the [Name of relevant Act(s)].

Responsibilities of the auditor for the audit of the financial statements and the statement of performance

Our objectives are to obtain reasonable assurance about whether the financial statements and the statement of performance, as a whole, are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit carried out in accordance with the Auditor-General’s Auditing Standards will always detect a material misstatement when it exists. Misstatements aredifferences or omissions of amounts and disclosures, and can arise from fraud or error. Misstatements are considered material if, individually or in the aggregate, they could reasonably be expected to influence the decisions of readers taken on the basis of these financial statements and statement of performance.

For the budget information reported in the financial statements and the statement of performance, our procedures were limited to checking that the information agreed to the [entity type]’s [statement of performance expectations].

We did not evaluate the security and controls over the electronic publication of the financial statements and the statement of performance.

As part of an audit in accordance with the Auditor-General’s Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. Also:

- We identify and assess the risks of material misstatement of the financial statements and the statement ofperformance, whether due to fraud or error, design and perform audit procedures responsive to those risks,and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of notdetecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud mayinvolve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

- We obtain an understanding of internal control relevant to the audit in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the[entity type]’s internal control.

- We evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimatesand related disclosures made by the [Governing body].

- We evaluate the appropriateness of the reported performance information within the [entity type]’s frameworkfor reporting its performance.

- We conclude on the appropriateness of the use of the going concern basis of accounting by the [Governingbody] and, based on the audit evidence obtained, whether a material uncertainty exists related to events orconditions that may cast significant doubt on the [entity type]’s ability to continue as a going concern. If weconclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to therelated disclosures in the financial statements and the statement of performance or, if such disclosures areinadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date ofour auditor’s report. However, future events or conditions may cause the [entity type] to cease to continue as agoing concern.



- We evaluate the overall presentation, structure and content of the financial statements and the statement ofperformance, including the disclosures, and whether the financial statements and the statement ofperformance represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with the [Governing body] regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

Our responsibilities arise from the Public Audit Act 2001.

Other information

The [Governing body] is responsible for the other information. The other information comprises the information included on pages […] to […], but does not include the financial statements and the statement of performance, and our auditor’s report thereon.

Our opinion on the financial statements and the statement of performance does not cover the other information and we do not express any form of audit opinion or assurance conclusion thereon.

In connection with our audit of the financial statements and the statement of performance, our responsibility is to read the other information. In doing so, we consider whether the other information is materially inconsistent with the financial statements and the statement of performance or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on our work, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Independence

We are independent of the [entity type] in accordance with the independence requirements of the Auditor-General’s Auditing Standards, which incorporate the independence requirements of Professional and Ethical Standard 1 (Revised): Code of Ethics for Assurance Practitioners issued by the New Zealand Auditing and Assurance Standards Board.

Other than the audit, we have no relationship with, or interests in, the [entity type].

Or

[In addition to the audit, we have carried out engagements in the areas of [insert description of engagements], which are compatible with those independence requirements. Other than the audit and these engagements, we have no relationship with, or interests in, the [entity type].]

[Signature of Appointed Auditor][Name of Appointed Auditor][Name of Auditing Firm]On behalf of the Auditor-General[City], New Zealand



Example 2 – Qualification – Uncertainty – Material but not pervasive –Limited control over revenue


INDEPENDENT AUDITOR’S REPORT

TO THE [READERS] OF [NAME OF ENTITY]’SFINANCIAL STATEMENTS AND STATEMENT OF PERFORMANCE

FOR THE YEAR ENDED [DD MM 20XX]


We have audited:

- the financial statements of the [entity type] on pages […] to […], that comprise the [statement of financialposition] as at [DD MM 20XX], the [statement of comprehensive income, statement of changes in equityand statement of cash flows] for the year ended on that date, and [the notes to the financial statements thatinclude accounting policies and other explanatory information]; and


Qualified opinion

Qualified opinion on the financial statements – Limited control over door-to-door collections revenue





- comply with generally accepted accounting practice in New Zealand in accordance with [the applicablefinancial reporting framework].



- presents fairly, in all material respects, the [entity type]’s performance for the year ended [DD MM 20XX],including:

- its performance achievements as compared with forecasts included in the statement ofperformance expectations for the financial year; and

- its actual revenue and expenses as compared with the forecasts included in the statement ofperformance expectations for the financial year.



The basis for our qualified opinion is explained below. In addition, we outline the responsibilities of the [Governing body]and our responsibilities relating to the financial statements and the statement of performance, we comment on other information, and we explain our independence.


Prior to being recorded, control over the receipt of door-to-door collections revenue is limited. Door-to-door collections revenue is disclosed in Note Z to the financial statements as $[xxx] ([20XX-1]: $[yyy]). There are no satisfactory audit procedures that we could adopt to confirm independently that the revenue for all door-to-door collections had been properly recorded.

We carried out our audit in accordance with the Auditor-General’s Auditing Standards, which incorporate the Professional and Ethical Standards and the International Standards on Auditing (New Zealand) issued by the New



Zealand Auditing and Assurance Standards Board. Our responsibilities under those standards are further described in the Responsibilities of the auditor section of our report.


We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion.








Reasonable assurance is a high level of assurance, but is not a guarantee that an audit carried out in accordance with the Auditor-General’s Auditing Standards will always detect a material misstatement when it exists. Misstatements are differences or omissions of amounts and disclosures, and can arise from fraud or error. Misstatements are considered material if, individually or in the aggregate, they could reasonably be expected to influence the decisions of readers taken on the basis of these financial statements and statement of performance.




- We identify and assess the risks of material misstatement of the financial statements and the statement of performance, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

- We obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the [entity type]’s internal control.

- We evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the [Governing body].

- We evaluate the appropriateness of the reported performance information within the [entity type]’s framework for reporting its performance.

- We conclude on the appropriateness of the use of the going concern basis of accounting by the [Governing body] and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the [entity type]’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements and the statement of performance or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the [entity type] to cease to continue as a going concern.

- We evaluate the overall presentation, structure and content of the financial statements and the statement of performance, including the disclosures, and whether the financial statements and the statement of performance represent the underlying transactions and events in a manner that achieves fair presentation.





Other information




Independence



Or





Example 3 – Adverse – Disagreement - Material and pervasive – Non-recognition of heritage assets






We have audited:

- the financial statements of the [entity type] on pages […] to […], that comprise the [statement of financial position] as at [DD MM 20XX], the [statement of comprehensive income, statement of changes in equity and statement of cash flows] for the year ended on that date, and [the notes to the financial statements that include accounting policies and other explanatory information]; and


Adverse opinion

Adverse opinion on the financial statements – Non-recognition of heritage assets

In our opinion, because of the significance of the matter discussed in the Basis for our adverse opinion section of our report, the financial statements of the [entity type] on pages […] to […]:

- do not present fairly, in all material respects:


- its financial performance for the year then ended; and

- do not comply with generally accepted accounting practice in New Zealand and have not been prepared in accordance with [the applicable financial reporting framework].

Unmodified opinion on the cash flows and statement of performance

In our opinion the statement of cash flows on page […]:

- presents fairly, in all material respects, the cash flows for the year ended [DD MM 20XX]; and

- complies with generally accepted accounting practice in New Zealand in accordance with [the applicable financial reporting framework].

In our opinion the statement of performance of the [entity type] on pages […] to […]:

- presents fairly, in all material respects, the [entity type]’s performance for the year ended [DD MM 20XX], including:

- its performance achievements as compared with forecasts included in the statement of performance expectations for the financial year; and

- its actual revenue and expenses as compared with the forecasts included in the statement of performance expectations for the financial year.


Our audit of the financial statements and the statement of performance was completed on [Date]. This is the date at which our adverse opinion is expressed.

The basis for our adverse opinion is explained below. In addition, we outline the responsibilities of the [Governing body]and our responsibilities relating to the financial statements and the statement of performance, we comment on other information, and we explain our independence.



Basis for our adverse opinion

The [entity type] has not recognised its heritage assets in the statement of financial position, nor the associated depreciation expense in the statement of comprehensive revenue and expense. This is a departure from Public Benefit Entity International Public Sector Accounting Standard 17: Property, Plant and Equipment that generally requires assets to be recognised and depreciated during their useful lives. Because heritage assets make up a substantial proportion of the [entity type]’s total assets the effect of their omission from the financial statements is pervasive, resulting in the financial statements being fundamentally misleading.



We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our adverse opinion.












- We identify and assess the risks of material misstatement of the financial statements and the statement ofperformance, whether due to fraud or error, design and perform audit procedures responsive to those risks,and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of notdetecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud mayinvolve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

- We obtain an understanding of internal control relevant to the audit in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the[entity type]’s internal control.

- We evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimatesand related disclosures made by the [Governing body].

- We evaluate the appropriateness of the reported performance information within the [entity type]’s frameworkfor reporting its performance.

- We conclude on the appropriateness of the use of the going concern basis of accounting by the [Governingbody] and, based on the audit evidence obtained, whether a material uncertainty exists related to events or



conditions that may cast significant doubt on the [entity type]’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements and the statement of performance or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the [entity type] to cease to continue as a going concern.



Our responsibility arises from the Public Audit Act 2001.

Other information




Independence



Or





Example 4 – Disclaimer – Uncertainty – Material and pervasive – Loss of accounting records






Disclaimer of opinion

We are required to audit:

- the financial statements of the [entity type] on pages […] to […], that comprise the [statement of financial position] as at [DD MM 20XX], the [statement of comprehensive income, statement of changes in equity and statement of cash flows] for the year ended on that date, and [the notes to the financial statements that include significant accounting policies and other explanatory information]; and


We do not express an opinion on the financial statements and the statement of performance of the [entity type].

Because of the significance of the matter described in the Basis for our disclaimer of opinion section of our report, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on the financial statements and the statement of performance.

The date of our disclaimer of opinion is [Date].

We outline the responsibilities of the [Governing body] and our responsibilities relating to the financial statements and the statement of performance, and we explain our independence.

Basis for our disclaimer of opinion

As stated in note […] on page […], a fire at the [entity type]’s head office destroyed many of the accounting records that form the basis for the preparation of the financial statements and the statement of performance. As a consequence, we were unable to obtain sufficient appropriate audit evidence that would have allowed us to form an audit opinion.







Our responsibility is to:

- carry out an audit of the [entity type]’s financial statements and statement of performance in accordance with the Auditor-General’s Auditing Standards, which incorporate the Professional and Ethical Standards and the



International Standards on Auditing (New Zealand) issued by the New Zealand Auditing and Assurance Standards Board; and

- issue an auditor’s report.

However, because of the matters described in the Basis for our disclaimer of opinion section of our report, we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on these financial statements and the statement of performance.


Our independence and other ethical responsibilities

We are independent of the [entity type] in accordance with the independence requirements of the Auditor-General’s Auditing Standards, which incorporate the independence requirements of Professional and Ethical Standard 1 (Revised): Code of Ethics for Assurance Practitioners issued by the New Zealand Auditing and Assurance Standards Board. We have also fulfilled our other ethical responsibilities in accordance with Professional and Ethical Standard 1 (Revised): Code of Ethics for Assurance Practitioners.


Or

[We have carried out engagements in the areas of [insert description of engagements], which are compatible with those independence requirements. Other than in our capacity as auditor and these engagements, we have no relationship with, or interests in, the [entity type].]


AG ISA (NZ) 706 (Revised) Emphasis of matter paragraphs and other matter paragraphs


EMPHASIS OF MATTER PARAGRAPHS AND OTHER MATTER PARAGRAPHS IN THE INDEPENDENT AUDITOR’S REPORT

ContentsPage


Objective 3 - 5001


Requirements 3 - 5002 Authority for Appointed Auditors to issue audit reports including

emphasis of matter and/or other matter paragraphs without

prior OAG approval 3 - 5002 Matters to consider when preparing an audit report containing an

emphasis of matter or other matter paragraph 3 - 5002 Audit reports to be referred to the OAG before they are issued 3 - 5003 Reporting audit reports containing an emphasis of matter or

other matter paragraph to the OAG 3 - 5003


Appendix 1 – Examples of emphasis of matter and other matter paragraphs 3 - 5005



Introduction


1. This Auditor-General’s Auditing Statement sets out the Auditor-General’s

requirements for issuing audit reports that contain emphasis of matter or other matter

paragraphs. Also, it provides examples (in Appendix 1) of emphasis of matter and

other matter paragraphs that are based on the requirements of:

(a) AG ISA (NZ) 700 (Revised): Forming an opinion and reporting on financial

and performance information; and

(b) ISA (NZ) 706 (Revised): Emphasis of Matter Paragraphs and Other Matter

Paragraphs in the Independent Auditor’s Report (ISA (NZ) 706).1

Application








December 2016.

Objective

4. The objective of the Appointed Auditor, having formed an opinion on the financial and

performance information, is to draw readers’ attention, when in the Appointed

Auditor’s judgement it is necessary to do so, by way of clear additional

communication in the auditor’s report, to:

(a) a matter, although appropriately presented or disclosed in the financial and

performance information, that is of such importance it is fundamental to a

reader’s understanding of the financial and performance information; and/or

(b) as appropriate, any other matter that is relevant to a reader’s understanding

of the annual audit, the Auditor-General’s responsibilities, or the auditor’s

report.




5. The availability of emphasis of matter and/or other matter paragraphs is a particularly

important means of reporting significant matters in the context of audits carried out

by, or on behalf of, the Auditor-General. For example, Appointed Auditors may draw

attention to matters of interest in the audit report, such as non-compliance with

legislation relating to a matter of financial management or accountability, or to an

instance of spending that, in the opinion of the Appointed Auditor, is wasteful.

Definitions









Requirements

Authority for Appointed Auditors to issue audit reports including emphasis of matter and/or other matter paragraphs without prior OAG approval

7. Appointed Auditors are authorised to issue audit reports that include emphasis of

matter and/or other matter paragraphs without prior OAG approval in the following

circumstances:

- where financial statements and performance information has been

appropriately prepared on a basis of accounting, other than the going

concern basis of accounting, and where the auditor draws attention to the

other basis of accounting in the auditor’s report; and/or

- where prior authorisation has been provided by the OAG in an audit brief or

other authority.

Matters to consider when preparing an audit report containing an emphasis of matter or other matter paragraph

8. As a general principle Appointed Auditors shall position emphasis of matter or other

matter paragraphs towards the beginning of the audit report. Where the auditor’s



opinion is unmodified, the emphasis of matter or other matter paragraph will usually

be positioned immediately after the Opinion section. Where the auditor’s opinion has

been modified, the emphasis of matter or other matter paragraph will usually be

positioned immediately after the Basis for [modification] section.

9. When preparing an audit report containing an emphasis of matter or other matter

paragraph, the Appointed Auditor shall ensure that they apply any requirements:

(a) issued by the OAG in respect of particular audits or sectors;

(b) in AG ISA (NZ) 700 (Revised) – if the Appointed Auditor seriously considers

including an emphasis of matter or other matter paragraph in an audit report

where the OAG has not provided any direction or guidance;

(c) in AG ISA (NZ) 706 (Revised) and ISA (NZ) 706 (Revised).

10. In addition to the requirements in paragraph 9, Appointed Auditors shall refer to the

example audit reports in Appendix 1 for guidance on presentation and format.


11. The Appointed Auditor shall refer the audit report to the Accounting and Auditing

Policy team at the OAG for prior OAG approval, when the Appointed Auditor seriously

considers including an emphasis of matter or other matter paragraph in an audit

report. The procedures for referring such audit reports to the OAG are specified in AG

ISA (NZ) 700 (Revised).

Reporting audit reports containing an emphasis of matter or other matter paragraph to the OAG

12. The Appointed Auditor shall forward to the OAG a copy of all audit reports issued

(including audit reports containing an emphasis of matter or other matter paragraph),

in keeping with the requirements set out in AG-1: Reporting to the OAG.

***


A1. Paragraph 9(a) of ISA (NZ) 706 (Revised) requires the auditor to include a heading

that includes the term “Emphasis of Matter” whenever the auditor includes an

emphasis of matter paragraph in the auditor’s report. For audit reports issued by, or

on behalf of, the Auditor-General the inclusion of a heading that includes the term



“Emphasis of Matter” does not clearly convey the nature of the matter to readers of

the audit report, and is not a requirement of this statement.


AG ISA (NZ) 706 Emphasis of matter and other matter paragraphs

Appendix 1 – Examples of emphasis of matter and other matter paragraphs

This appendix contains two example audit reports. The examples are intended to provide

guidance on the formatting of audit reports that include an “emphasis of matter” and “other

matter” paragraph.

Example 1 shows the positioning of an “emphasis of matter” paragraph and an “other matter”

paragraph when the auditor is issuing an unmodified audit opinion. In this instance the

“emphasis of matter” paragraph draws readers’ attention to a note that discloses why the

public entity has appropriately prepared the financial statements and performance information

using a disestablishment basis of accounting. In addition, because the public entity has not

prepared its financial statements and performance information within the statutory deadline,

and has not disclosed this breach of law, the auditor has drawn readers’ attention to this

matter by way of an “other matter” paragraph.

Example 2 shows the positioning of an “emphasis of matter” paragraph and an “other matter”

paragraph when the auditor is issuing a modified audit opinion. In this instance the “emphasis

of matter” paragraph draws readers’ attention to a note that discloses that a third party has

initiated legal proceedings against it; a matter that, in the auditor’s judgement, is fundamental

to the readers’ understanding of the financial statements and performance information. In

addition, the auditor wishes to draw readers’ attention to expenditure incurred by the public

entity that the auditor considers to be wasteful by way of an “other matter” paragraph.



Example 1 – Auditor’s report: Unmodified audit opinion with “emphasis of matter” and “other matter” paragraphs



TO THE [READERS] OF[NAME OF ENTITY]’S

FINANCIAL STATEMENTS AND STATEMENT OF PERFORMANCE FOR THE YEAR ENDED [DD MM 20XX]


Opinion

We have audited:

- the financial statements of the [entity type] on pages […] to […], that comprise2 the [statement of financial position] as at [DD MM 20XX], the [statement of comprehensive income, statement of changes in equity and statement of cash flows] for the year ended on that date, and [the notes to the financial statements that include accounting policies and other explanatory information]; and

- the statement of performance3 of the [entity type] on pages […] to […].

In our opinion:

- the financial statements of the [entity type] on pages […] to […], which have been prepared on a disestablishment basis:





- the statement of performance of the [entity type] on pages […] to […], which has been prepared on a disestablishment basis:

- presents fairly, in all material respects, the [entity type]’s performance for the year ended [DDMM 20XX], including:




Our audit was completed on [Date]. This is the date at which our opinion is expressed.

The basis for our opinion is explained below, and we draw your attention to other matters. In addition, we outline the responsibilities of the [Governing body] and our responsibilities relating to the financial statements and the statement of performance, we comment on other information, and we explain our independence.

The financial statements and the statement of performance are appropriately prepared on a disestablishment basis

2 Ensure that the names that are used in the financial statements and performance information are replicated in the audit report.



Without modifying our opinion, we considered the accounting policy on page […], about the financial statements and statement of performance being prepared on a disestablishment basis. We consider the disestablishment basis of accounting to be appropriate as the [entity type] closed on [date].

The [entity type] did not report within its statutory reporting deadline

Without modifying our opinion, we draw attention to the fact that the [entity type] did not comply with [relevant Act of Parliament], which requires the [Governing body] to provide its audited financial statements and statement of performance to [name of recipient] by [date].

Basis for opinion

We carried out our audit in accordance with the Auditor-General’s Auditing Standards, which incorporate the Professional and Ethical Standards and the International Standards on Auditing (New Zealand) issued by the NewZealand Auditing and Assurance Standards Board. Our responsibilities under those standards are further described in the Responsibilities of the auditor section of our report.


We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.






Responsibilities of the auditor for the audit of the financial statements and statement of performance


Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Auditor-General’s Auditing Standards will always detect a material misstatement when it exists. Misstatements are differences or omissions of amounts and disclosures, and can arise from fraud or error. Misstatements are considered material if, individually or in the aggregate, they could reasonably be expected to influence the decisions of readers taken on the basis of these financial statements and statement of performance.


We did not evaluate the security and controls over the electronic publication of the financial statements and statement of performance.








- We conclude on the appropriateness of the use of the going concern basis of accounting by the [Governing body] and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the [entity type]’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements and the statement of performance or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the [entity type] to cease to continue as a going concern.




Other Information




Independence

We are independent of the [entity type] in accordance with the independence requirements of the Auditor-General’s Auditing Standards, which incorporate the independence requirements of Professional and Ethical Standard 1 (Revised): Code of Ethics for Assurance Practitioners issued by the New Zealand Auditing and Assurance Standards Board..


Or





Example 2 – Auditor’s report: Modified audit opinion with “emphasis of matter” and “other matter” paragraphs






We have audited:

- the financial statements of the [entity type] on pages […] to […], that comprise the [statement of financial position] as at [DD MM 20XX], the [statement of comprehensive income, statement of changes in equity and statement of cash flows] for the year ended on that date, and [the notes to the financial statements that include accounting policies and other explanatory information]; and


Qualified opinion

Qualified opinion on the financial statements – Non disclosure of related party transactions








- presents fairly, in all material respects, the [entity type]’s performance for the year ended [DD MM 20XX], including:





The basis for our qualified opinion is explained below, and we draw your attention to other matters. In addition, we outline the responsibilities of the [Governing body] and our responsibilities relating to the financial statements and the statement of performance, we comment on other information, and we explain our independence.


The [entity type] has not provided us with evidence that the other remuneration and compensation paid to key management personnel and to close members of key management personnel has been charged to the [entity type]on normal commercial terms. If other remuneration and compensation of this nature is not charged on normal commercial terms, [entity type] is required to disclose the total amount of other remuneration and compensation paid to key management personnel and to close members of key management personnel in accordance with Public Benefit Entity International Public Sector Accounting Standard 20: Related Party Disclosures.





We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion.

Legal proceedings have been brought against the [entity type]

We draw your attention to the disclosure in note […] on page […] of the financial statements, which outline that legal proceedings have been brought against the [entity type] by [name of third party]. Our opinion is not modified in respect of this matter.

The [entity type] has incurred expenditure that is considered to be wasteful

During the year the [entity type] incurred entertainment expenditure for staff of [$xxx]. The entertainment expenditure is included in the expenditure category “administration expenses” of [$yyy] in the statement of comprehensive income. Asthe [entity type] was unable to demonstrate that the entertainment expenditure had a justifiable business purpose, we concluded that the expenditure was wasteful. Our opinion is not modified in respect of this matter.


















- We conclude on the appropriateness of the use of the going concern basis of accounting by the [Governing body] and, based on the audit evidence obtained, whether a material uncertainty exists related to events orconditions that may cast significant doubt on the [entity type]’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements and the statement of performance or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the [entity type] to cease to continue as a going concern.




Other information




Independence



Or




AG ISA (NZ) 810 (Revised) Summary financial and performance information


ENGAGEMENTS TO REPORT ON SUMMARY FINANCIAL AND PERFORMANCE INFORMATION

ContentsPage


Objectives 3 - 5401


Requirements 3 - 5402 Procedures on the summary financial and performance information

to be carried out as part of the annual audit on behalf of the

Auditor-General 3 - 5402 Use of template audit reports issued by the OAG 3 - 5402 Signing of summary audit reports 3 - 5403 Modifications to summary audit reports 3 - 5403 Reporting to the OAG 3 - 5403

Application and other explanatory material 3 - 5403 Signing of summary audit reports 3 - 5403

Appendix 1 – Model summary audit report for a public entity applying a fair

presentation framework 3 - 5404



Introduction




(Revised): Engagements to Report on Summary Financial Statements (ISA

(NZ) 810);1 and

(b) provides additional requirements and guidance to reflect the public sector

perspective and covers all summaries of financial and performance information

that are audited on behalf of the Auditor-General.

Application




provides otherwise. Where a conflict between this Statement and ISA (NZ) 810 exists,

the requirements of this Statement shall prevail.

3. This Statement applies to audits of financial statements and/or performance information

which has been prepared for reporting periods ending on or after 15 December 2015.

4. The Auditor-General will determine the standard format and wording for public entity

audit reports issued on summary financial and performance information. In doing so,

the Auditor-General will be cognisant of the objectives and requirements of ISA (NZ)

810 (Revised) to ensure appropriate reporting for readers. A model summary audit

report is included in this statement and may also be included in other directives issued

by the OAG from time to time.

Objectives


(a) form an opinion on the summary financial and performance information based

on an evaluation of the conclusions drawn from the evidence obtained; and

(b) clearly express that opinion through a written report that also describes the

basis for that opinion.

1 The ISA (NZ) auditing standards are scoped so that they apply to audits of “historical financial information.However, for the purposes of the Auditor-General’s auditing standards and statements, all references to “historical financial information” should be read as the audit of “historical financial and historical performanceinformation”.



Definitions










Summary financial and

performance information

means the financial and performance information that

is derived from the full financial and performance

information contained in the annual report of a public

entity, but that contains less detail than the annual

report while still providing a structured representation

consistent with that provided in the annual report.

Requirements

Procedures on the summary financial and performance information to be carried out as part of the annual audit on behalf of the Auditor-General

7. The Appointed Auditor shall carry out audit procedures on the summary financial and

performance information as part of the annual audit, and the summary audit report shall

be signed “on behalf of the Auditor-General”.

Use of template audit reports issued by the OAG

8. The Appointed Auditor shall use audit report templates issued by the OAG as the basis

for all audit reports issued on summary financial and performance information. A

template is contained in Appendix 1. Other directions may be issued by the OAG from

time to time.

9. The Appointed Auditor shall consult with the OAG on any significant departures from

any audit report template, or other direction, issued by the OAG.



Signing of summary audit reports

10. All summary audit reports, except those where the Auditor-General directs otherwise,

shall be personally signed by the Appointed Auditor. However, the Auditor-General

reserves the right to sign any summary audit report after giving due notice to the

Appointed Auditor. (See paragraph A1)

Modifications to summary audit reports

11. The Appointed Auditor shall consult with the Accounting and Auditing Policy team

before issuing a summary audit report if the Appointed Auditor seriously considers

issuing a summary audit report when they conclude that the summary financial and

performance information:

(a) has not been derived from the full financial and performance information; and/or

(b) is not consistent, in all material respects, with the full financial and performance

information, in accordance with FRS-43: Summary Financial Statements, or

PBE FRS-43: Summary Financial Statements, as appropriate.

12. The Accounting and Auditing Policy team will request the Appointed Auditor to prepare

a submission to the Auditor-General’s Opinions Review Committee (the ORC) for the

circumstances in paragraph 11 above, unless there is clear precedent supporting the

issue of the proposed audit report.


13. The Appointed Auditor shall forward to the OAG a copy of all summary audit reports

issued, in keeping with the requirements set out in AG-1: Reporting to the OAG.

***


Signing of summary audit reports (See paragraph 10)

A1. The Auditor-General or designated representative may sign a summary audit report

instead of the Appointed Auditor if the Appointed Auditor is unwilling to sign the

summary audit report because they have been directed to use particular wording with

which they disagree.


AG

ISA

(NZ)

810

(Rev

ised

) Sum

mar

y fin

anci

al a

nd p

erfo

rman

cein

form

atio

n

App

endi

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sum

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a fa

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esen

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amew

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hat i

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rt pe

rform

ance

info

rmat

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in a

sta

tem

ent o

f per

form

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.

Title

and

add

ress

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ctio

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the

sum

mar

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dit r

epor

tIS

A (N

Z) 8

10(R

evis

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equi

rem

ents

and

cor

resp

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AG p

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[Firm

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The

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t rep

ort s

hall

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rinte

d on

the

lette

rhea

d of

the

audi

ting

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IND

EPEN

DEN

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DIT

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Para

grap

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Z16.

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SA (N

Z) 8

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evis

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ting

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the

repo

rt

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n in

depe

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itor.

TO T

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F[N

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MM

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EMEN

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UM

MAR

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Para

grap

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SA (N

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Unl

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Indi

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Offi

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AG

ISA

(NZ)

810

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810

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men

ts a

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sum

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e au

dito

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is n

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agra

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1(g)

ofI

SA (N

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evis

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s th

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mar

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men

ts m

ay b

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ted

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n th

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te o

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rt on

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audi

ted

finan

cial

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. In

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cas

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mm

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cial

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cts

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nt to

the

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audi

tor’s

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rt on

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audi

ted

finan

cial

sta

tem

ents

.

Ref

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ce to

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full

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cial

sta

tem

ents

and

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full

stat

emen

t of

perf

orm

ance

,and

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rt th

ereo

nse

ctio

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the

sum

mar

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dit r

epor

tIS

A (N

Z) 8

10 (R

evis

ed) r

equi

rem

ents

and

cor

resp

ondi

ng O

AG p

olic

ies

The

full

finan

cial

sta

tem

ents

and

the

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emen

t of p

erfo

rman

ce a

nd o

ur a

udit

repo

rt th

ereo

n

We

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esse

d an

unm

odifi

ed a

udit

opin

ion

on th

e fu

ll fin

anci

al s

tate

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ts a

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e fu

ll st

atem

ent o

f

perfo

rman

ce fo

r the

yea

r end

ed [X

XM

M 2

0XX]

in o

ur a

udito

r’s re

port

date

d [X

XM

M 2

0XX

].

Par

agra

ph N

Z 16

.1(d

) of I

SA

(NZ)

810

(Rev

ised

) req

uire

s id

entif

icat

ion

of th

e au

dite

d

finan

cial

sta

tem

ents

.

Issu

ed 0

3/17

Offi

ce o

f the

Aud

itor-G

ener

al3

-540

6

AG

ISA

(NZ)

810

(Rev

ised

) Sum

mar

y fin

anci

al a

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erfo

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cein

form

atio

n

[Gov

erni

ng b

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spon

sibi

litie

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ctio

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the

sum

mar

y au

dit r

epor

tIS

A (N

Z) 8

10 (R

evis

ed) r

equi

rem

ents

and

cor

resp

ondi

ng O

AG p

olic

ies

[Gov

erni

ng b

ody]

’s re

spon

sibi

lity

for t

he s

umm

ary

finan

cial

sta

tem

ents

and

the

sum

mar

y st

atem

ent o

f per

form

ance

The

[Gov

erni

ng b

ody]

is re

spon

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[nam

e of

entit

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r the

pre

para

tion

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e

sum

mar

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men

ts a

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e su

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8

AG-1 Reporting to the OAG

AUDITOR-GENERAL’S AUDITING STANDARD 1REPORTING TO THE OAG

ContentsPage

Introduction 3 - 8001 Scope of this Standard 3 - 8001 Application 3 - 8001 Background 3 - 8001

Objectives 3 - 8002



Appendix 1 – Immediate reporting 3 - 8003

Appendix 2 – Reporting the results of the annual audit 3 - 8008

Appendix 3 – Reporting on engagements other than the annual audit 3 - 8010

Appendix 4 – Reporting biannually on events or situations that could lead to a

potential claim 3 - 8012



Introduction

Scope of this Standard

1. This Auditor-General’s Auditing Standard establishes the Auditor-General’s

requirements for reporting to the OAG.

Application

2. Compliance with this Standard is mandatory for Appointed Auditors who carry out

annual audits on behalf of the Auditor-General.



April 2017.

4. Audit briefs, or any other direct correspondence to the Appointed Auditor, may require

specific information (either information required by, or in addition to, this Standard) to

be returned to the OAG on specified dates. This information shall be returned to the

OAG by the date specified in that audit brief or other direct correspondence.

Background

5. The effectiveness of the Auditor-General is largely dependent on the Appointed

Auditor keeping the OAG informed of significant issues affecting public entities in a

timely manner. The Appointed Auditor is the Auditor-General's "eyes and ears" on the

ground and is expected to freely communicate to the OAG any significant information

including that of a sensitive or confidential nature.

6. The reporting requirements outlined in this Standard are the minimum requirements,

and the Appointed Auditor should not feel constrained in communicating any issues

to the OAG as the minimum requirements are intended to ensure that the Auditor-

General is:

(a) adequately apprised, in a timely way, of significant matters related to the

annual audit in respect of the public entities;

(b) able to plan and ensure that the requisite audit activities are carried out

through the annual audit or engagements other than the annual audit, on a

timely basis; and

(c) able to monitor the Appointed Auditor’s performance.



Objectives


(a) immediately report to the OAG the occurrence of any of the significant issues

identified in Appendix 1;

(b) formally report the results of annual audits to the OAG as outlined in Appendix

2;

(c) formally report the results of engagements other than the annual audit to the

OAG as outlined in Appendix 3; and

(d) provide certifications, where appropriate, on behalf of their Audit Service

Provider (ASP), declaring the circumstances or occurrence of any events or

situations that could lead to a potential claim against the ASP or the Auditor-

General as outlined in Appendix 4.

Definitions

8. For the purpose of this Auditor-General’s Auditing Standard, the defined terms have








Requirements

9. The OAG’s reporting requirements are classified into a number of different categories,

each with different reporting deadlines and information that shall be sent to the OAG.

The Appointed Auditor shall report to the OAG in keeping with the requirements

outlined in each of the following Appendices:

(a) Appendix 1: Immediate reporting;

(b) Appendix 2: Reporting the results of the annual audit;

(c) Appendix 3: Reporting on engagements other than the annual audit; and

(d) Appendix 4: Reporting biannually on events or situations that could lead to a

potential claim.


AG-1 Reporting to the OAG Appendix 1

Appendix 1 – Immediate reporting

This appendix covers the following topics:

Introduction

Advising the OAG about public-entity-specific issues

Advising the OAG about professional indemnity insurance issues

Making submissions to the Auditor-General’s Opinions Review Committee

Notifying the OAG about significant changes to public entities

Introduction

A1.1 Immediate reporting covers those situations where an issue is of such significance or risk

that the Appointed Auditor shall advise the OAG about it as soon as it comes to their

attention. Examples of immediate reporting fall into five categories:

- where an ASP or an Appointed Auditor has identified a breach, or there is

reason to believe that a breach may arise in the future, of the independence

requirements of AG PES 1 (Revised): Code of ethics for assurance

practitioners;

- where any public-entity-specific issues arise that are considered significant,

including certain non-compliance with laws and regulations, the existence of

fraud or suspected fraud, and/or any issues surrounding effectiveness and

efficiency, waste, or a lack of probity or financial prudence;

- where any limitations or material circumstances occur that could affect the

ASP’s professional indemnity insurance over the period of the engagement, or

circumstances that could lead to a potential claim against the ASP or the

Auditor-General;

- where the Appointed Auditor makes a submission to the Auditor-General’s

Opinions Review Committee (the ORC); and

- where the Appointed Auditor identifies any significant changes to a public entity

such as:

- an entity has been established that is a public entity;

- a public entity has been disestablished or ceased operating;

- an existing entity has become a public entity; or

- an existing entity has ceased being a public entity.

Advising the OAG about public-entity-specific issues

A1.2 The Appointed Auditor shall immediately inform the OAG about the following public-

entity-specific issues:



- Where the acceptance and continuance procedures carried out by the

Appointed Auditor before planning the annual audit, as required by AG PES

3, indicate the presence of circumstances and/or risks that would have

caused the engagement to be declined. The Appointed Auditor shall contact

the Assistant Auditor-General – Accounting and Auditing Policy.

- Details of all suspected or actual fraud. Guidance is provided in AG ISA (NZ)

240: The auditor’s responsibilities relating to fraud in an annual audit.

- Any information that is requested by a third party that was obtained while

carrying out work on behalf of the Auditor-General (guidance is provided in AG

PES 1 (Revised)). The Appointed Auditor shall contact the Assistant Auditor-

General – Legal.

- Details of any significant issues of effectiveness and efficiency, waste, or alack of probity or financial prudence. Guidance is provided in AG-3: The

auditor’s approach to issues of effectiveness and efficiency, waste, and lack

of probity or financial prudence. The Appointed Auditor shall contact either the

Assistant Auditor-General – Parliamentary Group or the Assistant Auditor-

General – Local Government.

- Details or information of any non-compliance with laws and regulationsthat:

- is material, and for which the OAG has not provided guidance;

- calls into question the ethics or behaviour of management and/or

those charged with governance or where fraud is suspected; or

- where management and/or those charged with governance are

suspected of being involved in any deliberate non-compliance with a

law or regulation.

Guidance is provided in AG ISA (NZ) 250: Consideration of laws and

regulations. The Appointed Auditor shall contact either the Assistant Auditor-

General – Accounting and Auditing Policy or the Assistant Auditor-General –

Legal.

- Details of the findings of any substantial or significant external reviews conducted over the activities of the public entity. The Appointed Auditor

shall contact either the Assistant Auditor-General – Parliamentary Group or the

Assistant Auditor-General – Local Government.

- For government departments, details of any actual or potential breach of an appropriation or expenditure incurred not for lawful purposes. Guidance is

provided in AG-2: The appropriation audit and the controller function. The

Appointed Auditor shall contact the Assistant Auditor-General – Parliamentary

Group.

- Details of any other issue that is likely to have national or parliamentary implications or has implications for the local community that are so



significant that it is likely to attract the attention of the media. Guidance is

provided in AG PES 1 (Revised). The Appointed Auditor shall contact either the

Assistant Auditor-General – Parliamentary Group or the Assistant Auditor-

General – Local Government.

- Details of any news media enquiries that the Appointed Auditor should refer to the OAG. Guidance is provided in AG PES 1 (Revised). The

Appointed Auditor shall contact either the Assistant Auditor-General –

Parliamentary Group or the Assistant Auditor-General – Local Government.

- Any other matters specified in the other time-bound categories of information that, because of their sensitivity, should be reported to the OAG earlier. An example would be where the entity is exhibiting early warning

signs that if, individually or in combination, are left unchecked would be likely

to cause a failure in the entity’s ability to meet its objectives or functions. The

Appointed Auditor shall contact either the Assistant Auditor-General –

Parliamentary Group or the Assistant Auditor-General – Local Government.

- Details of any prior period error that is material. The Appointed Auditor shall

contact the Assistant Auditor-General – Accounting and Auditing Policy.

- When a Group or Component Appointed Auditor has difficulties applying the requirements of AG ISA (NZ) 600. In this situation the Group or Component

Appointed Auditor shall contact the Assistant Auditor-General – Accounting

and Auditing Policy.

- When a Group or a Component Appointed Auditor identifies that the work of a Group Appointed Auditor, a Component Appointed Auditor, or a component auditor may be insufficient in accordance with paragraph 43 in

ISA (NZ) 600. In this situation the Group or Component Appointed Auditor shall


- Where a Group Appointed Auditor is considering communicating with management, or those charged with governance, concerns about the quality of a component auditor’s work in accordance with paragraph 49(c) in

ISA (NZ) 600. In this situation the Group or Component Appointed Auditor shall


- Where the Appointed Auditor has concerns about the performance report of the public entity, including whether the Appointed Auditor is concerned about

the appropriateness of the content or the verification of the content of the

performance report. Guidance is provided in AG-4: The audit of performance

reports.



Advising the OAG about professional indemnity insurance issues

A1.3 The Appointed Auditor shall immediately inform the Assistant Auditor-General – Legal

about any limitations or material circumstances that occur that could affect the ASP’s

professional indemnity insurance over the period of the engagement, or circumstances

that could lead to a potential claim against the ASP or the Auditor-General. These could

include (but are not limited to):

- details of any limitations or circumstances that could reduce the level of cover;

- details of limitations or circumstances that could cause the insurance policy to

be defective or voidable by the insurers;

- details of limitations or circumstances that could cause the policy coverage to

be no longer effective during the period of the engagement with the Auditor-

General;

- details of circumstances that materially affect the insurance policy excess (or

any related self-insurance or personal coverage arrangements) that could

reduce or limit the effectiveness of cover;

- details of any claim made against the Auditor-General or ASP (when acting for

the Auditor-General) received by the ASP; or

- details, after becoming aware, of information or knowledge that could give rise

to a claim against the Auditor-General or ASP (as an agent for the Auditor-

General), including:

- details of frauds or suspected frauds identified in the public entity;

- details of possible litigation arising out of any sale, takeover, or capital

restructuring of the public entity;

- details of failure of public entity investees or major debtors;

- details of receipt of notice from, or information as to any intention by,

another party to claim against the Auditor-General or the ASP (either

verbally or in writing); and

- details of the discovery of reasonable cause to suspect any dishonest

fraudulent or malicious act(s) or omission(s) of any past or present

ASP(s), Appointed Auditor, or staff employed by the ASP that have

been associated with the audit of the public entity.

Making submissions to the Auditor-General’s Opinions Review Committee

A1.4 The Appointed Auditor shall comply with the requirements of AG ISA (NZ) 700 that

require certain matters to be referred to the OAG Accounting and Auditing Policy

team that may need to be reported in the auditor’s report. Depending on their severity,

such matters may require approval from the ORC.



Notifying the OAG about significant changes to public entities

A1.5 The Appointed Auditor shall immediately notify the OAG about significant changes to a

public entity through the ASD Online (ASD Online is the external interface of the Audit

Status Database – ASD – see A2.2). These changes could include:

- details of an entity that has been established which is a public entity (using the

new entity button in the entity screen);

- details of a public entity that has or is ceasing operations or is being

disestablished (using the entity ceasing button in the entity screen);

- details of changes in management or those charged with governance (in the

officer details panel in the entity screen); or

- details of changes in public entity address details (in the contact details panel in

the entity screen).



Appendix 2 – Reporting the results of the annual audit


Introduction

Reporting completed annual audits

Documents summarising the audit conclusions

Introduction

A2.1 This Appendix covers the formal reporting obligations of the Appointed Auditor to the

OAG immediately following the issue of the audit report(s) signed by the Appointed

Auditor on behalf of the Auditor-General. The formal reporting obligations apply where

the engagement(s) are being carried out in keeping with the requirements of the Audit

Engagement Agreement (otherwise known as the annual audit contract).

Reporting completed annual audits

A2.2 The Auditor-General manages the audit completion returns of all public entities

through the Audit Status Database (the ASD). The ASD is an internal database that

allows the Appointed Auditor and their delegates (for example, audit managers and

administration staff) to enter information relating to an audit directly into the ASD. The

ASD has an external interface called the ASD Online.

A2.3 The Appointed Auditor shall use the ASD Online to report the results of all completed

annual audits. Annual audits that are due are listed in each Appointed Auditor’s

individual portfolio list.

A2.4 The Appointed Auditor shall use their email address and a password to access the

ASD Online. The Appointed Auditor can request a password through the ASD Online

login screen if they have forgotten their previous one. The Appointed Auditor may

change their password at any time.

A2.5 The Appointed Auditor shall input the date of the audit report in the ASD Online within 24

hours of issuing the audit report.

A2.6 The ASD Online updates the Appointed Auditor’s portfolio list when each audit

completion return is entered and also outlines the reporting requirements for each public

entity. The portfolio list will identify and list what information needs to be sent to the OAG

and when. The information needs are usually driven off the sector requirements listed in

the applicable audit brief and is reflected in the ASD.



A2.7 The audit completion return shall be sent to the OAG within the timeframes listed in

paragraph A2.6. We recommend that the Appointed Auditor keep a copy of the audit

return on each individual audit file.

A2.8 Further guidance on using the ASD Online is contained in each applicable audit brief.

Documents summarising the audit conclusions

A2.9 The Appointed Auditor shall complete a document that summarises the audit

conclusions for each annual audit. Audit briefs detail when the use of an OAG

template is mandatory. In all other cases, its use is optional.

A2.10 The Appointed Auditor shall ensure that they use the correct template as provided by

the OAG, which meets the OAG’s specific reporting requirements.

A2.11 The Appointed Auditor shall not make the document that summarises the audit

conclusions available to the public entity for review or comment or clearance.1

A2.12 Appointed Auditors shall ensure that each document that summarises the audit

conclusions covers the misstatements, audit issues, and areas of interest or risks

identified during the annual audit along with the audit response.

1 The document that summarises the audit conclusions is part of the audit file and covered by the disclosurerequirements of section 30 of the Public Audit Act 2001.



Appendix 3 – Reporting on engagements other than the annual audit


Introduction

Accepting and reporting on engagements of possible media or political interest or of a sensitive nature

Reporting on performance audits, inquiries and other work (other than the annual audit)

Introduction

A3.1 For the purposes of reporting on engagements other than the annual audit, “other

work” engagements means all other work that has been carried out by staff of the

Auditor-General or by an ASP in relation to a public entity (audited by the ASP). Other

work excludes annual audits, performance audits, and inquiries.

A3.2 The Appointed Auditor shall ensure that they follow the requirements of AG PES 1

(Revised): Code of ethics for assurance providers when carrying out engagements

other than the annual audit. AG PES 1 (Revised) includes a requirement to consult

with the OAG before accepting any engagement other than the annual audit where

uncertainty exists about an independence matter.

Accepting and reporting on engagements of possible media or political interest or of a sensitive nature

A3.3 Acceptance of, and reporting on, engagements of possible media or political interest or

of a sensitive nature, requires careful consultation with the OAG. The requirements

covering this category of engagements are set out in AG PES 1 (Revised). These

requirements include:

- consulting with the OAG before accepting any engagement;

- sending a copy of the draft report to the relevant OAG sector manager for

clearance before the report is sent to the public entity; and

- sending a copy of the final report to the OAG Database Administrator within 24

hours of signing the report.

Reporting on performance audits, inquiries, and other work (other than the annual audit)

A3.4 The Appointed Auditor shall provide the following information through the ASD Online as

part of reporting completed annual audits:

- a copy of the report issued for the engagement;



- if applicable, a copy of the information on which the report has been issued – for

example, if there is a report prepared by the entity on which the ASP has issued

an opinion;

- a description of the engagement;

- the name of the engagement partner or director;

- the actual fee for the engagement for the period covered by the annual audit;

- a reconciliation of the fees paid to the auditor for engagements other than the

annual audit (as disclosed to the OAG in accordance with this standard) to the

fees paid to the auditor for engagements other than the annual audit (as

disclosed in the entity’s financial statements);

- whether the report was signed on behalf of the Auditor-General; and

- whether the engagement was an assurance engagement based on the OAG’s

definition of an assurance engagement in AG PES 1 (Revised).



Appendix 4 – Reporting biannually on events or situations that could lead to a potential claim

A4.1 ASPs shall send to the OAG, biannually in May and November each year, a certification

declaring the circumstances or occurrence of any events or situations that could lead to

a potential claim against the ASP or the Auditor-General.

A4.2 This certificate should confirm the advice previously supplied by the ASP to the OAG at

the time the circumstances, events, or situations occurred.

A4.3 A copy of the certification is not included in this Standard because the OAG will send a

copy of the appropriate certification for each biannual period to each Appointed Auditor

before each due date. The reporting requirements and contact details for each

certification is outlined on the certification.


AG-2 The appropriation audit and the controller function

AUDITOR-GENERAL’S AUDITING STANDARD 2THE APPROPRIATION AUDIT AND THE CONTROLLER FUNCTION

ContentsPage


Scope of this Standard 3 - 8101


Objectives 3 - 8101



Planning 3 - 8105

Fieldwork 3 - 8108

Reporting 3 - 8110


Planning 3 - 8112

Fieldwork 3 - 8119

Reporting 3 - 8120

Appendix 1 – Background 3 - 8122

Appendix 2 – The appropriation process 3 - 8129

Appendix 3 – Key requirements of the Public Finance Act 1989 3 - 8132



Introduction



requirements in relation to the audit of appropriations made by Parliament and the

particular function of the Controller.

Application

2. Compliance with this Standard is mandatory for Appointed Auditors who audit

appropriations administered by departments.

3. This Statement applies to audits of appropriations for periods beginning on or after 1

April 2017.

Objectives

4. The objectives of the Appointed Auditor are to audit the appropriations administered

by departments, as required by section 15(2) of the Public Audit Act 2001, by:

(a) assessing whether the department has appropriate internal control to:

(i) enable effective monitoring of expenditure against appropriation or

other statutory authority; and

(ii) provide reasonable assurance that the Public Finance Act 1989

(PFA) and any other legislation relating to appropriations has been

complied with; and

(b) obtaining sufficient and appropriate audit evidence to provide reasonable

assurance about whether expenses and capital expenditure have been

incurred as expressly authorised by an appropriation or other statutory

authority;

(c) forming a conclusion about whether the expenses and capital expenditure

are properly disclosed in the department’s external accountability

document(s) and comply with the requirements of the PFA; and

(d) reporting as required by this Standard.



Definitions

5. For the purpose of this Auditor-General’s Auditing Standard, the defined terms have

the meanings attributed in:

(a) the Glossary of Terms issued by the New Zealand Auditing and Assurance





(b) the Auditor-General’s Glossary of Terms; and

(c) the list below. Please note that these definitions are not necessarily the same

as the definitions used in the PFA.

Appropriation means an authorisation by Parliament, in an

Appropriation Act, for the Crown or an Office of

Parliament to incur expenses or capital expenditure up

to a specified amount and for a specified scope and

period.

Appropriation administrator means the department or Office of Parliament that is

identified as administering the appropriation.

Breach of appropriation means expenditure incurred without, or in excess of,

an appropriation and is not authorised by, or under

any, other statutory authority.

Class of outputs means a group of (usually similar) outputs combined

for the purposes of appropriations.

Commitments means future obligations on contracts that have been

entered into at balance date.

Department means any department that is responsible for

administering a vote under the PFA, and includes an

Office of Parliament.

Estimates means a statement in any form (usually the Estimates

of Appropriations) that describes and supports the

appropriations being sought in the first Appropriation

Bill that relates to a financial year, and contains the

information referred to in section 14 of the PFA.



FSG means the annual financial statements of the

Government of New Zealand.

Imprest Supply Act is an Act of Parliament that gives general authority to

the Crown to spend public money and incur expenses

and capital expenditure for the day-to-day business of

government up to a specified amount, in advance of an

appropriation.

Office of Parliament means the Parliamentary Commissioner for the

Environment (and that Commissioner’s office), the

Office of the Ombudsmen but, for the purposes of this

Standard, does not include the Office of the Controller

and Auditor-General.

Other authority or other

statutory authority

means authority to incur expenses or capital

expenditure, or to spend public money, by or under an

Act of Parliament. It includes a permanent legislative

authority in another Act, authority under sections 26A

and 26B of the PFA, and the authority provided by

Imprest Supply Acts.

Outputs means the goods or services that are produced by the

public entity. The term refers only to the goods and

services produced for third parties; it excludes goods

and services consumed within the reporting entity

(such as services provided by legal, research, HR, and

IT functions to other functional areas within the same

entity, which are often referred to as “internal

outputs”).1

Public money means all money received by the Crown, including the

proceeds of all loans raised on behalf of the Crown

and any other money that the Minister of Finance or

the Secretary to the Treasury directs to be paid into a

Crown bank account or departmental bank account,

and any money held by an Office of Parliament. It does

not include money held in trust as trust money, or

1 The Local Government Act 2002 uses the term “activity” to refer to goods and services. The term “outputs” is used in this Standard to refer to goods and services, and the term “activity” carries its common meaning.



money received and held by Crown entities.

Statements of expenses and

capital expenditure

means the information on the use of the appropriations

a department administers, any spending without an

appropriation or other authority, and any capital

injections that a department must provide in its annual

report under section 45A of the PFA.

Supplementary estimates means a statement in any form that is presented to the

House of Representatives in support of an

Appropriation Bill, other than the first relating to a

financial year, seeking additional appropriations.

Unauthorised expenditure means expenses or capital expenditure not authorised

by an appropriation or any other authority (such as

section 26B of the PFA or an Imprest Supply Act).

Uncorrected misstatement means a deliberate or unintentional misstatement or

error, in the financial statements or statements of

appropriations, including the omission of an amount or

disclosure or a misclassification of an amount that has

not been corrected.

Unappropriated expenditure means the expenses or capital expenditure that are

incurred:

- without an appropriation;

- beyond the amount of an appropriation;

- for a purpose outside the scope of the

appropriation (subject to the rules relating to

transfers between appropriations); or

- after the appropriation has lapsed.

Vote means an appropriation or grouping of appropriations

that is the responsibility of a designated Minister or

Ministers and administered by a department, or the

responsibility of the Speaker and administered by an

Office of Parliament, the Office of the Clerk of the

House, or the Parliamentary Service.



Requirements

Planning

6. The Appointed Auditor shall plan the appropriation audit in conjunction with the

annual audit to ensure the objectives of the appropriation audit are met. (See

paragraphs A1 - A13)

Understanding the appropriation process

7. The Appointed Auditor shall obtain an understanding of the appropriation process

relevant to carrying out the appropriation audit. (See paragraph A14)

Assessment of internal control

8. The Appointed Auditor shall obtain an understanding, and assess the adequacy, of the

internal control design and implementation by a department to enable effective

monitoring of expenditure against appropriations or other statutory authority. In

performing this assessment, the Appointed Auditor shall consider if there are adequate

controls in place to ensure that:

(a) expenses and capital expenditure incurred are for lawful purposes;

(b) expenses and capital expenditure incurred are within the scope, amount, and

period of an appropriation;

(c) expenses and capital expenditure incurred are in accordance with financial

delegations; and

(d) the procedures for cost allocation to all appropriation types are reasonable.

(See paragraphs A15 - A16)

9. If a department is administering an appropriation that other departments are also using,

the Appointed Auditor shall assess the adequacy of the controls that support the

administering department’s (known as the “appropriation administrator”) monitoring of

the use of the appropriation by others. (See paragraphs A17 - A18)

Reporting on the adequacy of the department’s internal control

10. After assessing whether the department has appropriate internal control to:

(a) enable effective monitoring of expenditure against appropriation or other

statutory authority; and



(b) provide assurance that the PFA and any other legislation relating to

appropriations have been complied with;

the Appointed Auditor shall report any significant internal control deficiencies, or matters

where internal control could be improved, in a management letter to the department.

Scope considerations

11. The Appointed Auditor’s consideration of the scope of expenses and capital expenditure

shall include a review of the adequacy of the scope descriptions of appropriations

administered by the department. (See paragraphs A19 - A21)

Consideration of key legislative requirements and supporting guidance

12. The Appointed Auditor shall ensure that the audit approach includes audit procedures

that will provide reasonable assurance that key requirements of the PFA, the Treasury

Instructions, and any applicable Cabinet Office circulars have been complied with. The

Appointed Auditor needs to remain alert throughout both the annual audit and the

appropriation audit for any concerns in relation to unappropriated expenditure, including

that arising from the scope of appropriations and/or the designation of expenses as re-

measurements.

13. The Appointed Auditor shall assess, in accordance with section 4(1) of the PFA, whether

expenses and capital expenditure have been incurred without the express authority of an

appropriation or other statutory authority.

14. The Appointed Auditor shall assess whether expenditure treated as a significant re-

measurement of an asset or a liability is classified correctly and completely in

accordance with the PFA and the Treasury guidance. Incorrect classification of

expenses as a re-measurement represents a significant risk in the appropriation audit

because an expense that arises from a re-measurement of an asset or a liability does

not require an appropriation or other statutory authority (see section 4(2) of the PFA).

Any issues related to re-measurements should be referred to the Assistant Auditor-

General – Accounting and Auditing Policy for advice.

15. The Appointed Auditor shall assess whether expenses or capital expenditure have been

incurred, not only in keeping with an appropriation but also with the legal capacity and

authority of the department to engage in the activity concerned. (See paragraphs A22 -

A23)



16. The Appointed Auditor shall obtain sufficient and appropriate audit evidence to satisfy

themselves that the department has complied with section 26A of the PFA. Section 26A

regulates the transfer of resources between output expense appropriations. (See

paragraph A24)

17. The Appointed Auditor shall sight the approval by the Minister2 where an appropriation

has been exceeded, as permitted under section 26B of the PFA.3 (See paragraph A25)

18. The Appointed Auditor shall assess, in accordance with section 26D and 45A of the

PFA, whether expenditure incurred without, or in excess of, an appropriation is properly

disclosed in the Statement of Expenses and Capital Expenditure Incurred Without, or in

Excess of, Appropriation or Other Authority.4 All such expenditure shall be reported

regardless of the amounts involved.

19. The Appointed Auditor shall assess, in accordance with section 45A of the PFA, whether

actual expenses and capital expenditure against each appropriation administered by a

department and, where applicable, each category of expenses or non-departmental

capital expenditure included in a multi-category appropriation administered by a

department, is properly disclosed in the Statement of Budgeted and Actual Expenses

and Capital Expenditure Incurred Against Appropriations.5

20. The Appointed Auditor shall obtain sufficient and appropriate audit evidence to satisfy

themselves that the department has complied with the requirements in the Treasury

Instructions and any applicable Cabinet Office circular in respect of alterations of

resource allocations. (See paragraphs A26 - A28)

Documentation – the overall audit strategy and audit plan

21. The overall audit strategy and audit plan described in ISA (NZ) 300 shall document:

(a) the objectives to be met for both the annual audit and the appropriation audit;

and

(b) how those objectives are to be met.

2 Minister is defined in section 2 of the PFA.3 Section 26B of the PFA states that “the Minister may, in that financial year or not later than 3 months after the

end of that financial year, approve in respect of that appropriation up to the greater of:(a) an amount not exceeding $10,000; or(b) 2% of the total amount appropriated for that appropriation.”

4 Required by section 45A(c) of the PFA.5 Required by section 45A(a) of the PFA.



Fieldwork

22. The Appointed Auditor shall carry out fieldwork to meet the objectives of the

appropriation audit, as described in paragraph 4. (See paragraphs A29 – A31)

23. During the appropriation audit, the Appointed Auditor shall be alert to the possibility

that appropriations or other statutory authorities are being managed to maintain future

baselines or to avoid reporting a surplus, or that an appropriation or other authority

has been breached or may be breached in the future. The Appointed Auditor shall

also consider whether a breach of an appropriation or other statutory authority may

be concealed. The following situations may indicate an actual or potential breach of

an appropriation or other statutory authority:

(a) poor budgetary systems and procedures;

(b) inadequate systems and procedures for monitoring performance against

appropriations (and the general principle of legality (see Appendix 1));

(c) a breakdown of systems and procedures for monitoring performance against

appropriations and other statutory authorities during the year;

(d) poorly developed cost allocation systems, or inadequate procedures for cost

allocations to each appropriation type;

(e) changes in the basis of cost allocation during, or at the end of, the year;

(f) miscoding of activities or large expenditure items between appropriations or

other statutory authorities;

(g) misclassification of operating expenses as capital expenditure, or vice versa;

(h) incorrectly assessing an expense to be a re-measurement or failing to treat it

as a re-measurement when it should be;

(i) unauthorised transfers between output expense appropriations;

(j) netting of expenses against revenue or vice versa;

(k) large or unusual balance date adjustments;

(l) allocating expenses and/or capital expenditure to the incorrect reporting

period; and

(m) unusual payments or trends, higher than expected expense patterns, or

unusual or inconsistent expense recognition.

Evidential requirements

24. The Appointed Auditor shall ensure that sufficient and appropriate audit evidence is

obtained through the performance of audit procedures to enable reasonable conclusions

to be drawn as to whether the requirements of appropriations and other statutory

authorities have been adhered to.



Appointed Auditor’s Responsibilities for the OAG Controller Report

25. The Appointed Auditor shall, on receipt of the monthly OAG Controller report, review

the report and follow up on any issues arising that relate to the departments they deal

with. The Central Controller Team may contact the Appointed Auditor during the

course of carrying out the monthly procedures to follow up any issues relating to

departments they audit.

Assessment of errors

26. The Appointed Auditor shall assess all uncorrected misstatements noted during both the

annual audit and appropriation audit in terms of their effect on:

(a) each individual appropriation or other statutory authority; and

(b) the financial statements of the department.

27. Where errors are identified that lead to an appropriation being exceeded, the Appointed

Auditor shall ask that these errors are corrected and, where the correction of an error (or

errors) results in spending outside the bounds of an appropriation, they shall ask that it is

reported in the department's Statement of Expenses and Capital Expenditure Incurred

Without, or in Excess of, Appropriation or Other Authority under section 45A(c) of the

PFA, irrespective of its size. Where the Appointed Auditor has any concerns about the

accuracy or completeness of the department’s reporting of unappropriated expenditure,

this shall also be reported to the engagement director responsible for the audit of the

Financial Statements of the Government (FSG).

Disclosure of unappropriated or unauthorised expenditure

28. The Appointed Auditor shall ensure that the financial statements of each department

fully disclose any unappropriated or unauthorised expenditure, in keeping with the

statutory reporting requirements of the PFA.

Documentation – forming a conclusion

29. The Appointed Auditor shall form a conclusion about whether the objectives of the

appropriation audit (as specified in paragraph 4) have been met.



Reporting

30. The Appointed Auditor shall report any significant issues that arise from the appropriation

audit to both the department and the OAG. Normally, the Appointed Auditor will report

such issues to the Central Controller Team in the OAG and the relevant OAG sector

manager. Where the Appointed Auditor considers that a department has incurred

unplanned or unnecessary expenditure for the purposes of maintaining future baselines

or avoiding reporting a surplus, they shall discuss their concerns with the department. If

the concerns remain, the Appointed Auditor shall raise them with the OAG – normally

with the Central Controller Team and the the relevant OAG sector manager. Such

matters shall also be reported in the management letter to the department.

31. Communication with any Minister will be done directly by the OAG in consultation with

the Appointed Auditor. Reporting to Parliament will be done by the OAG. (See

paragraphs A32 - A33)

32. The Appointed Auditor shall report to the OAG and to the engagement director

responsible for the audit of the FSG, in keeping with instructions specified in the

government departments audit brief each year.

Reporting unappropriated or unauthorised spending during the year (See paragraphs A34 -

A40)

33. The Appointed Auditor shall immediately advise the Central Controller Team in the OAG

where unappropriated or unauthorised spending is likely to occur, or has occurred, or

where any unlawful action has been identified (irrespective of whether the spending is

“material” in terms of the annual audit of the statements prepared by a department and

that are covered by our audit report). Where the Appointed Auditor is uncertain about

whether unappropriated or unauthorised spending has actually occurred or is likely to

occur, they shall clarify the situation with the department and, if necessary, seek

advice from the Central Controller Team in the OAG.

34. In addition to immediately advising the Central Controller Team in the OAG, the

Appointed Auditor shall also take the following actions:

(a) immediately raise the matter with the Chief Executive of the department; and

(b) advise the department to:

(i) immediately inform its Minister in writing;

(ii) immediately contact its Treasury Vote Analyst; and

(iii) seek authority either from the Minister of Finance or from Cabinet to

incur expenses or capital expenditure under imprest supply, and



have the amounts included in the next Appropriation Bill and (if

appropriate) the Supplementary Estimates.

35. If the Appointed Auditor becomes aware of expenses or capital expenditure that is

being applied for a purpose whose lawfulness is questionable, the Appointed Auditor

shall:

(a) ascertain the nature and extent of the possible legal issue, with the benefit of

legal advice from the OAG as necessary;

(b) ask the department to seek a legal opinion on the matter;

(c) ask the OAG to review the opinion (in the case of a dispute between the

department and the OAG, the OAG may seek its own external legal advice);

and

(d) inform the Chief Executive if external legal advice is being sought, and invite

them to discuss the matter with the responsible Minister.

Where the department has not taken immediate action on actual or likely spending that

is unappropriated or unauthorised, the OAG will formally write to the Chief Executive and

the responsible Minister (in consultation with the Appointed Auditor).

Reporting on audit results

36. The Appointed Auditor shall issue an unmodified opinion as a result of their annual

audit if there is unappropriated or unauthorised spending that is properly disclosed in

the statements prepared by a department, and that are covered by our audit report

(subject to there being no other matters requiring a modification of the audit opinion).

In certain circumstances, it may be appropriate for the Appointed Auditor to consider

including an emphasis of matter paragraph in the audit report to draw readers’

attention to the disclosure of the unappropriated expenditure. Guidance should be

sought from the Assistant Auditor-General – Accounting and Auditing Policy if such

an action is contemplated.

37. The Appointed Auditor shall issue a modified opinion referring to the disagreement over

the disclosure of unappropriated or unauthorised spending where the department has

not properly disclosed the issue. Where the Appointed Auditor considers issuing a

modified opinion, they shall, before issuing that opinion, consult with the Assistant

Auditor-General – Accounting and Auditing Policy at the OAG.

38. Where the Appointed Auditor considers that there are material uncorrected

misstatements in the Statement of Expenses and Capital Expenditure (under section

45A of the PFA) that do not, however, involve unappropriated or unauthorised spending,

they shall follow their normal procedures for considering whether to issue a modified



opinion referring to the disagreement over the disclosure of a material error, where the

department has not properly corrected that error.

39. If the Appointed Auditor seriously considers issuing an adverse opinion or a disclaimer of

opinion on the financial statements or the Statement of Expenses and Capital

Expenditure (under section 45A of the PFA), they shall make a submission to the

Opinions Review Committee of the OAG in keeping with AG ISA (NZ) 700 (Revised).

40. Any concerns that the Appointed Auditor has regarding manipulation of appropriations,

integrity of systems, or other deficiencies that may affect the ability of the department to

effectively monitor its performance against an appropriation or other statutory authority,

shall be included in the management letter to the department.

***


Planning (See paragraphs 6 - 21)

A1. The appropriation audit should be planned in conjunction with the annual audit of the

department. The Appointed Auditor should consider where efficiencies can be

obtained, and which objectives of the appropriation audit can be met concurrently

with the performance of the annual audit.

A2. When the Appointed Auditor carries out the audit of a department, they are

simultaneously carrying out two different, but closely related audits being:

- the annual audit; and

- the appropriation audit.

A3. The primary purpose of the annual audit is to form an opinion on the reliability of the

statements prepared by a department, and that are covered by our audit report. The

auditor’s opinion is reported to the readers of this information in the form of an audit

report, and is supported by a body of evidence that is required to provide “reasonable

assurance”. The auditor’s report is expressed using the term “present fairly, in all

material respects” (or an equivalent term) and that implicitly means the reported

information is evaluated as to whether it is materially misstated. Establishing a

materiality base and level is fundamental to the annual audit.

A4. The appropriation audit, carried out under section 15(2) of the Public Audit Act 2001,

and in accordance with this standard, is carried out in conjunction with the annual



audit. Appointed Auditors are not required to provide greater assurance about

expenses or capital expenditure charged against an appropriation under this standard

other than the “reasonable assurance” standard required for the annual audit.

A5. Appointed Auditors are therefore not required to establish a separate materiality base

and level for the audit of appropriations under this standard. The application of

materiality is confined to the assessment of errors as part of the appropriation audit.

A6. The approach to the audit of appropriations under this standard is based on the

assessment of risks associated with each appropriation, in terms of “what could go

wrong”. What could go wrong, in an appropriation audit context, includes:

- expenses or capital expenditure are incurred without an appropriation;

- expenses or capital expenditure are incurred beyond the amount of an

appropriation;

- expenses or capital expenditure are incurred for a purpose outside the scope

of the appropriation (subject to the rules relating to transfers between

appropriations);

- expenses or capital expenditure are incurred after the appropriation has

lapsed;

- expenses or capital expenditure are incorrectly charged to the wrong

appropriation;

- expenses or capital expenditure are offset against revenue;

- expenses or capital expenditure are incorrectly classified as a re-

measurement;

- frivolous and/or wasteful expenses or capital expenditure are incurred to

utilise an unspent appropriation;

- year-end “adjustments” are made to manipulate the amounts allocated

against appropriations;

- false expenses or capital expenditure are included and purport to reflect valid

expenditure against an appropriation;

- the basis for calculating overheads to an appropriation is unreasonable; and

- the overheads allocated to an appropriation are incorrect.

A7. Having identified “what could go wrong”, Appointed Auditors should then assess the

risk that an individual appropriation could be misstated. This assessment will be

based on the Appointed Auditor’s accumulated knowledge of previous annual audits

and appropriation audits of the department, including:

- prior years’ knowledge, including errors in previous years;

- the inherent nature of the appropriation;

- the integrity of management; and



- potential year-end pressures and incentives.

A8. Where the Appointed Auditor assesses the risk to be significant that an individual

appropriation could be misstated, they should then assess:

- the adequacy of the entity’s control systems and procedures to monitor the

appropriation;

- the likely impact of the work of the Central Controller Team to mitigate this

risk;

- the impact of work planned to be carried out on the annual audit; and

- the impact of any errors found to date, during both the annual audit and

appropriation audit.

A9. The Appointed Auditor should apply this knowledge to assess whether:

- sufficient and appropriate audit evidence can be obtained to form a

conclusion about whether expenses and capital expenditure will be incurred

as expressly authorised by an appropriation or other statutory authority; and

- the department will properly disclose expenses and capital expenditure as

required by the PFA.

A10. If the Appointed Auditor assesses that sufficient and appropriate audit evidence can

be obtained, and that the department will properly disclose expenses and capital

expenditure as required by the PFA (the assessment described in paragraph A9), the

Appointed Auditor should then determine if any additional audit work is required, over

and above the work carried out to achieve the objectives of the annual audit, to form a

conclusion about whether:

- sufficient and appropriate audit evidence was obtained to form a conclusion

on whether expenses and capital expenditure have been incurred as

expressly authorised by an appropriation or other statutory authority; and

- the department has properly disclosed expenses and capital expenditure as

required by the PFA.

A11. The Appointed Auditor should consider the use of efficient audit techniques, such as

analytical review procedures, in carrying out the appropriation audit. Where possible,

reliance should be placed on the system of internal control for monitoring

performance against an appropriation or other statutory authority.

A12. An important aspect of the work to satisfy the appropriation audit is the need to

document all errors found during both the annual audit and the appropriation audit,

and to assess the impact of those errors for the purposes of identifying

unappropriated expenditure.



A13. All errors need to be assessed in light of the impact of the errors on the disclosures

required by the PFA – particularly the disclosures relating to unappropriated

expenditure – to be included in the statements prepared by a department and that are

covered by our audit report. Where the correction of an error (or errors) will give rise

to unappropriated expenditure, the error is considered to be material for the

appropriation audit.

Understanding the appropriation process

A14. Each year the Government puts forward its spending proposals for the coming

financial year in the Budget (usually in May). It formally presents its proposed budget

to Parliament in the form of a Bill called the Appropriation (Main Estimates) Bill, along

with various explanatory documents.

The Bill sets out estimates of what will be spent under each ministerial portfolio – in

general, every ministerial portfolio has a corresponding “Vote” in the budget (for

example, Vote Health sets out all the spending in that portfolio area). Each Vote is

made up of a number of more specific “appropriations”, which are descriptions of a

particular area of activity and the spending approval sought for that area. Each

appropriation has to set out:

- the maximum amount of spending being approved;

- the scope (that is, what the money can be used for); and

- the date on which the appropriation lapses (most appropriations last for one

year).

Once Parliament has considered and approved the Bill, it becomes law and controls

Government spending. In general, any spending outside what has been approved in

this Act of Parliament will be unlawful.

However, the system does recognise the need for some flexibility to respond to

changing events:

- A second Bill during the financial year (the Appropriation (Supplementary

Estimates) Bill) allows the Government to update the initial estimates in the

budget and get approval for those changes.

- The PFA includes several mechanisms for approving minor changes to the

spending authorities approved by Parliament.

- A series of Imprest Supply Acts during each year also give the Government a

general authority to spend up to a specified amount, subject to later inclusion

in an Appropriation Act.



To understand more about the appropriation process, the Appointed Auditor should

be familiar with the following documents:

- the PFA;

- Treasury Instructions and Minister of Finance Instructions (issued under

sections 80 and 80A of the PFA) that outline the operational procedures to be

followed so that the requirements of the PFA are complied with;

- other legislation that affects the functions and powers of the department, and

that may also contain other statutory authorities;

- Treasury circulars and guidance;

- Cabinet Office circulars;

- information contained within this Standard – in particular, Appendices 1, 2,

and 3; and

- relevant sections of the audit brief for Government departments.

Assessment of internal control

A15. Appropriations are made and reported against on an accrual basis. Furthermore, the

full cost of activities, including overhead costs, must be reported against the

appropriation or other authority to which the activity relates. Departments must have

appropriate control systems and procedures so that they can adequately monitor their

expenses and capital expenditure against an appropriation or other statutory

authority.

A16. The ability of a department to adequately monitor performance against an

appropriation or other statutory authority is largely dependent on the quality of its

accountability structures and processes. As a minimum, these structures and

processes should have the following attributes:

- a clear accountability framework established by the responsible Minister, and

achieved through the Minister's relationship with the Chief Executive, and

clear delegations within the department for effective budgeting, monitoring,

and reporting of performance against appropriations and other statutory

authorities;

- a budget for each appropriation or other statutory authority that has been

prepared on a reasonable and transparent basis;

- a process to ensure expenditure cannot be committed:

- in advance of an Imprest Supply Act (before an Appropriation Act has

been passed); or

- in excess of the amount, or outside the scope, or outside the period of

an appropriation or other statutory authority; and



- processes that ensure that all incurred and committed expenditure is

identified and allocated to the correct appropriation or other statutory

authority – this includes the need for an effective accounting system that

records commitments as they arise, and the consistent application of

appropriately based cost allocation systems.

A17. In legal terms, all appropriations are to the Crown as a whole (that is, the Government

collectively). However, to ensure clear responsibility and accountability, every

appropriation has a single appropriation administrator responsible for managing the

appropriation, and reporting to Parliament at the end of the year on how it has been

used. It is possible for departments to incur expenses against an appropriation

administered by another department, with prior approval. In such circumstances, the

appropriation administrator needs to have controls in place to ensure that it is able to

monitor and report fully on the use of appropriations of this nature – described as

“administration and use” appropriations.

A18. In carrying out the appropriation audit of an appropriation administrator, the

Appointed Auditor will need to obtain sufficient and appropriate evidence that the

control systems and procedures within both the appropriation administrator and the

other department(s) adequately monitor expenses and/or capital expenditure against

the appropriation. In doing so, the Appointed Auditor may need to obtain confirmation

from the Appointed Auditor(s) of the other department(s) on the adequacy of the

control systems and procedures of the other department(s) to monitor expenses

and/or capital expenditure charged to the appropriation.

Scope considerations

A19. The Appointed Auditor should consider the scope of appropriations early and

throughout the audit work. One opportunity to consider scope is around the time of

the production of the Estimates of Appropriations for the following year. The scope

description of appropriations should be sufficiently specific so that the wording acts as

an effective constraint against non-authorised activity, while not inappropriately

constraining activity intended to be authorised.

A20. If the scope of an appropriation is unclear on its face, other sources of information –

for example, the more detailed descriptions of purpose contained in the commentary

in the Estimates, or information in Cabinet papers explaining the underlying policy –

can assist in understanding it (it may be necessary to refer to Treasury guidance on

the scope of Appropriations as required). However, it is important to note that the

Estimates are not themselves part of the Appropriation Act – except to the extent that



the Act expressly incorporates them. Ultimately, the interpretation of the scope of an

appropriation is a legal question. The legal team in the OAG is available to provide

advice.

A21. Where concerns about the quality of the scope descriptions are noted, the Appointed

Auditor should refer the matter to the Central Controller Team in the OAG for advice.

If these concerns remain, having received advice from the Central Controller Team,

the Appointed Auditor should discuss these concerns as early as possible with the

department involved. Where the department does not propose to make any changes,

the concerns should be reported in the document summarising the audit conclusions

and in the management letter to the department.

Consideration of key legislative requirements and supporting material

A22. A list of the key requirements of the PFA relevant to the appropriation audit are

contained in Appendix 3.

A23. To be lawful, expenses or capital expenditure must be incurred not only in keeping with

an appropriation, but also with the legal capacity and authority of the department to

engage in the activity concerned. Most activity by Government departments relies on the

general legal capacity of the Crown at common law, and so there are few legal

constraints on the department’s capacity. However, some departments do still have

legislation that defines their functions and, therefore, constrains their general legal

capacity. The Appointed Auditor should seek legal advice, if necessary, from the

Assistant Auditor-General – Legal.

A24. Section 26A of the PFA requires any transfer of resources between classes of outputs

to be approved by Order in Council.

In order to obtain sufficient and appropriate audit evidence to satisfy themselves that the

department has complied with section 26A of the PFA, the Appointed Auditor may select

a sample of approvals of transfers of resources between classes of outputs that have

been approved by Order in Council.

A25. Section 26B of the PFA allows that the Minister6 may approve expenses or capital

expenditure to be incurred in excess of existing appropriation (within limits). Note that

section 26B is only operable during the last three months of any financial year and

the first three months of the following financial year.

6 Minister is defined in section 2 of the PFA.



A26. The imprest supply and supplementary estimates processes allow further flexibility for

the Government to alter resource allocations while maintaining parliamentary

scrutiny.

A27. The processes to alter resource allocations are outlined in the Treasury Instructions,

as well as any applicable Cabinet Office circular. The broad approach is that after the

passing of the first Appropriation Act for the financial year, the prior approval of

Cabinet is required:

- for an appropriation of any expenditure of public money or incurring of

expenses or liabilities that are not in the main Estimates;

- to include these appropriations in the next Supplementary Estimates; and

- to meet such expenses or capital expenditure from imprest supply.

A28. Cabinet may approve delegations through Cabinet Office circulars to allow Ministers,

usually the Minister of Finance and the relevant Vote Minister (Joint Ministers), to

approve certain technical changes to appropriations.

In obtaining sufficient and appropriate audit evidence to satisfy themselves that the

department has complied with the requirements in the Treasury Instructions and any

applicable Cabinet Office circular in respect of alterations of resource allocations, the

Appointed Auditor may select a sample of approvals made by Cabinet.

Fieldwork (See paragraphs 22 - 29)

A29. The Appointed Auditor should ensure that the appropriation audit is performed in

conjunction with the annual audit of the department.

A30. The Appointed Auditor should determine the precise timing of audit work needed to

fulfil the requirements of the appropriation audit, having regard to the following

factors:

- the risk that the amount of an appropriation or other statutory authority may

be exceeded, or that expenses or capital expenditure may be incurred, or

public money spent, on unplanned or unnecessary items to maintain future

baselines or to avoid reporting a surplus; and

- the reporting deadlines specified in the relevant audit brief.

A31. One of the requirements of the appropriation audit is that the Central Controller Team

in the OAG is to be notified immediately if unappropriated or unauthorised spending

has occurred, or is likely to occur. Given that expenditure is likely to be approaching



the limit of appropriations towards the end of the financial year, the Appointed

Auditor's focus on appropriation in the last three months of the financial year is

crucial. However, unappropriated or unauthorised spending can occur at any time

during the year.

Reporting (See paragraphs 30 - 40)

A32. Any audit communication with Ministers will be done by the OAG. This also applies to

reports to the responsible Minister arising from the annual audit of a department.

A33. The Auditor-General may direct a Minister to report to the House of Representatives

in cases involving unlawful expenses under section 65Z of the PFA. Alternatively, the

Auditor-General may choose to report matters arising from the appropriation audit

and the Controller function under section 30 of the Public Audit Act 2001.

Reporting unappropriated and unauthorised spending during the year

A34. It is imperative that the Appointed Auditor acts as soon as they become aware that a

particular appropriation or other statutory authority is likely to be breached (whether in

terms of amount, scope, or period).

A35. If the actions outlined in paragraph 34(b) do not occur, the OAG (in consultation with

the Appointed Auditor) will write first to the Chief Executive and, once acknowledged,

to the responsible Minister. The letter to the Chief Executive will indicate that:

- once there is unappropriated or unauthorised spending, no further

expenditure may be incurred under that appropriation or authority until an

approval has been obtained; and

- until an approval is obtained, there should be no funding of any further

disbursements from the Crown or departmental bank account in respect of

that appropriation or other statutory authority.

A36. This letter will be copied to the Treasury, and referred to the Auditor-General’s

designated officer responsible for the Controller function.

A37. If authority is not obtained at this stage, the Auditor-General may invoke the power to

direct the Minister, Treasury, or department to stop payments from the relevant bank

account and/or (where unappropriated or unauthorised spending has already

occurred) direct the responsible Minister to report to the House.



A38. Once the necessary legal opinion has been received, and if it confirms the lack of

legal authority, the OAG will inform the Chief Executive of the need to remedy the

matter.

A39. The OAG will notify the Treasury of the question about the lawfulness of the activity

and specify the proposed course of action.

A40. The Auditor-General may invoke the power to direct the Minister, Treasury, or the

department concerned to stop payments from the relevant bank account under

section 65ZA of the PFA. The Auditor-General may also direct the Minister to report

to the House under section 65Z of the PFA.



Appendix 1 – Background

1. The Public Finance Amendment Act 2004 amended section 15 of the Public Audit

Act 2001 to ensure that the appropriation audit is an explicit statutory responsibility

of the Auditor-General. Section 15(2) of the Public Audit Act 2001 states:

In the case of an audit of a department (within the meaning of section 2(1) of the Public

Finance Act 1989) or an Office of Parliament, the Auditor-General must also audit the

appropriations administered by the department or Office.

2. The Auditor-General is required to provide independent assurance to Parliament

that expenses and capital expenditure of departments have been incurred for

purposes that are lawful and within the scope, amount, and period of the

appropriation or other authority, and that, where this is not the case, the matter is

appropriately dealt with.

3. The Auditor-General discharges this responsibility to Parliament through the conduct of

the appropriation audit and the Controller function.

4. The appropriation audit and the Controller function are closely inter-related. The

appropriation audit is an important and essential pre-requisite to the effective discharge

of the Controller responsibilities.

Public financial management principles

5. Public expenditure is governed by two important principles, those of:

- appropriation; and

- the general principle of legality.

The principle of appropriation

6. The system of appropriations, as defined in the Public Finance Act 1989, is how

Parliament authorises the Executive to spend public money. Under this system,

expenses and capital expenditure by departments and Offices of Parliament can only

be incurred if they are authorised by an appropriation or other statutory authority.

7. There are three elements to an appropriation. These are:

- the maximum amount of expenses or capital expenditure that can be

incurred;



- the scope (that is, what the amount can be used for); and

- the date on which the appropriation lapses (which is the end of the financial

year to which the Appropriation Act relates, unless a longer period not

exceeding five years is specified).

These elements are set out in sections 8 to 10 of the PFA.

8. Unappropriated expenditure occurs when expenses or capital expenditure are

incurred:

- without an appropriation;

- beyond the amount of an appropriation;

- for a purpose outside the scope of the appropriation (subject to the rules

relating to transfers between appropriations); or

- after the appropriation has lapsed.

9. Parliament takes unappropriated expenditure very seriously. This is reflected in the

requirement in section 26D of the PFA for departments or Offices of Parliament to

report unappropriated expenditure separately (irrespective of its dollar value) in their

financial statements, and for unappropriated expenditure to be reported in the FSG. In

addition, the Minister of Finance shall present a report to the House of Representatives

setting out responsible Ministers’ explanations for each instance of unappropriated

expenditure.

10. However, the system includes mechanisms to enable some spending to be authorised

outside the bounds of, or in advance of, a parliamentary appropriation. As a result,

there will always be some spending that is authorised, but has not been appropriated,

and must be reported to Parliament and formally confirmed or validated retrospectively.

It is therefore important to distinguish between spending that is:

- not covered by an appropriation, but authorised in advance under sections

26A or 26B or an Imprest Supply Act; or

- not covered by an appropriation and not authorised in advance under any

mechanism.

11. All of these situations must be reported, but only those in the second category are

“breaches” in the sense of lacking any kind of proper authority.



Re-measurements

12. The PFA makes provision for re-measurements.7 These are financial transactions that

are defined so as to be excluded from the meaning of expenses used in the PFA, and

therefore, unlike other expenses, do not require an appropriation. An example of a re-

measurement is the movement arising from the revaluation of land and buildings.

Other statutory authority

13. Parliament may also authorise expenses or capital expenditure to be incurred by some

other form of statutory authority (described in this Standard as a “statutory authority” or

“other statutory authority”). One example is an Imprest Supply Act. Another is what is

known as Permanent Legislation Authority (PLA). A PLA typically authorises resources

to be committed by a particular entity, or for a particular activity, “without further

appropriation” or “without further authority”. The aim is often to insulate the particular

cost from immediate political control. A well-known example is the payment of judicial

salaries. Permanently authorising these payments provides additional protection for the

independence of the judiciary and the separation of powers (see section 9A of the

Judicature Act 1908).

14. Unlike appropriations, a PLA may be expressed in either accrual or cash terms. Those

expressed in cash terms typically authorise the spending of “public money” (that is,

money received by the Crown and money held by an Office of Parliament – see

section 2 of the PFA for the full definition). Other examples of PLAs are:

- section 6(c) of the PFA, which provides for the repayment of debt of the

Crown or an Office of Parliament;

- section 65ZH of the PFA, which provides permanent legislative authority for

payment of expenses incurred in connection with:

expenses in respect of money borrowed by the Crown;

expenses in respect of securities;

expenses relating to derivative instruments of the Crown;

expenses relating to investment; and

7 Re-measurements as defined in the PFA:(a) means revisions of prices or estimates that result from revised expectations of future economic

benefits or obligations that change the carrying amount of assets or liabilities; but(b) does not include:

(i) revisions that result from transactions or events that give rise to the initial recognition of assets or liabilities in the reporting period; or

(ii) revisions that result from transactions or events directly attributable to actions or decisions taken by the Crown; or

(iii) expenses that arise from the consumption of assets during the reporting period; or(iv) interest income or interest expenses.



- section 24 of the Crown Proceedings Act 1950, which provides for amounts

owing as a result of a Court judgment to be paid immediately.

15. Section 6 of the PFA contains an important other statutory authority, which authorises

a department or Office of Parliament to spend public money to meet expenses or

capital expenditure incurred in keeping with appropriations – that is, section 6 links the

spending of public money to appropriations.

Types of appropriation

16. Section 7A of the PFA describes seven categories of activity, expenses, or expenditure

for which a separate type of appropriation must be made. These categories are known

as appropriation “types”. They are:

- each category of output expenses;

- each category of benefits or related expenses;

- each category of borrowing expenses;

- each category of other expenses;

- each category of capital expenditure;

- expenses and capital expenditure to be incurred by each intelligence and

security department; and

- multi-category appropriations, made up of two or more categories of output

expenses, other expenses, and non-departmental capital expenditure.

17. All expenses and capital expenditure incurred in any financial year must be allocated to

one of the types of appropriation described in section 7A of the PFA, within a Vote

specified in an Appropriation Act.

18. The scope limitation on output expenses means that unused output expense

appropriations cannot be diverted for another purpose (except in certain limited

circumstances that are set out in section 26A of the PFA).

The general principle of legality

19. As well as being authorised by an appropriation or other authority, all spending by the

Crown must also be generally lawful. Limits on the capacity of the Crown or individual

departments usually relate either to legal capacity (the types of transactions that the

department is authorised to carry out) or purpose (the types of activities that the

department can engage in).



20. There are not many legal limits on departments’ capacity or purpose under current

legislation.

- As part of the Crown, all departments have general legal capacity, subject to the

limits on engaging in some transactions in Part 6 of the PFA (such as borrowing,

issuing securities etc).

- Only a small number of departments have governing legislation that defines

their purpose and functions, and therefore creates limits on what they can spend

money on.

21. It is now rare for an issue to arise about whether departmental spending is legal in this

general sense. When it does arise, it is usually a complex question requiring specialist

legal advice. Auditors should refer such questions to the Assistant Auditor-General –

Legal for assistance.

Imprest supply

22. Imprest supply is a statutory mechanism that allows Parliament to provide the

Government with the authority to incur expenses or capital expenditure in advance of

appropriation by way of an Appropriation Act.

23. Imprest supply is required because the first Appropriation Bill for the year is not

normally passed before the beginning of the financial year, and because the changing

nature of government activities and unexpected demands means it is impossible to

adequately foresee all future expenses and capital expenditure.

24. Cabinet must authorise every use of imprest supply by the Crown. Cabinet Committees

and Ministers do not have the authority to approve expenditure under imprest supply,

unless Cabinet specifically delegates the authority to them through a Cabinet Office

circular. For Offices of Parliament, approval of the proposed expenditure by the

Officers of Parliament Committee, along with a recommendation to include the

changes in the Supplementary Estimates, is enough. Parliamentary authority must

subsequently be sought through the Supplementary Estimates of Appropriation.

25. For a judicial comment on the breadth of an imprest authority, see the case of Archives

and Records Association v Blakeley [2000] 1 NZLR 607.



The Controller function

26. The Controller function is a key constitutional check. This function is exercised by the

Controller and Auditor-General under sections 65Y to 65ZA of the PFA (reproduced in

Appendix 3) and section 15(2) of the Public Audit Act 2001 (reproduced in Appendix 1).

27. The main features of the Controller function are:

- Departments provide information to the Treasury about the expenses and

capital expenditure incurred against the authority available. The Treasury

collates and monitors this information throughout the year.

- The Treasury supplies monthly8 reports to the Controller, to enable the

Controller to examine whether expenses and capital expenditure have been

incurred in keeping with appropriation or other authority (section 65Y of the

PFA).

- The Central Controller Team9 reviews the monthly monitoring reports from

the Treasury on a global year-to-date basis and operates the Controller

function using standard procedures.10

- The Controller can direct a Minister to report to the House in a case where the

Controller has reason to believe that any expenditure that has been incurred is

unlawful or not within the scope, amount, or period of any appropriation or other

authority (section 65Z of the PFA).

- The Controller can stop payments from a Crown bank account or a

departmental bank account, to prevent money being paid out of the account that

may be applied for a purpose that is not lawful or not within the scope, amount,

or period of any appropriation or other statutory authority (section 65ZA of the

PFA).

Monthly statements

28. The Treasury’s monthly reports under section 65Y of the PFA must record:

- all actual expenses and capital expenditure incurred against an appropriation,

or other authority, by or under an Act; and

- all actual expenses and capital expenditure incurred in excess of, or without,

an appropriation, or other authority, by or under an Act.

8 Monthly reporting is not required for July and August.9 The Central Controller Team is a central team from the OAG and Audit New Zealand, assisted by Appointed

Auditors conducting appropriation audits of departments.10 The joint understanding and expectations about the role and procedures associated with the Controller

function are set out in the Memorandum of Understanding between the Controller and Auditor-General and the Secretary to the Treasury.



29. Each report must also, in respect of each appropriation or other authority, set out the

balance between:

- the amount of expenses and capital expenditure authorised to be incurred;

and

- the amount that was actually incurred.

Note that the reference to authority includes a reference to an authority in advance

of an appropriation.



Appendix 2 – The appropriation process

The appropriation process is an annual cycle of events based around the government’s financial year, which

runs from 1 July to 30 June.

Rules

The rules governing the process can be found in:

- the PFA, which:

- stipulates the form and limits of appropriations and the key parts of the timetable; and

- requires the Crown to publish certain fiscal information at particular times;

- Treasury Instructions and Minister of Finance Instructions, issued under sections 80 and 80A of the

PFA, which outline the operational procedures to be followed by departments (including Offices of

Parliament), so that the requirements of the PFA are complied with;

- the Standing Orders of the House of Representatives, which supplement the statutory timetable

provisions and set the rules by which the House and its committees discharge their responsibilities

in the process; and

- Cabinet rules.

Key stages

The key stages of the appropriation process are:

1. Publication, by 31 March, of a Budget Policy Statement under the PFA containing (among other

things) the Government’s broad strategic priorities for the forthcoming Budget.

2. Introduction and enactment, before 30 June, of the first Imprest Supply Bill to give the Government

supply from the expiry of the current year’s appropriations until the enactment of the first

Appropriation Act for the new financial year.

3. Presentation of the Budget and the Estimates to the House, and introduction of the Appropriation

(Estimates) Bill, followed by select committee consideration (this must happen before 31 July, but

current practice is for the Budget and Estimates to be presented at the same time as the first

Imprest Supply Bill).

4. Completion of the Estimates debate, followed by enactment of the Appropriation (Estimates) Act –

by which Parliament appropriates public money to the Crown. Each appropriation is administered

by a government department. A further Imprest Supply Act is passed at the same time.

5. A second Appropriation Bill, supported by Supplementary Estimates, is introduced in the second

half of the financial year. Its usual purposes are to allow the Government to commit more

resources than initially sought and to alter the uses to which existing appropriations can be put

(this Bill is sometimes updated by a Supplementary Order Paper just before the end of the

financial year to incorporate the Final Supplementary Estimates, ensuring that the Government

does not commit resources in excess of those statutorily allowed. This procedure has not,

however, been required in recent years).



6. The Supplementary Estimates are considered by the Finance and Expenditure Committee. After

the Committee has reported back to the House, there is a further debate following which the Bill is

enacted in the form of the Appropriation (Supplementary Estimates) Act. It is usually enacted at

the end of the financial year.

7. Reporting by Chief Executives of their department's actual expenditure against each appropriation

for which they have been given responsibility by the responsible Minister – together with separate

reporting on any unappropriated expenditure.

8. Scrutiny by the House and select committees by way of annual reviews.11

9. A final Appropriation Bill is introduced following the completion of annual reviews. This validates

the previous year's unappropriated expenditure, expenses, and liabilities. These amounts are

reported to Parliament in the Financial Statements of the Government and in a report by the

Minister of Finance accompanying the Bill, which in due course is enacted as the Appropriation

(Confirmation and Validation) Act.12

Imprest Supply

With the enactment of an Appropriation Act, all previous Imprest Supply Acts are repealed and the

expenditure authority is included in the Appropriation Act. However, to introduce flexibility, another Imprest

Supply Act is passed giving the Government authority to spend in advance of appropriations. The effect of

this procedure is that the Government has imprest supply authority, up to the dollar limit stipulated in the

current Imprest Supply Act, at all times.

11 Previously called financial reviews.12 Previously called the Appropriation (Financial Review) Act.



Summary of timetableThe timetable set out below illustrates the timing of the appropriation process as required by the PFA. It reflects

the statutory position regarding Appropriation Bills and current practice regarding imprest supply, and

recognises that the Budget process precedes the introduction of Appropriation Bills by several months.

TIMING OF THE APPROPRIATION PROCESS(as required by the Public Finance Act 1989 and Standing Orders)

Period Event Supply

By 31 March Budget Policy Statement

Before 1 July Introduction and passing of Imprest

Supply Act (No. 1)

Imprest

1 July Financial year starts

By 31 July Budget: Introduction of Appropriation

Estimates Bill

July/August/September Select Committee examination of the

Estimates must be completed by 30

September

October Parliamentary debate on the Budget

By 31 October Pass Appropriation Act (No. 1)

Pass Imprest Supply Act (No. 2)

Appropriation

Imprest

March Pass Imprest Supply Act (No. 3) Imprest

By 31 May Introduce Appropriation (Supplementary

Estimates) Bill

June If required, introduce and pass Final

Supplementary Estimates

Pass Appropriation (Final Supplementary

Estimates) Bill

Appropriation

By March Introduce and pass Appropriation

(Confirmation and Validation) Bill



Appendix 3 – Key requirements of the Public Finance Act 1989

Key requirements in relation to appropriations

4 Expenses or capital expenditure must not be incurred unless in accordance with appropriation or statutory authority

(1) The Crown or an Office of Parliament must not incur expenses or capital expenditure, except as

expressly authorised by an appropriation, or other authority, by or under an Act.

(2) In this section, expense does not include an expense that results from –

(a) a re-measurement13 of an asset or a liability; or

(b) an operating loss incurred by –

(i) a Crown entity named or described in the Crown Entities Act 2004; or

(ia) a Schedule 4 organisation; or

(ii) a Schedule 4A Company; or

(iia) a mixed ownership model company listed in Schedule 5; or

(iii) a State enterprise named in Schedule 1 of the State-Owned Enterprises Act 1986; or

(iv) the Reserve Bank of New Zealand; or

(v) any other entity whose financial statements must be consolidated into the financial

statements of the Government to comply with generally accepted accounting practice.

4A Authority to incur expenses or capital expenditure under Imprest Supply Act(1) The authority given by an Imprest Supply Act to incur expenses or capital expenditure in a financial

year in advance of appropriation is an authority under an Act for the purposes of sections 4(1) and

26C(1).

(2) However, subsection (1) does not apply unless an appropriation for the expenses or capital

expenditure is made before the end of the financial year.

5 Public money must not be spent unless in accordance with statutory authority

The Crown or an Office of Parliament must not spend public money, except as expressly authorised

by or under an Act (including this Act).

6 Authority to spend public money

Public money may be spent, without further authority than this section, for the purpose of –

(a) meeting expenses or capital expenditure incurred in accordance with an appropriation or

other authority by or under an Act; and

13 Re-measurements as defined in the PFA:(a) means revisions of prices or estimates that result from revised expectations of future economic benefits or obligations

that change the carrying amount of assets or liabilities; but(b) does not include:

(i) revisions that result from transactions or events that give rise to the initial recognition of assets or liabilities in the reporting period; or

(ii) revisions that result from transactions or events directly attributable to actions or decisions taken by the Crown; or

(iii) expenses that arise from the consumption of assets during the reporting period; or(iv) interest income or interest expenses.



(b) the payment of goods and services tax in relation to those expenses or capital expenditure;

and

(c) the repayment of debt of the Crown or an Office of Parliament; and

(d) the settlement of liabilities of the Crown or an Office of Parliament.

7 Expenses and capital expenditure must be allocated to appropriation type

All expenses and capital expenditure to be incurred in any financial year must be allocated to one of

the appropriation types set out in section 7A(1) within a Vote specified in an Appropriation Act.

7A Appropriation types

(1) An appropriation must be an appropriation for—

(a) 1 category of output expenses; or

(b) 1 category of benefits or related expenses; or

(c) 1 category of borrowing expenses; or

(d) 1 category of other expenses; or

(e) 1 category of capital expenditure; or

(f) expenses and capital expenditure to be incurred by an intelligence and security department;

or

(g) 2 or more categories of 1 or more of the following:

(i) output expenses:

(ii) other expenses:

(iii) non-departmental capital expenditure.

(2) For the purposes of this section,—

(a) a category of output expenses must not include both departmental and non-departmental

expenses; and

(b) a category of other expenses must not include both departmental and non-departmental

expenses; and

(c) a category of capital expenditure must not include both departmental and non-departmental

capital expenditure.

7B Requirements for multi-category appropriations

A multi-category appropriation described in section 7A(1)(g)—

(a) must be approved by the Minister; and

(b) must include only categories of expenses or non-departmental capital expenditure that

contribute to a single overarching purpose.

7C Responsibility for, and administration and use of, appropriations

(1) An appropriation is made to the Crown or an Office of Parliament.

(2) In the case of an appropriation made to the Crown,—

(a) a Minister (the appropriation Minister) is responsible for the appropriation; and

(b) the appropriation must be administered by 1 department (the appropriation administrator)

on behalf of the appropriation Minister; andIssued 03/17 Office of the Auditor-General 3 - 8133


(c) if the appropriation is an appropriation for departmental expenses or a multi-category

appropriation, any other department may incur expenses against the appropriation—

(i) at the direction of the appropriation Minister; or

(ii) with the agreement of the appropriation administrator.

(3) Despite subsection (2)(a), the Speaker is responsible for any appropriation administered by the Office

of the Clerk of the House of Representatives or the Parliamentary Service.

(4) In the case of an appropriation made to an Office of Parliament,—

(a) the Speaker is responsible for the appropriation; and

(b) the appropriation must be administered by that Office of Parliament.”

8 Appropriation limited by amount

The authority to incur expenses or capital expenditure provided by an appropriation under an

Appropriation Act –

(a) is limited to the amount specified for the appropriation by or under that Act; and

(b) may not be exceeded (except as provided for in section 25 or section 26A or section 26B).

9 Appropriation limited by scope(1) The authority to incur expenses or capital expenditure provided by an appropriation –

(a) is limited to the scope of the appropriation; and

(b) may not be used for any other purpose.

(2) For the purposes of subsection (1), –

(a) the scope of a multi-category appropriation is the scope of each of the individual categories of

expenses or non-departmental capital expenditure included in that appropriation; and

(b) any variation made by the Minister of the terms and conditions of a capital injection to any

entity referred to in section 27(3)(a) to (f) does not change the scope or purpose of that capital

injection.

10 Appropriation limited by period(1) The authority to incur expenses or capital expenditure provided by an appropriation under an

Appropriation Act lapses at the end of the financial year to which the Act relates.

(2) However, if an Appropriation Act provides that the authority to incur expenses or capital expenditure

applies for more than 1 financial year, that authority –

(a) lapses at the end of the period specified in the Act; and

(b) continues in force until the end of the period specified despite the repeal of the Act, unless the

authority is expressly varied, revoked, or replaced by an authority in another Appropriation

Act.

(3) Despite subsection (2), the authority to incur expenses or capital expenditure must not apply for more

than 5 financial years.



11 Expenses or payments authorised other than by Appropriation Act(1) If an Act (other than an Appropriation Act) expressly provides for payments to be appropriated by or

under that Act, any expense or capital expenditure incurred that gives rise to the need for those

payments may be incurred without further appropriation than this section.

(2) Each expense or capital expenditure incurred in accordance with an appropriation, or other authority,

by or under an Act (other than an Appropriation Act) must be managed and accounted for in the same

manner as expenses or capital expenditure incurred in accordance with an Appropriation Act.

65ZH Permanent legislative authority for payment of certain expenses(1) Any expenses incurred in connection with any of the following matters may be incurred without further

appropriation, and must be paid without further authority, than this section:

Expenses in respect of money borrowed by the Crown

(a) negotiating the borrowing of money by the Crown:

(b) undertaking, managing, servicing, converting, or repaying borrowing described in paragraph

(a):

Expenses in respect of securities

(c) issuing a public security in respect of the Crown:

(d) executing, redeeming, or varying a public security described in paragraph (c):

Expenses relating to derivative transactions of the Crown

(e) negotiating a derivative transaction of the Crown:

(f) managing, servicing, or making payments under a derivative transaction described in

paragraph (e):

Expenses relating to investment

(g) negotiating an investment referred to in section 65I:

(h) placing, managing, servicing, or converting an investment referred to in section 65I.

(2) In this section, expenses—

(a) includes—

(i) duties, taxes, premiums, bonuses, fees, interests, and commissions; and

(ii) any expenses incurred on personnel and equipment necessary in connection with the

matters set out in subsection (1); but

(b) does not include expenses incurred in connection with—

(i) money borrowed by the Crown under a hire purchase agreement, a finance lease

agreement, or any agreement that is of the same nature as or a substantially similar

nature to either of those agreements; or

(ii) a guarantee or an indemnity on behalf of or in the name of the Crown given under this

Act or any other enactment.



The Controller Function

65Y. Treasury must report on all expenses and capital expenditure incurred with or without appropriation or other statutory authority—

(1) The Treasury must, within the time required under subsection (3), prepare and submit to the

Auditor-General a report that sets out—

(a) all actual expenses and capital expenditure incurred against an appropriation, or other

authority, by or under an Act; and

(b) all actual expenses and capital expenditure incurred in excess of, or without, an

appropriation, or other authority, by or under an Act.

(2) The report must also set out, for each appropriation, or other authority, by or under an Act, the

balance between—

(a) the amount of expenses and capital expenditure authorised to be incurred; and

(b) the amount that was actually incurred.

(3) The time required is 3 working days after the Treasury receives the information from departments

that is required for the preparation of the monthly Financial Statements of the Government reporting

entity under section 31A.

(4) To avoid doubt, this section does not limit the powers of the Auditor-General, under Part 4 of the

Public Audit Act 2001, to access information from a public entity or any person.

(5) In this section, a reference to authority includes a reference to an authority in advance of an

appropriation.

(6) In this section and sections 65Z and 65ZA, a reference to the Auditor-General is a reference to the

Auditor-General in his or her capacity as Controller and Auditor-General.

65Z. Auditor-General may direct Ministers to report to House of Representatives in cases involving unlawful expenses, etc—

(1) The Auditor-General may direct a Minister to report to the House of Representatives if the Auditor-

General has reason to believe that expenses or capital expenditure for which that Minister is

responsible have been incurred for a purpose that—

(a) is not within the scope, amount, or period of any appropriation, or other authority, by or

under an Act; or

(b) is, for any other reason, unlawful.

(2) The report must set out the following details:

(a) the nature and extent of any alleged breach of the appropriation or other authority that the

Auditor-General has reason to believe has occurred; and

(b) the events that gave rise to the alleged breach; and

(c) the remedial action taken or proposed to be taken to correct the breach and prevent its

recurrence.

(3) If the Minister is of the opinion that there has not been a breach, the report—

(a) must set out the details specified in subsection (2)(a) and (b); and

(b) must also state—



(i) that the Minister is of that opinion; and

(ii) the Minister's reasons for that opinion.

(4) The Minister responsible for the expenses or capital expenditure must—

(a) comply with the direction within 20 working days after receiving it; or

(b) if Parliament is not in session,—

(i) publish the information required by subsection (2) or, as the case may be,

subsection (3) in the Gazette within 20 working days after receiving the direction;

and

(ii) present the information to the House as soon as possible after the commencement

of the next session of Parliament; or

(c) if the direction is made after the end of the financial year,—

(i) comply with the direction by including the information required by subsection (2) or,

as the case may be, subsection (3) in the report under section 26C; or

(ii) comply with the direction within 20 working days after receiving it.

65ZA. Auditor-General may stop payments out of Bank Accounts—

(1) This section applies if the Auditor-General has reason to believe that any money to be paid out of a

Crown Bank Account or a Departmental Bank Account may be applied for a purpose that—

(a) is not within the scope, amount, or period of any appropriation, or other authority, by or

under an Act; or

(b) is, for any other reason, unlawful.

(2) If this section applies, the Auditor-General may direct the Minister, the Treasury or, as the case may

be, the department concerned to stop payments out of that Crown Bank Account or Departmental

Bank Account.


AG-3 Effectiveness and efficiency, waste and a lack of probity or financial prudence

AUDITOR-GENERAL’S AUDITING STANDARD 3THE AUDITOR’S APPROACH TO ISSUES OF

EFFECTIVENESS AND EFFICIENCY, WASTE, AND A LACK OF PROBITY OR FINANCIAL PRUDENCE

ContentsPage


Scope of this Standard 3 - 8201


Background 3 - 8201

Objectives 3 - 8201



Considerations to take into account when being alert and aware 3 - 8202

Maintaining alertness for and awareness of issues and risks 3 - 8202

Reporting instances of effectiveness and efficiency, waste, or a

lack of probity or financial prudence 3 - 8203

Auditing sensitive expenditure 3 - 8203

Reporting issues of sensitive expenditure 3 - 8204

Separate engagements on sensitive expenditure 3 - 8205

Application and Other Explanatory Material 3 - 8205

Maintaining alertness for and awareness of issues and risks 3 - 8205

Reporting instances of effectiveness and efficiency, waste, or

a lack of probity or financial prudence 3 - 8206

Auditing sensitive expenditure 3 - 8206

Reporting issues of sensitive expenditure 3 - 8207



Introduction



requirements on annual audits in relation to issues of effectiveness and efficiency,

waste, and a lack of probity or financial prudence.

Application





April 2017.

Background

4. While carrying out the annual audit, the Appointed Auditor is expected to keep in mind

the overall role and concerns of the Auditor-General as specified in the Public Audit

Act 2001 (the Act), and also public and parliamentary expectations of the Auditor-

General as they emerge over time.

5. There is overlap between the content of this Standard and other Standards and

Statements. This overlap arises because this Standard requires the Appointed Auditor

to maintain alertness for, and awareness of, matters that may be of interest to the

Auditor-General, even though they may not affect the Appointed Auditor’s

responsibility to form an opinion on the financial and performance information.

Objectives

6. The objectives of the Appointed Auditor, in carrying out the annual audit, are to:

(a) maintain alertness for, and awareness of, issues and risks related to the

Auditor-General’s concerns over effectiveness and efficiency, waste, and a

lack of probity or financial prudence;

(b) plan and audit areas of sensitive expenditure; and

(c) report in an appropriate manner on any matters identified in (a) and (b)

above.



Definitions

7. For the purpose of this Auditor-General’s Auditing Standard the defined terms have









Sensitive expenditure means expenditure by a public entity that provides,

has the potential to provide, or has the perceived

potential to provide, a private benefit to an individual

staff member of a public entity that is additional to the

business benefit to the entity of the expenditure. It also

includes expenditure by a public entity that could be

considered unusual for the entity’s purpose and/or

functions.

Requirements

Considerations to take into account when being alert and aware

8. The Appointed Auditor shall, when carrying out the annual audit of the financial and

performance information of a public entity, take into account the need to maintain

alertness and awareness for any indication that:

(a) the public entity has not applied its resources effectively or efficiently;

(b) waste has occurred, either by the public entity itself or as a result of action or

inaction on the part of the public entity; or

(c) there has been an act or omission that shows or appears to show a lack of

probity or financial prudence on the part of the public entity or one or more of

its members, office holders, or employees.

Maintaining alertness for and awareness of issues and risks

9. As part of developing the overall audit strategy and audit plan, the Appointed Auditor

shall ensure that they maintain alertness and awareness for issues and risks related

to effectiveness and efficiency, waste, and a lack of probity or financial prudence.

(See paragraphs A1 - A3)



10. The Appointed Auditor shall ensure that their overall audit strategy and audit plan

reflects any guidance on issues or risks identified by the OAG in the applicable audit

brief.

11. The Appointed Auditor shall document the processes used to ensure that they have

maintained alertness for, and awareness of, issues and risks of effectiveness and

efficiency, waste, and a lack of probity or financial prudence.

12. In carrying out the annual audit, the Appointed Auditor shall note that the Act permits

an examination of effectiveness and efficiency as long as that examination takes into

account any applicable government or local authority policy.

Reporting instances of effectiveness and efficiency, waste, or a lack of probity or financial prudence

13. The Appointed Auditor shall immediately advise the OAG if they identify an instance

of effectiveness and efficiency, waste, or a lack of probity or financial prudence. The

Appointed Auditor, in consultation with the OAG, shall then decide what further steps

shall be taken, if any, to address the issue.

14. The Appointed Auditor shall formally report to the OAG on issues and risks related to

effectiveness and efficiency, waste, and a lack of probity or financial prudence

identified during the annual audit as part of reporting the results of the annual audit.

15. As part of advising the OAG in paragraph 13, the Appointed Auditor in consultation

with the OAG shall determine the appropriate external reporting action to be taken.

External reporting actions may include:

(a) reporting in the audit report;

(b) reporting to management or those charged with governance in the

management letter; and/or

(c) reporting to another party. (See paragraphs A4 - A5)

Auditing sensitive expenditure

16. The Appointed Auditor shall follow any directions that are issued by the OAG to audit

specific areas or types of sensitive expenditure.

17. The Appointed Auditor shall audit sensitive expenditure irrespective of whether the

OAG issues any directions, although the Appointed Auditor shall apply their

judgement in determining what sensitive expenditure is to be examined. The



Appointed Auditor shall do this by having regard to the Auditor-General’s concerns

over effectiveness and efficiency, waste, and a lack of probity or financial prudence as

well as their understanding of the entity and its environment, including its internal

control.

18. The Appointed Auditor shall take into account the results of any external reviews or a

consideration of any risk factors that may have been identified by the OAG.

19. The Appointed Auditor shall ensure that their overall audit strategy and audit plan

clearly document the types of sensitive expenditure to be examined and the nature,

timing, and extent of the audit testing to be carried out. (See paragraph A6)

20. In meeting the requirements of paragraph 19, the Appointed Auditor shall audit areas

of sensitive expenditure by obtaining an understanding of the attitude of management

and those charged with governance towards sensitive expenditure, assessing the

public entity’s policies against current good practice, and performing tests on a

sample of expenditure to evaluate whether the public entity has complied with its

policies and that the expenditure:

(a) has a justifiable business purpose;

(b) preserves impartiality;

(c) has been made with integrity;

(d) is moderate and conservative, having regard to the circumstances;

(e) has been made transparently; and

(f) is appropriate in all respects. (See paragraph A7)

Reporting issues of sensitive expenditure

21. If the Appointed Auditor identifies an issue of sensitive expenditure, they shall

immediately advise the OAG. As part of advising the OAG, the Appointed Auditor

shall specifically consider whether the sensitive expenditure should be publicly

reported in the audit report.

22. If the issue raises the potential that a fraud has been committed, the Appointed Auditor

shall follow the specific requirements and guidance in AG ISA (NZ) 240: The auditor’s

responsibilities relating to fraud in an annual audit.

23. The Appointed Auditor shall report separately on sensitive expenditure issues,

including any assessments made as to the appropriateness of the public entity’s

policies where deficiencies were noted in those policies that were identified during the

annual audit:

(a) to the OAG, normally as part of reporting the results of the annual audit; and



(b) to management or those charged with governance in the management letter.

Separate engagements on sensitive expenditure

24. A public entity, or another party, may request an Audit Service Provider (ASP) to carry

out a separate engagement on sensitive expenditure. Where there is possible media

or political interest in the engagement subject matter, or the matter is generally of a

sensitive nature, the ASP shall consult with the relevant OAG sector manager before

accepting the engagement or finalising the terms of reference. ASPs should refer to

AG PES 1 (Revised): Code of ethics for assurance practitioners for further guidance

surrounding the acceptance and reporting of engagements of this nature. (See

paragraph A8)

***


Maintaining alertness for and awareness of issues and risks (See paragraphs 9 - 12)

A1. It is not the role of the Auditor-General to set standards, or to make judgements in the

absence of generally accepted understanding of what is allowable practice or

behaviour. However, where the Auditor-General identifies an absence of standards

and a need for guidance as a result of issues that have arisen during audits of public

entities, the Auditor-General may issue a “good practice guide” that outlines the

principles applicable for appropriate practice or behaviour. The Appointed Auditor

should maintain alertness for and awareness of:

- any accepted standards promulgated by third parties; and

- any applicable “good practice guides” that may be issued by the Auditor-

General.

A2. Existing standards of conduct which have substantive authority in New Zealand for

various aspects of public entity behaviour include:

- the State Sector Act 1988, which, among other things, places a responsibility

on chief executives of public entities subject to the Act to operate "good

employer" principles and to ensure that all employees maintain proper

standards of integrity, conduct, and concern for the public interest;

- the Local Authorities (Members' Interests) Act 1968, which regulates the

behaviour of members of some public entities in relation to contracts in which

the members are “concerned and interested” and when voting on matters in

which they have a “pecuniary interest”;



- State Services Commission publications, including “codes of conduct” or

“board appointment and induction guidelines”;

- the ethical standards and guidelines of professional bodies, as relevant;

- any government policy statements on behaviour, such as Cabinet Minutes or

Cabinet Office Circulars;

- financial reporting standards, which require the disclosure of related party

relationships, transactions, and balances;

- the Companies Act 1993, which requires directors’ interests to be disclosed in

an interests register that is available for inspection by shareholders; and

- the Local Government Act 2002, which requires the remuneration of chief

executives to be disclosed in the financial statements.

A3. The Appointed Auditor should, when maintaining alertness and awareness of the

standards expected of public entities, consider the following:

- whether the public entity has acquired resources in an economical manner,

with due regard to probity;

- whether the public entity has applied its resources in an effective and efficient

manner, and there is no evidence waste has occurred; and

- whether employees and members of the public entity have acted with proper

regard to probity and financial prudence.

Reporting instances of effectiveness and efficiency, waste, or a lack of probity or financial prudence (See paragraphs 13 - 15)

A4. One aspect of advising and/or consulting with the OAG will be about whether it is

appropriate to report the matter in the audit report and, if so, whether to include an

emphasis of matter or other matter paragraph in the audit report.

A5. If a significant issue is identified, the following steps should be taken:

- brief the Assistant Auditor-General – Parliamentary Group or the Assistant

Auditor-General – Local Government immediately on any significant issues of

effectiveness and efficiency, waste, and lack of probity or financial prudence;

and

- agree with the Assistant Auditor-General – Parliamentary Group or the

Assistant Auditor-General – Local Government the next steps (if any) to be

taken.

Auditing sensitive expenditure (See paragraphs 19 - 20)

A6. As part of developing the audit strategy and audit plan, the Appointed Auditor needs

to understand the purpose of the public entity and the likely extent to which sensitive



expenditure may be incurred to achieve its purpose. Such an understanding will

assist the Appointed Auditor in determining the nature, timing, and extent of audit

procedures to be carried out. The Appointed Auditor should also consider the

appropriateness of the public entity’s sensitive expenditure policies as part of

sensitive expenditure testing.

A7. There are a number of areas of spending that are likely to generate significant

interest with stakeholders and other interested parties because of their sensitive

nature. The Appointed Auditor is expected to have a high-level understanding of the

overall expenditure of each of these areas, and of the likelihood of impropriety.

Sensitive expenditure may include:

- board and senior management pay, travel, and expenses;

- management of large contracts;

- tendering processes used for large dollar value purchases;

- payments to or from related parties; and

- payments to or from other countries, particularly those with a history of

different ethical standards or where bribery is more prevalent.

Reporting issues of sensitive expenditure (See paragraph 24)

A8. If the sensitive expenditure issue reasonably falls within the scope of the annual audit,

further action might involve:

- pursuing the issue within the existing audit engagement agreement;

- obtaining agreement with the public entity for both the performance and

funding of a specific extension of the audit scope; or

- obtaining approval from the OAG for undertaking and funding the extension

of the audit scope.


AG-4 The audit of performance reports


AUDITOR-GENERAL’S AUDITING STANDARD 4THE AUDIT OF PERFORMANCE REPORTS

ContentsPage

Introduction 3 - 8301 Scope of this Standard 3 - 8301 Application 3 - 8303

Objectives 3 - 8303


Requirements 3 - 8308 Planning for the audit of the performance report 3 - 8308 Assessing the forecast performance report 3 - 8309 Auditing the performance report 3 - 8310

Application and other explanatory material 3 - 8315 Planning for the audit of the performance report 3 - 8315 Assessing the forecast performance report 3 - 8317 Auditing the performance report 3 - 8328



Introduction



requirements for when an Appointed Auditor is expressing an opinion on a

performance report where a public entity is required to, or elects to, prepare

performance information and have it audited.

2. Performance reports are normally prepared in conjunction with financial statements

and, when presented with other information, where relevant, they constitute a general

purpose financial report (see figure 1 below). The objective of a general purpose

financial report is to convey a coherent picture about a public entity’s performance

and position.

Figure 1 – What constitutes a general purpose financial report

3. It is common for performance information to be included in a public entity’s general

purpose financial report1 and be subject to audit as part of the annual audit. This set

of information is usually intended to satisfy the public entity’s statutory, regulatory, or

1 A general purpose financial report is often referred to as an annual report.



other formal reporting requirements. This information is referred to in this Standard as

the “performance report”. However, it is not uncommon for public entities to include

performance information within a general purpose financial report, but outside the

“performance report” (that is, additional to the audited set of information specifically

intended to satisfy the entity’s formal reporting requirements). Performance

information can also be located outside the general purpose financial report. Such

information can, for example, be included within the general purpose financial report

of another public entity or in some other publication and/or published form (for

example, a stand-alone performance report or industry sector report, in hard copy

format or on a website). Performance reports can also be activity based rather than

focused on the performance of a single public entity.

4. To give effect to the requirements in this Standard, where performance information is

published outside the public entity’s performance report, the Appointed Auditor will

need to clarify with the public entity whether any of that content is also intended to

constitute part of the performance report (that is, the set of information intended to

satisfy the public entity’s statutory regulatory, or other formal reporting requirements),

and be subject to audit.

5. A performance report can take many forms and have different areas of focus. For

example, public entities that are designated as public benefit entities (PBEs) for

financial reporting purposes are likely to focus on the services provided by the public

entity, whereas entities that are not PBEs are likely to have more financially focused

performance reporting.

6. Forecast performance information is generally prepared at, or near, the start of the

public entity’s reporting period(s) (and incorporated into a forecast performance

report). Increasingly, public entities are planning for periods beyond a year and, as a

result, performance information can cover multiple years. After the end of the relevant

reporting period, performance information is prepared (and is usually incorporated

into a performance report). In doing so, the public entity sets out at the start of the

reporting period(s) the services and the levels of service it intends to deliver and/or

what it is seeking to achieve, and then reports its actual service delivery and/or

achievements following the completion of the reporting period. This reporting against

the public entity’s intentions as set at the start of the reporting period is important for

accountability purposes.

7. This Standard requires Appointed Auditors to evaluate and conclude on several

aspects of both the forecast performance report and the performance report.

Although responsibility for issuing the audit opinion generally only relates to the



performance report (normally published within the public entity’s annual report), the

Appointed Auditor will need to consider whether there is enough context for the

performance report and therefore whether the public entity’s performance is fairly

presented. The performance reporting framework presented in the forecast

performance report should, among other things, explain what the public entity is

intending to achieve and how that will be assessed.

8. In the case of performance information that is included within a public entity’s general

purpose financial report but is not part of the performance report that is required to be

audited, the Appointed Auditor is expected to primarily focus on whether the public

entity has complied with its reporting requirements as set out in legislation, in keeping

with AG ISA (NZ) 250: Consideration of laws and regulations.

Application



10. This Statement applies to audits of performance information which has been

prepared for reporting periods beginning on or after 1 April 2017, unless determined

otherwise by the Auditor-General.2

Objectives

11. The objectives of the Appointed Auditor are to plan the annual audit in keeping with

the requirements of AG ISA (NZ) 300: Planning the annual audit so as to be able to

form an opinion on the public entity’s performance report, which will include:

(a) assessing whether the public entity has complied with its performance

reporting obligations as set out in applicable legislation;

(b) assessing whether the public entity’s performance reporting framework

provides an adequate basis for reporting the public entity’s performance; and

(c) auditing the performance report, including evaluating the appropriateness of

the public entity’s performance information, to form an opinion on whether the

performance report:

(i) presents fairly, in all material respects, the performance of the public

entity for the reporting period; and

(ii) complies, where applicable,3 with generally accepted accounting

practice.

2 The Auditor-General will outline the application of this auditing standard to different categories of public entities in the audit briefs issued in keeping with the requirements of AG ISA (NZ) 300.



Definitions

12. For the purpose of this Standard the defined terms have the meanings attributed:







(c) in the list below.

Appropriateness means the assessment threshold applied by Appointed

Auditors when they audit a public entity’s performance

report. This includes assessing whether the

performance information is suitable, given the purpose

of the public entity and the nature of its activities, and

whether the performance report allows for an informed

assessment of the public entity’s performance.

Elements of performance means the inputs, processes, outputs, impacts, and

outcomes that may be used to describe and assess

the public entity’s performance, although a public entity

could use different terms to describe its performance

elements.

Forecast performance report means the performance report that has been prepared

by the public entity, at or near the start of the reporting

period(s), which outlines what the public entity is

intending to achieve and how that will be assessed.

Impacts means the relatively immediate or direct effect on

users of the public entity’s outputs. Impacts sought

provide the rationale for the range of outputs delivered

by the public entity.

Inputs means the resources used by the public entity to

produce its outputs.

3 Several different categories of public entities do not have to prepare performance information that complies with generally accepted accounting practice. Examples include Tertiary Education Institutions, Airports, and Council Controlled Organisations.



Management commentary means the material that generally features in annual

reports in one of the following three forms:

- within the performance report as an aid to

understanding the report (this is to be

encouraged);

- within the performance report as a substitute

for performance information (this is generally

not acceptable, although it may be justified

when new performance measures or baselines

are in the process of being established); and

- outside the performance report.

Outcomes means changes in the state, condition, effects on, or

consequences for the community, society, economy,

or environment resulting from the existence and

operations of the public entity. (The outcomes sought

provide the overarching rationale for the range of

outputs delivered by the public entity.)

Outputs means the goods or services that are delivered by the

public entity. The term refers only to the goods and

services provided to third parties; it excludes goods

and services consumed within the reporting entity

(such as services provided by legal, research, HR, and

IT functions to other functional areas within the same

entity, which are often referred to as “internal

outputs”).4 5

Performance information means information that conveys a public entity’s

performance. Such information includes the relevant

elements of performance, together with their

associated performance measures and targets, where

appropriate.

Performance measure means the specific criteria or means used to measure

performance, which is expressed in the context of the

dimensions of performance. They may be expressed

4 The Local Government Act 2002 uses the term “activity” to refer to goods and services. The term “outputs” is used throughout this Standard to refer to goods and services in place of the term “activity” mainly because the term “outputs” is more commonly recognised.

5 Output classes are groups of outputs of a similar nature. (They are sometimes referred to as “groups of activities”.)



as, but are not limited to, absolute numbers,

percentages, ratios, point estimates, or ranges. They

might also be qualitative in nature.6

Performance report means the information subject to audit that records the

performance of a public entity against its specified

objectives in the form of after-the-event or “ex post”

statements for the reporting period. A performance

report should include the performance information that

a user can use to assess the performance of the public

entity. The appropriateness of such information will

depend on the purpose of the public entity and the

nature of its activities.

Performance reporting

framework

means the structure used by the public entity to

present its performance information. A performance

reporting framework should clearly demonstrate the

rationale for, and the relationships among, the

contextual information, elements of performance,

performance measures, and performance targets.

Overall, a performance reporting framework should

reflect the public entity’s high level goals, including

what outcomes it is seeking, what impacts it is looking

to have, what the public entity is planning to do, and

what resources it will apply. This means that the public

entity should explain what it is doing and why,

including how that will help to contribute to achieving

the public entity’s higher level goals.

Performance targets means the specific levels or results (usually relating to

outputs produced and outcomes achieved) that the

public entity aims to achieve.

The term “performance targets” encompasses the

notion of “performance standards”, which various

pronouncements and literature on performance

6 Performance dimensions are the aspects or properties that may be captured by a particular performance measure. They include, but are not limited to quantity (i.e. how much is provided), quality (i.e. how well is it provided), timeliness (i.e. when it is provided), location (i.e. where it is provided), and cost (i.e. how much it costs). Not all of the dimensions will be applicable for each performance measure, for example, location isoften not reported when it is self-evident. However, there is a rebuttable presumption that quality will be a dimension that is always measured and reported.



reporting often use to refer to levels of planned

performance.

Qualitative characteristics of

general purpose financial

reporting7

means the attributes of performance information:

- relevant because the performance information

meets the needs of the users;

- reliable because the performance information

is free of material error and bias, and is not

misleading as it faithfully represents the

performance of the public entity;

- understandable because the performance

information is clearly presented, with additional

information supplied as needed to assist in

clarification; and

- comparable because the performance

information can be compared with the forecast

performance information for the relevant

reporting period, the performance information

presented for other reporting periods, and,

where relevant, for other similar reporting

entities, which enables users to make an

informed assessment of the performance of

the public entity.

Users means those persons who rely on published (that is,

external) general purpose reports as their major

source of financial and performance information about

the entity. For this purpose, users are assumed to

have a reasonable knowledge and willingness to study

the reported information with reasonable diligence.

In relation to the public sector, specific users of

published performance reports may include customers

(that is, the recipients of public goods or services),

funders and financial supporters (including taxpayers

and ratepayers), elected or appointed representatives

(for example, members of Parliament and select

committees), and interested members of the public (for

7 The qualitative characteristics of performance information are the same as those that apply to financial information.



example, media commentators, academics and other

analysts, and members of relevant professional or

community groups).

Although governors (for example, Ministers and local

authority councillors), central agencies, other

monitoring agencies, some grant providers, and other

entities’ management or those charged with

governance are also users of published reports, they

have access to, or are able to request, additional

financial and performance information (that is, special

purpose reports) in carrying out their governance,

monitoring, or management responsibilities.

Requirements

Planning for the audit of the performance report

13. The Appointed Auditor shall plan the audit of the performance report as part of

planning the annual audit, in keeping with the objectives of AG ISA (NZ) 300:

Planning the annual audit, by ensuring that the overall audit strategy and audit plan

reflects any connections with the audit work to be performed on the public entity’s

financial information, including:

(a) assessing whether the public entity has complied with its performance

reporting obligations as set out in applicable legislation;

(b) assessing whether the public entity’s performance reporting framework

provides an adequate basis for reporting the public entity’s performance; and

(c) auditing the performance report, including evaluating the appropriateness of

the public entity’s performance information to form an opinion on whether the

performance report:

(i) presents fairly, in all material respects, the performance of the public

entity for the reporting period; and

(ii) complies, where applicable, with generally accepted accounting

practice. (See paragraphs A1 - A2)

14. The Appointed Auditor shall gain an understanding of the purpose of the public entity,

and the nature of its activities, in keeping with the objectives of AG ISA (NZ) 315:

Understanding the entity and its environment. This is necessary to, among other

things, assist the Appointed Auditor to:

(a) assess the public entity’s approach to performance management;



(b) provide a basis for assessing the appropriateness of the public entity’s

performance report; and

(c) plan the audit approach for auditing the performance report. (See paragraph

A3)

15. In meeting the requirements of paragraph 14 above, the Appointed Auditor shall, as

part of obtaining an understanding of the public entity’s systems of internal control, in

keeping with the objectives of AG ISA (NZ) 315: Understanding the entity and its

environment, identify whether any changes have been made to those systems since

their most recent assessment. Where changes have been made, the Appointed

Auditor shall evaluate the implications of those changes when planning the audit

approach and the nature and extent of audit procedures to be carried out. (See

paragraphs A4 - A5)

16. In determining the overall audit strategy and audit plan in keeping with AG ISA (NZ)

300: Planning the annual audit, the Appointed Auditor shall confirm in relation to the

public entity’s performance information:

(a) where the public entity intends to report its performance; and

(b) how the public entity intends to report its performance. (See paragraph A6)

17. Where a public entity’s performance is being reported as part of another public

entity’s performance report, the Appointed Auditor shall liaise with the Appointed

Auditor(s) of the other public entity(s) to ensure all material performance information

relating to the public entity is audited. This is expected to include consideration of pre-

engagement activities (including any impact on the audit engagement letter), audit

planning, fieldwork, and reporting (including any impact on the letter of

representation).

Assessing the forecast performance report

18. Because the content of the performance report is usually determined in advance as

part of the forecast performance report (for example, in a statement of intent, forecast

statement of service performance, statement of performance expectations, or long-

term plan), the Appointed Auditor shall seek to obtain a copy of the forecast

performance report before its approval and publication. (See paragraphs A7 - A9)

19. If the forecast performance report is obtained in enough time to enable the Appointed

Auditor to consider the report, and for the public entity to respond to the Appointed

Auditor’s comments, then the Appointed Auditor shall form a preliminary view, in the



context of the matters considered during planning (as referred to in paragraphs 13 to

17 above), about:

(a) whether the public entity has complied with its performance reporting

obligations as set out in applicable legislation;

(b) whether the forecast performance report incorporates an adequate

performance reporting framework;

(c) whether the forecast performance report provides an adequate basis for

presenting fairly, in all material respects, the performance of the public entity;

(d) where applicable, whether the forecast performance report complies with

generally accepted accounting practice; and

(e) whether the public entity has adequate systems and controls in place to

appropriately record and report its performance. (See paragraphs A10 - A47)

20. If the Appointed Auditor is of the view, after discussing with management or those

charged with governance, that the forecast performance report will not meet the

requirements of paragraph 19 above, then the Appointed Auditor shall notify the OAG.

Once the Appointed Auditor has notified the OAG, the Appointed Auditor shall discuss

their concerns with management or those charged with governance at the earliest

opportunity, as this may provide an opportunity to make improvements to the forecast

performance report before it is finalised or published.

21. If the Appointed Auditor has doubts about the seriousness of their concerns about the

forecast performance report (including any concerns that the Appointed Auditor may

have over the upcoming verification of the performance information to be contained in

the performance report) then the Appointed Auditor shall consult with the OAG before

discussing the concerns with management or those charged with governance.

22. The Appointed Auditor shall report to management or those charged with governance

any significant deficiencies noted and any areas for improvement of the forecast

performance report, in keeping with AG ISA (NZ) 260: Communication with those


Auditing the performance report

Reconfirming the approach to auditing the performance report

23. The Appointed Auditor shall reconfirm their audit approach, as outlined in their overall

audit strategy and audit plan, for the audit of the performance report in keeping with

the objectives of AG ISA (NZ) 300: Planning the annual audit, including taking into

account any conclusions that were made on:



(a) whether the public entity has complied with its reporting obligations as set out

in applicable legislation;

(b) the adequacy of the performance reporting framework;

(c) the appropriateness of the forecast performance information;

(d) whether the forecast performance information complies with generally

accepted accounting practice (where applicable); and

(e) the public entity’s systems of internal control and the way the public entity

manages and reports its performance.

Determining materiality

24. The Appointed Auditor shall determine and document the material performance

information in keeping with the requirements of AG ISA (NZ) 320: Materiality in

planning and performing an annual audit. In doing so, the Appointed Auditor shall

document their rationale for determining which performance information is material


25. The Appointed Auditor shall establish a basis and level for determining planning

materiality that will be used to determine material performance information. The level

should be based on the Appointed Auditor’s judgement about the size of the

misstatements that are likely to influence users’ assessment of the performance of the

public entity. (See paragraphs A22 and A48 - A49)

Fieldwork

Obtaining audit evidence

26. The Appointed Auditor shall obtain sufficient appropriate audit evidence to support the

verification of material performance information, in keeping with ISA (NZ) 500: Audit

Evidence. This includes ensuring that any connections with the audit work to be

performed on the public entity’s financial information are made in such a way so as to

maximise audit efficiency and effectiveness. (See paragraphs A50 - A53)

Evaluating information located outside the performance report

27. The Appointed Auditor shall evaluate any performance information that is located

within the general purpose financial report but outside the performance report, in

keeping with the requirements of ISA (NZ) 720: The auditor’s responsibilities relating

to other information in documents containing audited financial statements.



28. The Appointed Auditor shall clarify with the public entity whether there is any

published performance information outside the general purpose financial report that is

intended to form part of the performance report (that is, whether it forms part of the

set of information intended to satisfy the public entity’s statutory, regulatory, or other

formal reporting requirements) and be subject to audit. The Appointed Auditor shall

audit the performance information located outside the general purpose financial report

that forms part of the public entity’s performance report in accordance with the

requirements of this standard.

29. Where the public entity’s performance is being reported through the performance

report of another public entity, the Appointed Auditor shall liaise with the Appointed

Auditor of that entity. The Appointed Auditor needs to ensure that all material

performance information included in the performance report of another public entity

has been audited.

Determining whether there have been any changes in material performance information

30. The Appointed Auditor shall determine whether there have been any changes to the

material performance information from that presented in the forecast performance

report. Where the Appointed Auditor identifies that material elements (for example,

outcomes, impacts, outputs), performance measures, or performance targets have

been adjusted during the reporting period, the Appointed Auditor shall ensure that the

changes have been appropriately approved, are adequately explained within the

performance report, and do not detract from the ability of stakeholders to make an

informed assessment of the performance of the public entity. (See paragraphs A54 -

A58)

Evaluating management commentary

31. The Appointed Auditor shall apply professional judgement when determining the level

of assurance that is required over the management commentary that is included

within the performance report. In doing so, the Appointed Auditor shall evaluate the

management commentary to determine the relevance and reliability of that

commentary to the audited performance information.

32. Where there are material reported variances between forecast and actual

performance results, the Appointed Auditor shall evaluate the explanations given for

those variances and assess their reasonableness. If no explanation is given, then the

Appointed Auditor shall determine whether the absence of explanation is likely to



materially affect the ability of stakeholders to make an informed assessment of the

public entity’s performance.

33. Where the Appointed Auditor is of the view that the management commentary is

misleading or inconsistent with information contained in the performance report or

other parts of the general purpose financial report, the Appointed Auditor shall request

management or those charged with governance to justify their commentary or

reconcile, remedy, or remove the misleading or inconsistent statements, as

appropriate. (See paragraphs A59 - A61)

Assessing the reasonableness of cost allocations

34. The Appointed Auditor shall obtain reasonable assurance that costs have been

appropriately allocated to each reported material output or output class. The cost

allocation method, and the application of that method, should result in the

performance report presenting a fair reflection of the cost of each reported output or

output class. (See paragraphs A62 - A63)

Reporting

Forming an opinion on the performance report

35. The Appointed Auditor shall evaluate the appropriateness of the public entity’s

performance report against the applicable legislative requirements, and assess

whether the performance report presents fairly, in all material respects, the

performance of the public entity, and, where applicable, whether the performance

report complies with generally accepted accounting practice.

36. In evaluating the appropriateness of the performance report, the Appointed Auditor

shall bear in mind their conclusions on the appropriateness of the forecast

performance report.

37. The Appointed Auditor shall evaluate the evidence obtained to support the verification

of the material performance information.

38. If the Appointed Auditor has significant concerns about the adequacy of the

performance report but is in doubt as to the seriousness of those concerns, including

any serious concerns about the appropriateness of the content of the performance

report or the verification of the material performance information, then the Appointed



Auditor shall consult the OAG before forming their audit opinion or otherwise reporting

such matters to management or those charged with governance.

39. Based on the outcome of the Appointed Auditor’s evaluation in paragraphs 35 to 38

above, the Appointed Auditor shall form an opinion, in keeping with the requirements

of AG ISA (NZ) 700 (Revised): Forming an opinion and reporting on financial

statements, on whether the performance report:

(a) means that the public entity has complied with its performance reporting

obligations as set out in applicable legislation;

(b) presents fairly, in all material respects, the public entity’s performance for the

relevant reporting period, including:

(i) its performance achieved as compared with the forecast performance

report for the reporting period(s); and

(ii) where legislation requires, its actual revenue and output expenses as

compared with the forecasts contained in the corresponding forecast

performance report; and

(c) complies, where applicable, with generally accepted accounting practice.

(See paragraphs A64 - A70).

40. In forming an opinion on the public entity’s performance report (in conjunction with

their opinion on the financial statements), the Appointed Auditor shall comply with the

objectives of ISA (NZ) 720: The auditor’s responsibilities relating to other information

in documents containing audited financial statements for any performance information

that is included in the general purpose financial report but is located outside the

performance report.

41. In forming an opinion on the public entity’s performance report, the Appointed Auditor

shall evaluate any performance information located outside the general purpose

financial report that forms part of the public entity’s performance report.


42. The Appointed Auditor shall report to the OAG in keeping with AG-1: Reporting to the

OAG, including outlining issues or misstatements identified during the audit of the

performance report in the document summarising the audit conclusions, which is

prepared at the conclusion of the annual audit.



Communicating with management or those charged with governance

43. The Appointed Auditor shall, in keeping with the objectives of AG ISA (NZ) 260:

Communication with those charged with governance, communicate to management

or those charged with governance:

(a) issues relating to the public entity’s compliance with its performance reporting

obligations, as set out in applicable legislation;

(b) issues identified that may affect the adequacy of the performance reporting

framework;

(c) issues identified that mean the performance report does not present fairly, in

all material respects, the public entity’s performance or does not comply,

where applicable, with generally accepted accounting practice;

(d) issues with systems of internal control that affected, or may have affected, the

performance report;

(e) uncorrected misstatements identified during the audit of the performance

report in keeping with paragraph 12 of ISA (NZ) 450: Evaluation of

misstatements identified during audit; and

(f) other matters or issues, or improvements that need to be made to the public

entity’s performance report that, in the Appointed Auditor’s professional

judgement, management or those charged with governance need to be aware

of.

***


Planning for the audit of the performance report (See paragraphs 13 - 17)

A1. Statutes governing public entities’ performance reporting obligations include the

Public Finance Act 1989, Crown Entities Act 2004, Local Government Act 2002,

Education Act 1989, Energy Companies Act 1992, and may also include the public

entity’s enabling Act. As a result, the Appointed Auditor will need to maintain an

understanding of the laws and regulations that specify the form, content, preparation,

publication, and audit of the performance report, and assess whether they have been

met, in keeping with the objectives of AG ISA (NZ) 250: Consideration of laws and

regulations.

A2. The Appointed Auditor’s understanding of the way the public entity manages and

reports its performance is essential for informing their views on the adequacy of the



performance reporting framework. As a result, the Appointed Auditor will need to

consider:

- how the public entity views the relationships between the various elements of

its performance; and

- the public entity’s performance priorities.

In doing this, the Appointed Auditor will need to consider matters that may have

previously affected the public entity’s performance report, including recent audit

reports and communications with management or those charged with governance.

A3. In gaining an understanding of the public entity, the Appointed Auditor will also need

to consider the public entity’s (external and internal) business environment, any

changes in that environment, and the possible implications for the audit.

A4. The Appointed Auditor should gain an understanding of how the public entity’s

performance information is prepared based on the public entity’s systems of internal

control. This will involve gaining an understanding of the policies, processes,

systems, and structures employed by the public entity for planning, managing,

reporting, and evaluating its overall performance. To do this effectively, the Appointed

Auditor will need to understand:

- the public entity’s approach to formulating strategy, its strategic planning

processes, and the links to operations, in terms of planning, management,

and reporting flows;

- its processes for:

- specifying outcomes and impacts, outputs, resources, and processes

for service delivery;

- setting organisational objectives and targets;

- establishing business plans and budgets; and

- measuring and reporting performance throughout the different levels

within (and outside) the public entity;

- how the public entity assesses its performance information needs for the

purposes of management decision-making and accountability; and

- how the public entity designs, implements, and reviews the information

systems that support its information requirements.

This understanding is essential for determining whether the public entity’s

performance objectives and achievements are adequately reflected in both the

forecast performance report and performance report.

A5. When assessing the public entity’s systems of internal control, the Appointed Auditor

should take into account any matters affecting the public entity’s systems of internal



control and performance information, that may have been previously raised in reports

to management or those charged with governance.

A6. The Appointed Auditor needs to understand both where and how the public entity

intends to report its performance because there is some flexibility in where and how

public entities can report their performance, including those aspects of their

performance that could be reported by another public entity. Where relevant, the

Appointed Auditor will need to liaise with the Appointed Auditor(s) of other public

entities to ensure all material performance information will be audited.

Assessing the forecast performance report (See paragraphs 18 - 22)

A7. In general, the long-term goals and objectives of public entities are set out in their

legislation and strategic plans. The forecast performance report should reflect the

way the public entity intends to manage its performance, and it should show how the

annual performance contributes towards the long-term goals. The logic for the

existence of activities and outputs should be clear and understandable.

A8. The performance reports to be produced, and the specific elements to be reported

on, will differ among public entities depending on their governing legislation. The

Appointed Auditor needs to be familiar with the specific reporting requirements

relating to the public entity. For most public entities reporting under the Public

Finance Act, Crown Entities Act, or Local Government Act, a performance reporting

framework is likely to include:

- a forecast performance report:

- this report may be presented in the estimates of appropriations,

statements of performance expectations, statements of intent, annual

plans, long-term plans, and similar documents; and

- this report is aimed at specifying the types and levels of service the

public entity plans to deliver and how it plans to assess what its work

is achieving;

- a performance report of actual performance achieved:

- this report is normally presented in the public entity’s annual report;

- this report should cover what has been achieved against the

performance intentions outlined in the forecast performance report;

- this should report on outputs delivered against the planned outputs

outlined in the forecast performance report; and

- this report should disclose any other information necessary to enable

an informed assessment of the public entity’s performance. (This



could include descriptions of identified effects of the public entity’s

interventions, including unintended consequences.)

For other public entities (for example, energy companies), the nature of the

performance report may be specified in applicable legislation, which may indirectly

determine the nature of the performance reporting framework.

A9. The forecast performance report should be requested at an early enough stage to

allow the Appointed Auditor time to consider it and provide comments to the public

entity, and for the public entity to take those comments into account when finalising

the report. Whether the Appointed Auditor is able to undertake this work will depend

on the public entity making the forecast performance report available within a

reasonable time before the report is formally approved. The extent of the Appointed

Auditor’s assessment of the forecast performance report will depend on the

completeness of the forecast performance report. Early consideration of the forecast

performance report is primarily for the benefit of the public entity in that it provides the

opportunity for improvement before the forecast performance report is approved or

published. The Appointed Auditor’s work on the forecast performance report should

be taken into account when reviewing the final forecast performance report. In

undertaking this work on the forecast performance report, the Appointed Auditor

should consider:

- whether the performance reporting framework reflected in the forecast

performance report will provide a sufficient basis for stakeholders to make a

meaningful assessment of the public entity’s performance;

- how well the forecast performance report links to the public entity’s overall

performance management and reporting arrangements;

- the process for establishing and selecting the reported elements of

performance reports (for example, outcomes, impacts, outputs, and their

associated performance measures and performance targets); and

- the content of the forecast performance report (for example, the outcomes,

impacts, outputs selected for reporting, and their associated performance

measures and performance targets) and how well they represent the public

entity’s strategic and operational performance objectives.

A10. In addition to the reports referred to in A8 being coherent within themselves, an

adequate performance reporting framework requires that they are coherent in relation

to each other. Each statement should demonstrate the links to the other so that users

are able to ascertain how the various elements of performance relate to each other.

Such links are necessary for enabling users to assess the effectiveness of the public

entity’s performance.



A11. The forecast performance report should clearly and accurately describe, classify, and

group together the various elements of performance reports. For example, the

reporting of outcomes should be clearly distinct from, but linked to, the reporting of

outputs, where appropriate.

A12. The forecast performance report should include enough contextual information (for

example, on the public entity’s statutory role and function, strategic goals,

government and Ministerial priorities, external and internal risks and responses, and

other information required by legislation or, where applicable, generally accepted

accounting practice). It should also demonstrate logical links between such contextual

information and the main components of the forecast performance report (for

example, reports on intended outcomes/impacts and reports of planned outputs). This

information provides a frame of reference for the public entity to demonstrate the

appropriateness of its performance reporting.

A13. The specific outcomes, output classes and outputs within each class, performance

measures, and performance targets selected for external reporting purposes are

confirmed at the stage at which the public entity prepares its forecast performance

report, which may take place up to six months before the start of the reporting period

to which it relates. The choice of performance elements reported against, and the

nature of performance measures and performance targets chosen by a public entity,

may have significant implications for audit work. For example, both the

appropriateness of measures chosen and the auditability of systems used to record

performance data are of primary interest to the Appointed Auditor. As a consequence,

the timing of the public entity’s planning process has an effect on the timing of audit

work.

A14. In assessing the forecast performance report, the Appointed Auditor should address

the following matters:

- determine whether the public entity is complying with applicable laws and

regulations for its performance reporting;

- consider whether the public entity is using performance information for its

performance report that is consistent with the information that managers

within the public entity use to make decisions and monitor performance. The

Appointed Auditor should therefore consider the public entity’s environment

(and any changes in that environment) as well as its systems of internal

control, including the way it manages its performance, and consider what

they would expect to see in the performance report. It is important for the

Appointed Auditor to consider what should be included in the report, rather

than simply validating the content that is included;



- evaluate the adequacy of processes used to establish the selection of the

elements of the performance report and their respective performance

measures and performance targets – for example, whether adequate

consultation (within or outside the public entity) is being undertaken;

- determine the appropriateness of the selected outcomes, outputs and output

classes, performance measures, and performance targets. The

appropriateness of performance targets will usually be determined by

considering the process for setting them; and

- consider whether there are any other issues in relation to the performance

report, selection of outputs, performance measures, and performance targets

that may affect the audit opinion – in particular, the auditability of the

measures.

A15. As part of determining whether the published or finalised forecast performance report

provides an adequate basis for presenting fairly, in all material respects, the

performance of the public entity and, where applicable, the approved or published

forecast performance report complies with generally accepted accounting practice,

the Appointed Auditor will need to understand the requirements that are specified in

the public entity’s relevant legislation.8

A16. Generally accepted accounting practice provides the conceptual underpinning for

performance reporting. Generally accepted accounting practice requires the

description and disclosure of outputs and description of impacts and outcomes,

where practicable and appropriate, and guidance is also provided on the

specification, measurement, and reporting of performance.

A17. Where the published or finalised forecast performance report is required to comply

with generally accepted accounting practice, the Appointed Auditor will need to

determine whether the reported outcomes, impacts, outputs, performance measures,

and performance targets are appropriate and consistent with the requirements of

generally accepted accounting practice.

A18. The performance information presented should tell a meaningful story to users and

links should be drawn between the different performance elements (for example,

outputs, impacts, and outcomes) and the progress towards achieving long-term

objectives should be discussed. In addition, the performance information needs to

work in conjunction with the financial information to convey a coherent picture of the

public entity’s performance.

8 Some guidance is also provided by central agencies.



A19. In determining the extent to which the appropriateness of the output information is

adequately reflected in the forecast performance report, Appointed Auditors will need

to analyse the various components of the public entity’s performance reporting

framework, including relevant contextual information (for example, legislative,

strategy, and outcomes references), and that the framework contains credible links,

and is internally logical and consistent.

Qualitative characteristics of performance information

A20. Appointed Auditors should apply the qualitative characteristics of performance

information when assessing the appropriateness of:

- the performance objectives sought, in terms of outputs, impacts, and

outcomes;

- the dimensions of performance to be measured and, therefore, the

performance measures selected;

- the levels of performance aspired to (that is, the performance targets); and

- the results achieved.

A21. To be relevant, the performance information should:

- be presented within the context of the public entity’s strategic objectives, past

performance, and current environment (including government themes, as

appropriate and other themes and considerations, such as sustainable

development);

- show clear and logical links between organisational objectives (and themes),

outcomes, impacts, outputs, and their associated performance measures and

performance targets (so that the rationale for the selection of elements of

performance, performance measures, and performance targets is evident);

- meet the information requirements of users (including by reporting different

levels and layers of information) and be useful for decision-making, as

appropriate; and

- be clearly linked to the financial information, including significant areas of

planned expenditure.

A22. The relevance of information is affected by its nature and materiality. Performance

information is considered material if, when reporting performance, it:

- relates to the primary functions or purposes of the public entity (that is, its

“reason for being”);

- could be of significant national or community interest or interest to the public,

including the media;



- relates to a significant risk to the public (for example, the purity of water

supply) or that could have a negative effect on social, economic, or

environmental wellbeing;

- could contain errors or omissions that, individually or collectively, affect the

performance report by altering users’ perception in a way that is likely to

influence their assessment of the public entity’s performance or their

decision-making;

- relates to a function where there is a significant risk of performance failure by

the public entity;

- could contain errors or omissions that could adversely affect the reputation of

the public entity or Parliament, if they were to remain undetected (for

example, relating to illegal acts);

- relates to an output that is financially significant; or

- relates to a performance target that may have a significant effect on

management performance rewards.

A23. To be reliable, performance information should be:

- faithfully represented and supportable, in that:

- it is measurable;

- it represents what it purports to, or is expected to, represent (that is, it

represents the substance of transactions and events);

- informed users would reach the same, or similar, conclusions on the

choice of elements of performance and performance measures; and

- it is free from material error (that is, it is accurate or capable of having

its accuracy determined within an acceptable range of precision or

certainty – that is, free from errors of method and errors of

application);

- neutral (that is, free from bias in the selection, measurement, and disclosure

of the elements of performance, performance measures, and performance

targets); and

- complete and balanced, in that:

- it is comprehensive enough, aggregated where appropriate, and

reasonable (with the basis for aggregation clearly specified); and

- it covers the significant activities and all important aspects (including

identifying the important dimensions of performance), and give them

suitable emphasis, to present fairly, in all material respects, their

significance to the public entity’s performance.

A24. Biased reporting or distorted presentation of performance will not portray a complete

picture of all significant performance objectives. On the other hand, giving equal



weighting to performance measures that vary greatly in their significance may also fail

to portray a sense of proportion representative of the public entity’s activities. In this

sense, “completeness” relates more to the need for a rounded and proportionate view

of performance rather than to an overly comprehensive and voluminous set of

performance measures, which can swamp the user and detract from the usefulness

of the report.

A25. The use of external references and external assessment can enhance objectivity in

performance measurement. For example, measuring performance against external

benchmarks, standards, or predetermined criteria may provide more objectivity in the

choice of measure than measures derived internally (that is, within the public entity).

Also, the use of external parties to measure and assess historical performance may

provide more objectivity than if performance were measured and assessed internally

(that is, by employees of the public entity). However, although aspiring to high levels

of objectivity is desirable, it may not always be realistic or appropriate depending on

the nature of the output and the relevance of the measures sought.

A26. To be understandable, performance information should:

- have a clear format and layout;

- be presented in a way that engages the user – for example, by creating visual

interest through the use of charts, tables, and symbols;

- classify reported items clearly and logically;

- be coherent, with easy-to-follow links between the different parts;

- be presented within the context of the public entity’s strategic objectives, past

performance, and current environment (including government themes, as

appropriate, and other themes and considerations, such as sustainable

development);

- show clear, logical, and easy-to-follow links between performance elements,

(for example, outcomes, impacts, outputs, and other objectives), and their

associated performance measures and targets;

- be clear and concise in its content; and

- be easy to read, expressed in plain English, and use words and terms

suitable for users (with adequate explanations of acronyms, jargon, and

technical terms).

A27. The level of detail should be such that users can readily understand the key issues.

A28. To be comparable, performance information should be presented to allow users to

identify similarities and differences and to track progress:

- most importantly, of actual performance against forecast performance; and



- across different reporting periods and to identify trends.

This requires the performance report to be consistent in its format, its layout, and in

the way information is classified, as well as in the selection, measurement, and

disclosure of the elements of performance and related information.

A29. It is also desirable that performance reports are presented to allow users to identify

similarities and differences among different entities, where appropriate and

practicable.

A30. Appointed Auditors should encourage the public entity to:

- develop performance measures that are consistent over time;

- include long-term targets, where relevant; and

- reorient the focus of reporting by including information that enables users to

track the public entity’s progress in meeting both its short-term and long-term

goals.

This will enable performance in the current reporting period to be assessed in the

context of the public entity’s longer-term goals. Note that, generally, such

comparisons form the starting point for further questions from users of performance

reports, rather than providing definitive answers.

A31. The information in the reports should also be timely and economical. Therefore, the

Appointed Auditor should be mindful of the need for a balance between the cost and

benefits of producing the information, as well as a balance among the qualitative

characteristics of performance reports.

Outcomes and impacts

A32. There is rarely a single cause-and-effect relationship between outputs and outcomes.

Often, several outputs relate to one outcome, and the reverse may also be true. The

primary links may need to be set out in the performance report, as far as is

practicable without sacrificing clarity.

A33. Outcomes are usually not completely under the control of a single entity or totally

under the control of a group of entities. For instance, where the outcomes being

sought by a public entity revolve around complex social questions or relationships,

such as the crime rate, each outcome would usually result from a variety of factors,

including, for example, the activities of all entities responsible for:

- economic development and employment;

- provision of adequate and equitable social welfare and security;

- provision of education and training; and



- policing, prosecution, sentencing, imprisonment, and rehabilitation.

The Appointed Auditor, therefore, needs to be alert to the importance of causality in

assessing a public entity’s forecast performance report.

A34. However, the relationship of the output performance of many entities to the various

levels of achievement against outcomes can provide useful information for assessing

public sector performance and for future policy setting. Therefore, it is important that

public entities consider the value and relevance of reporting outcomes they expect to

influence and contribute to by their output delivery, even though they do not “control”

the outcome. Public entities can provide a rich set of information by reporting

achievement against outcomes at various levels (for example, high-level societal

outcomes and more immediate outcomes/impacts over which the public entity has a

stronger influence or closer control).

A35. If the reported outcomes and impacts do not meet the qualitative characteristics of

performance reports or do not adequately link with other performance information in

the performance report then the Appointed Auditor will need to consider the effect on

the audit opinion and the management letter.

Appropriateness of reported outputs, performance measures, and performance targets

A36. It is the public entity’s responsibility to develop “appropriate” performance measures

and performance targets (although, in some instances, significant performance

benchmarks may be determined by legislation or regulation – for example, statutory

timeframes for approvals and the more general reporting framework for tertiary

education institutions prescribed by the Tertiary Education Commission) for the

reported outputs and output classes.

A37. It is the Appointed Auditor’s responsibility to assess the appropriateness of the

performance report, including taking into account the requirements of users, by

concluding whether the performance information taken as a whole presents fairly, in

all material respects, the performance of the public entity.

A38. When assessing the appropriateness of the performance information, the Appointed

Auditor should9:

- Ascertain how users’ views have been taken into account in assessing the

quality of the public entity’s performance. As a minimum, the Appointed

Auditor should assess whether management or those charged with

9 The procedures outlined in this paragraph should not be regarded as complete, and are provided for the purposes of guidance only.



governance have identified significant user groups, whether they have

consulted with them, and what the result of those consultations was. The

Appointed Auditor should consider any views of users of the performance

report to assist in forming a view on the appropriateness of the performance

measures and performance targets. In doing so, it may be necessary for the

Appointed Auditor to ask outcome-oriented questions about the nature of the

information provided to users to help them understand the extent to which the

public entity has achieved its goals. Although this presumes a knowledgeable

and informed set of users, the Appointed Auditor may wish to focus on a

significant user group, such as select committees (central government), as

representatives of the wider user group.

- Examine policy or outcome statements. By examining policy or outcome

statements of the public entity, the Appointed Auditor may be able to gain

evidence to support the public entity’s assertions that the reported outputs,

performance measures, and performance targets in the forecast performance

report are appropriate. The Appointed Auditor should also consider any

output or purchase agreements or equivalent contractual documents between

the public entity and the controlling entity, agency, individual, or Minister, as

well as the outcome statements of policy setting and funding agencies within

the same sector.

- Assess process. If an appropriate process is in place, appropriate reporting of

outputs, performance measures, and performance targets should result. The

Appointed Auditor could therefore evaluate the appropriateness of the

process used by the public entity to develop and refine its reported outputs

and performance measures.

Dimensions of performance

A39. The performance report should disclose enough information on what is being

measured and how it is being measured. Where one or more of the dimensions of

performance are absent, the Appointed Auditor should assess whether the reasons

for the exclusion are justified. Where, in the Appointed Auditor’s opinion, such an

exclusion is not justified, they should seek further explanations from management or

those charged with governance. If still not fully satisfied, the Appointed Auditor is

expected to consider the implications for the audit report, or the management letter.

A40. Performance measures on the quality of outputs can be contrasted in various ways:

- direct versus indirect measures;

- quantitative versus judgemental (qualitative) criteria; and

- expert assessment versus a lay person’s assessment.



A41. Direct measures on the quality of outputs should measure the properties or attributes

inherent within the service itself. They could be said to result from direct observation

of the service delivery or from data that record dimensions of the service delivered.

Indirect measures also aim to capture information about the properties or attributes of

a service but are derived by methods other than direct observation (for example, they

can be derived from the results of survey questionnaires about user perceptions or

experience of the quality of service received, which reflect the “eye of the customer”).

A42. Direct measures on the quality of outputs are likely to be more objective than, and are

therefore usually preferable to, indirect measures. Nevertheless, indirect measures

such as stakeholder or customer perceptions can provide relevant information when

the surveys are well designed and conducted and the results are interpreted with

enough caution. Direct measures on the quality of outputs should be used if possible,

but they can be usefully supplemented by indirect measures, such as customer

perception of the service. A public entity needs, at least, to consult stakeholders and

ask what they value to (a) inform the selection of direct measures of quality, and (b)

help establish relevant questions for gauging stakeholder or customer perceptions on

the quality of outputs.

A43. Often the quality of outputs will be expressed in a range of explicit, easily quantifiable,

and objectively verifiable specifications or technical standards. For outputs for which

quality is not so easily quantifiable, a more judgemental (or qualitative) approach is

needed to assess the quality of the service. Quantitative measures that are readily

observable are likely to provide a more objective means of assessing performance

than qualitative measures based on individual judgement. However, measures that

are more easily quantifiable and measurable may not necessarily constitute the more

relevant measures of service quality. Therefore, public entities need to consider

which types of measure would best capture the more relevant aspects of the quality

of outputs.

A44. Many aspects of the quality of outputs are readily observable to the lay person (for

example, customer, service provider, or other stakeholder – the “eye of the

customer”), while other aspects require an expert assessment (the “eye of the

expert”). These perspectives apply to both quantitative and qualitative approaches to

assessing the quality of outputs. The lay person is often able to directly observe and

interpret the technical specifications of the output and so determine the level of

quality achieved; in other instances, the lay person may provide a more subjective

judgement of the quality of outputs based on their experience (for example, their

opinion of how good the service was). By contrast, some qualities expressed as



quantifiable, technical specifications may require expert reading, analysis, and

interpretation. In other instances, an expert may be required to provide a judgemental

(or qualitative) assessment of service quality. (One example is peer review, in which

service quality is determined by an expert, who observes the service delivery and

applies their professional judgement to assess the service, based on their expert

knowledge and experience.)

A45. No particular combination of the above approaches to deriving measures or to assess

the quality of outputs is of itself “correct”. Public entities may choose to measure and

report on the basis of several approaches. However, they should prefer objective

measures to subjective measures, subject to ensuring the more relevant properties of

the output are captured by the performance measures. A range of different

approaches to measuring the quality of outputs can be useful for providing

confirmatory evidence or simply providing a different perspective. The Appointed

Auditor should assess whether the public entity has considered a sufficient range of

approaches to measuring quality before selecting the measures.

A46. In some instances, public entities may report input or process measures (or a

combination of elements, for example, ratio of outputs to inputs) as a proxy for

unobservable or difficult-to-measure outputs. Sometimes process measures can

provide useful and important information relating to the quality of outputs.

A47. Where public entities provide input or process measures as a proxy for output

measures in the performance report, the Appointed Auditor needs to consider:

- whether there is enough justification for not providing output measures; and

- whether the input or process measures are appropriate and meet the

qualitative characteristics of performance reports.

Auditing the performance report (See paragraphs 23 - 43)

Determining materiality

A48. Materiality, in the context of performance reports, relates to both:

- the importance of the performance information to providing a relevant and

reliable representation of the public entity’s performance (see paragraph

A22); and

- the level of misstatement of reported results that, based on the Appointed

Auditor’s professional judgement, are likely to influence users’ assessment of

the public entity’s performance.



A49. In assessing and documenting the public entity’s material performance information for

the purpose of audit testing, the Appointed Auditor should take into account their

conclusions on the forecast performance report and consider the following points:

- Determination of material performance information should be made only after

discussions with the management or those charged with governance (and, if

necessary and appropriate, Parliamentary select committees, politicians, or

councillors).

- Determination of material performance information should be consistent with

the auditor’s knowledge of the political environment and information gleaned

from sources such as minutes of meetings, media reports, and the like.

Obtaining audit evidence

A50. In gaining assurance through verification of the material performance information, the

full range of normal audit procedures will usually be available to the Appointed

Auditor.

A51. The mix of audit tests may vary compared with the mix used in auditing the financial

information, but the non-financial aspects of a performance report do not in

themselves alter the nature and level of evidence required.

A52. Audit procedures that may be applied to gain the required level of assurance when

auditing performance information include:

- testing and evaluating the systems, processes, and controls that capture,

record, analyse, and monitor the information;

- performing analytical procedures on the information; and

- performing other substantive or re-performance tests.

A53. The quality of the systems used to record and control results, and the nature and

quality of evidence available about the reported performance measures, may have an

effect on the mix of tests used. For instance, weak recording or information systems

may force the Appointed Auditor to use a substantive rather than a controls reliance

approach.

Determining whether there have been any changes in material performance information

A54. Consistency of measures between reporting periods is valuable and, in some cases,

it is a legislative requirement that the performance report includes comparative data



for the previous period. However, improvement in the quality of performance

information is more important than inter-period consistency.

A55. The Appointed Auditor should check that material outputs, performance measures,

and performance targets agree to any published statements. Where changes are

noted, the Appointed Auditor should ensure that the change has been properly

approved, which may include processes outlined in legislation, and published.

A56. Where applicable, the Appointed Auditor should check that, where outputs,

performance measures, or performance targets refer to standards outside the

published measures (for example, those relating to a standard agreed with the

Minister), those external standards have not changed significantly during the

reporting period.

A57. In addition to checking that the changes have been properly authorised, the

Appointed Auditor should be satisfied with the reasons for any change. Changes

relating solely to how performance is measured should improve the measurement of

performance. The Appointed Auditor should be wary of unnecessary or

unsupportable changes that give the appearance of an improved result, in a similar

fashion to changes in accounting policies that are used to manipulate financial

results. Such changes are not acceptable.

A58. Where the Appointed Auditor considers that additional information about changes to

reported outputs, output classes, performance measures, or performance targets

should be disclosed for the performance report to be fairly stated, they should request

that the report discloses (as a minimum) the nature of, and reasons for, the changes.

Evaluating management commentary

A59. Where a public entity seeks to use management commentary as an alternative to

performance information, the Appointed Auditor should consider modifying the audit

opinion.

A60. Management commentary should be included in, or along with, the performance

report to assist users’ interpretation of achievements that are not otherwise evident

from the performance information.

A61. The Appointed Auditor’s responsibility for commentary included as the part of the

general purpose financial report not subject to audit is limited to following the



requirements of ISA (NZ) 720: The Auditor’s Responsibility in Relation to Other

Information in Documents Containing Audited Financial Statements.

Assessing the reasonableness of cost allocations

A62. The full and fair allocation of costs to outputs is one of the cornerstones of an efficient

management control system. The information such systems generate should enable

users, including management or those charged with governance, to make decisions

concerning resource use, budgetary implications, the cost of outputs, and the extent

of cross-subsidisation. Therefore, such systems can have a considerable effect on

the disclosures in performance reports.

A63. The audit focus should be on the method of allocation including the underlying

assumptions. Therefore, the Appointed Auditor is likely to concentrate on:

- ensuring the method of allocation is reasonable and supportable. (The

allocation of overheads should follow a cause and effect relationship. The

factors that cause the consumption of overheads are called “cost drivers”.

Although some proportion of overhead will not be traceable to a particular

output, the aim is to identify a causal link wherever possible. Activity-based

costing will be relevant for achieving a more accurate cost of outputs in some

cases);

- testing the reasonableness of the underlying assumptions; and

- ensuring that there is consistency of treatment within the reporting period

(that is, costs are allocated on the same basis as funds are appropriated or

budgeted), and between reporting periods where applicable.

Forming an opinion on the performance report

A64. Following the completion of fieldwork, the Appointed Auditor should reconsider their

earlier decision about the adequacy of the performance reporting framework and, in

particular, the appropriateness of the content of the performance report. To form an

opinion on the performance report, the Appointed Auditor should consider the

forecast performance report as well any other relevant performance information

included within the general purpose financial report of the public entity or, where

relevant, other public entities.

A65. In forming the audit opinion, the Appointed Auditor needs to determine whether the

performance report complies with the public entity’s reporting requirements as set out

in applicable legislation, presents fairly, in all material respects, the public entity’s

performance for the reporting period and, where applicable, complies with generally



accepted accounting practice. To do so, the Appointed Auditor should obtain an

overview of the performance reporting framework, giving particular attention to the

links (as relevant) between the following aspects:

- contextual information (including the public entity’s role, purpose, function,

and strategic objectives);

- short-term, medium-term, and longer-term information;

- the elements of performance (including outcomes, impacts, outputs, and

inputs – where relevant);

- performance measures, performance targets, and results (including

consideration of the effect of uncorrected errors of misstatement and

omission); and

- management commentary within and outside the audited performance

information.

A66. The Appointed Auditor shall take into account the forecast performance report and

the performance report prepared after the end of the reporting period, together with

any other relevant performance information, within the general purpose financial

report, for the purpose of determining the appropriateness of the performance report.

The Appointed Auditor’s determination will be based on their conclusion about

whether the performance report presents fairly, in all material respects, the public

entity’s performance for the reporting period and, where applicable, complies with

generally accepted accounting practice.

A67. The Appointed Auditor will have drawn conclusions on the adequacy of the

performance reporting framework when evaluating the forecast performance report.

The Appointed Auditor shall therefore take into account any significant differences

between the forecast performance report and the performance report prepared after

the end of the reporting period.

A68. The Appointed Auditor’s opinion on the performance report is formed in the context of

the information provided in the performance report. Performance reporting is usually

concerned with reporting how well services are delivered (output delivery

performance) and how effective the services are at achieving the public entity’s

service objectives (achievement of impacts and outcomes). Therefore, in performing

the audit work necessary to form an audit opinion on the performance report, the

Appointed Auditor will be required to assess how well the performance information is

presented. The performance report, together with other information in the general

purpose financial report, should provide the information necessary to enable an

informed assessment to be made of the public entity’s performance during the

reporting period.



A69. The specific circumstances that may influence the decision on whether to modify the

audit opinion regarding performance information, in keeping with the requirements of

AG ISA (NZ) 705: Modifications to the opinion, include:

- The performance report does not comply with generally accepted accounting

practice, where it is required to comply with generally accepted accounting

practice, or otherwise fails to present fairly, in all material respects, the

performance of the public entity to the extent that, in the Appointed Auditor’s

professional judgement, the reported performance information is likely to

influence users’ assessment of the public entity’s performance, for any of the

following reasons:

- material performance information is omitted; or

- material performance information is inappropriate (for example, it

does not satisfy the qualitative characteristics of performance

reports).

In such circumstances, the Appointed Auditor will need to consider whether to

issue a modified (adverse, disclaimer, or qualified) opinion.

- Results reported for material performance measures do not meet the

requisite evidential criteria, the systems or processes for controlling and

recording performance information are deficient, or results reported for

material performance measures cannot be substantiated. In such

circumstances, the Appointed Auditor will need to consider whether to issue a

modified opinion.

- Management commentary within the performance report is used as an aid to

understanding the report but the commentary or explanations given are

insufficient, inconsistent, or misleading. In such circumstances, the Appointed

Auditor will need to consider whether to issue a modified opinion and/or

whether to report the issues to management or those charged with

governance.

A70. Other circumstances that could result in the inclusion of an “emphasis of matter” or

“other matter” paragraph in the audit report, in keeping with the requirements of AG

ISA (NZ) 706: Emphasis of matter paragraphs and other matter paragraphs, include:

- Laws and regulations for approval, format, publication, and circulation of

plans and performance reports are not being followed – for example, where

performance measures or performance targets have not been legally or

otherwise properly approved. In such circumstances, the Appointed Auditor

will need to consider whether this should be included in the audit report

and/or whether to report the issue to management or those charged with

governance.



- Material performance information is considered to be appropriate but is poorly

presented. In such circumstances, the Appointed Auditor should consider

whether to report the issue to management or those charged with

governance.

- Changes made to material performance measures during the reporting period

have not been legally or otherwise properly approved, or the changed

measures are less appropriate, or the changes have not been adequately

explained in the performance report. In such circumstances, the Appointed

Auditor will need to consider whether a legislative breach should be reported

in a management letter to the entity and/or whether to include an emphasis of

matter or other matter paragraph in the audit report, as appropriate.