Introduction

This report summarises the final results of the audits of the financial statements of Australian Government entities, being the second report this year on financial statement audits for the period ended 30 June 2003. It complements Audit Report No. 61 2002–2003 Control Structures as part of the Audit of Financial Statements of Major Commonwealth Entities for the Year Ending 30 June 2003.

The report is organised as follows:

• Part One—The Financial Reporting Framework— provides ongoing commentary on the structure of and issues in relation to the Commonwealth's financial framework. Comment is also made on the quality and timeliness of the preparation of entities' annual financial statements.
• Part Two—Results of the Audit of the Consolidated Financial Statements of the Australian Government —provides details of the audit of the Commonwealth's Consolidated Financial Statements for 2002–2003.
• Part Three—Summary Results of the Audits of Financial Statements—discusses, in summary, the fi nal results of audits of the fi nancial statements, providing details regarding qualifications and any matters emphasised in audit reports.
• Part Four—Results of Final Audit Testing—provides an overview of the results of our year end substantiation of financial balances. It also provides a summary of continuing significant accounting issues.
• Part Five—Department of Family and Community Services Triple Bottom Line Report—provides details of the results of audit procedures undertaken to provide a verification statement on Triple Bottom Line Reporting.
• Part Six—Results of the Audits of Financial Statements by Portfolio—provides the detailed results of the individual financial statement audits and any additional significant control matters identified since Audit Report No. 61 2002–2003. It is structured in accordance with the Portfolio arrangements established in the Administrative Arrangements Order of 8 August 2002. For reporting purposes, this reflects the portfolio arrangements which existed at 30 June 2003.

The 2002-2003 audit cycle

Under section 57 of the Financial Management and Accountability Act 1997 (FMA Act) for agencies, and under clause 3, part 2 of Schedule 1 of the Commonwealth Authorities and Companies Act 1997 for other bodies, the Auditor-General is required to report each year to the relevant Minister(s) on whether the entity's financial statements have been prepared in accordance with the Finance Minister's Orders and whether they give a true and fair view of the matters required by those orders.

Since Audit Report No. 61 2002–2003 was issued in June 2003, the Australian National Audit Office (ANAO) has updated its understanding of the business and corporate governance arrangements; confirmed audit risk; completed audit testing; and largely completed its program of final audits. All ANAO findings have been reported to entities' management and reported, in summary, to the responsible Minister(s).

Internal Control Issues

Overall, the results of the final audit phase indicate that many of the control issues raised in Audit Report No.61 2002–2003 have been addressed, or are in the process of being addressed. A number of new issues were raised with entities during the final phase of the audits. Overall, the quality of the control environment and internal controls in business and accounting processes continue to improve. This is demonstrated by:

• 16 of the 67 material entities reporting an improvement in the number of ‘A' and ‘B' category audit issues and only 8 entities showing a deterioration in their position, with 8 entities remaining at the same position; and
• 35 of the 67 material entities had no category ‘A' or ‘B' audit issues.

Further details of internal control issues arising from the audits are provided at Part 4 of the report.

Results of the audits of financial statements

The material portion of the Commonwealth's revenues, expenses, assets and liabilities in the 2002–2003 financial year are accounted for by a relatively small number of Australian Government entities. The major ones are the Departments of Defence, Family and Community Services, Health and Ageing, as well as the Australian Taxation Office. The focus of this report is on the final results of the financial statement audits for the 2002–2003 fi nancial year. Financial management issues (where relevant) arising out of the audits and their relationship to internal control structures are also included in this report.

Consolidated Financial Statements of the Australian Government

The Consolidated Financial Statements (CFS) of the Australian Government are an important element of open and accountable government. They also fulfil a key stewardship obligation of the Government to report its financial performance during the reporting period.

The Minister for Finance is required under sections 55 and 56 of the FMA Act to table audited CFS in each house of Parliament, as soon as practicable after the end of the financial year.

The CFS were signed on 27 November 2003 and tabled in the Parliament on 4 December 2003.

The audit report for the CFS for the 2002–2003 financial year contains six qualifications and two ‘emphases of matter'. Two qualifications were the result of differences in accounting policies and the associated disclosures in the CFS. The other qualifications covered limitations of scope over inventory, assets and employee entitlements. A limitation of scope on the auditor's work arises when sufficient appropriate audit evidence does not exist to support a reported balance. The ‘emphases of matter' were due to inherent uncertainty regarding two components of the Australian Government's liability position. Further details in regard to the qualifications and emphases of matter can be found in Part 2 of the report.

Summary of Audit Reports Issued

The Auditor-General is required to provide an audit report on the financial statements to the relevant Minister for each Commonwealth entity. The opinion included in the audit report would be either unqualified or qualified. Unqualified and qualified audit opinions may also include an emphasis of matter. The audit report may also contain comment on any other statutory matter as required by section 57 of the FMA Act. Explanation of the various types of audit opinions and the inclusion of other statutory matters are provided in Part 3 of the report. A summary of the audit opinions and other statutory matters included in audit reports issued by the ANAO for the past two years is provided in the Table below.

Footnotes

*The Department of Defence is also included in the qualified report numbers. The Department of Treasury is also included in the audit report containing an emphasis of matter numbers.