Part 2: Progress with our management and business strategies

Annual report 2005-06.


In this Part, we report on our progress in implementing our management and business strategies, and their effect on our outcomes, governance, risk, and capability objectives.

Our aim is to demonstrate good practice in these areas of reporting, and to provide Parliament and the public with a fuller description of our non-financial performance.

The sections in this Part are:

Outcome report

We seek to create, through our work, trust in an effective and efficient public sector. We do this by providing independent assurance and advice, and control over parliamentary expenditure.

We assess our contribution to these outcomes through performance measures that consider:

  • the extent of improvements over time in parliamentary and public perceptions of public sector performance and trustworthiness;
  • whether real change and improvement is happening as a result of our work; and
  • whether the Auditor-General is perceived by stakeholders as an essential part of the system.

Given the changes to the Controller function arising from the Public Finance Amendment Act 2004, we undertook to redesign our performance measures during 2005-06. Revised performance measures are in place for 2006-07.

Results for 2005-06

Measure 1: New Zealand maintaining or improving its Transparency International rating

In 2005, New Zealand was rated second equal (with Finland and behind Iceland) on the Transparency International Corruption Perceptions Index. This is the same as the result for 2004. New Zealand’s score was 9.6 (the same as the previous year), while the top score was 9.7 and the lowest 1.7.

The index rates countries by the degree to which corruption is perceived to exist among public officials and politicians. In 2005, 159 countries were rated, drawing on 16 surveys and assessments carried out among business people and country analysts, including residents.

Measure 2: The actions others take as a result of our work

We measure the actions others take because of our work in two ways:

  • feedback from select committee Chairs as to the usefulness of our advice; and
  • the extent to which public entities accept the recommendations we make in annual audits conducted by Audit New Zealand.

Our annual audit work provides assurance to Parliament and the public that public sector entities are operating, and accounting for their performance, in accordance with Parliament’s intentions in respect of their financial reporting responsibilities. The independent and public assurance we provide about the performance of public entities contributes to public trust in government.

Indicators such as entity adoption of our recommendations and reducing numbers of non-standard audit reports may therefore provide indications suggesting improved public sector performance. As with any indicator, there is not a direct or immediate relationship with the indicator and the desired situation. A range of factors may affect opinions in any year, including general environmental changes (such as in the statutory or financial reporting environment) and entity-specific changes (such as management change).

Feedback from select committee Chairpersons

The Auditor-General or the Deputy Auditor-General met formally with the Chairpersons of five select committees to get their feedback on the usefulness of our advice. (The Chairpersons of another six select committees contributed to our stakeholder survey discussed under Measure 3.)

Chairpersons advised that they continue to find our advice highly valuable, and that our proposed lines of inquiry are adopted in most circumstances.

Entity adoption of our recommendations (Audit New Zealand only)

We assess whether public entities accept our recommendations by reviewing, by region and sector, a sample of the entities audited by Audit New Zealand. We review the responses made by the entities to assess what action has been taken, if any, as a result of our recommendations.

Figure 4 sets out the data for 2005-06, and shows comparable data for the previous two years.

Figure 4
Acceptance of our formal recommendations by a sample of 30 public entities

Recommendations accepted132 53%163 75%110 48%
Recommendations rejected198% 18 8%17 8%
Recommendations noted or under consideration by management56 22%23 11% 6026%
Client made no response 43 17% 14 6%41 18%
Total recommendations 250 100%218 100% 228 100%

The nature and volume of Audit New Zealand’s recommendations vary from year to year. However, it is still useful to observe trends. In 2005-06, fewer recommendations were accepted, with increases in the numbers of recommendations under consideration or not responded to by clients, and the overall number of recommendations has increased. While we will monitor this trend, this result is likely to be a reflection of the impending move to International Financial Reporting Standards, which is a focus for auditors and is generating work for entities. We note that the number of recommendations rejected has remained constant.

Observations about the quality of financial reporting by public sector entities from our audit opinions

Non-standard audit reports issued

A “non-standard audit report” is an audit report that is issued in accordance with NZICA Auditing Standard No. 702: The Audit Report on an Attest Audit (AS-702) and the associated Auditor-General’s Statement AG-702, and which contains:

  • a qualified audit opinion (a “disclaimer of opinion”, an “adverse” opinion, or an “except-for” opinion); and/or
  • an explanatory paragraph.

A full definition of a non-standard audit report is set out in our report Central government: Results of the 2004-05 audits (parliamentary paper B.29[06a], 2006, pages 29-32).

An analysis of all non-standard audit reports issued in 2005-06 is provided in Figure 5, and comparative information for the previous year is provided in Figure 6.

Figure 5
Non-standard audit reports issued, 2005-06

Type of non-standard audit reportSchools OtherTotal
Unqualified opinion

With explanatory paragraph or reference to a breach of law 21462276
Qualified audit opinion

Disclaimer of opinion 011
Partial disclaimer of opinion 011
Adverse opinion 077
Partial adverse opinion 066
Except-for opinion 384280
Total 252119371
(Total of all audit reports) 263314304063

Figure 6
Non-standard audit reports issued, 2004-05

Type of non-standard audit reportSchools OtherTotal
Unqualified opinion

With explanatory paragraph or reference to a breach of law 14862210
Qualified audit opinion

Disclaimer of opinion 268
Partial disclaimer of opinion 044
Adverse opinion 1910
Partial adverse opinion 077
Except-for opinion 443377
Total 195121316
(Total of all audit reports) 264514764121

There has been an increase in non-standard audit reports issued as a proportion of all audit reports issued during the year – from 7.7% in 2004-05 to 9.1% in 2005-06. However, there were a number of reasons for this increase:

  • There has been an increase in the number of school audit reports containing breach of law paragraphs referring to schools having not complied with aspects of the Education Act 1989. The increase in breach of law paragraphs is due partly to changes to the Education Act 1989 that schools may not have fully taken into account. In addition, for some breaches, we have specified that disclosure should be in the audit report rather than in the financial statements.
  • There has been an increase in the number of other audit reports containing a qualification on performance information. This increase has been significant in the local government sector where some council-controlled organisations did not produce a statement of intent and, as a result, were unable to report performance information against the targets that should have been in the statement of intent.

On the other hand:

  • There has been a decrease in the number of school audit reports containing explanatory paragraphs referring to the financial statements having been appropriately prepared on a disestablishment basis. The decrease was due to a smaller number of schools being closed or wound up in the 2005-06 financial year than in the previous year.

These factors suggest that the number of non-standard opinions, while increasing in 2005-06, should decline when statutory changes have been embedded and assuming that no other external changes affect audit opinions.

Measure 3: Stakeholder assessment of our relevance and timeliness, and the value we add

We ask an independent assessor to carry out a rolling annual study to gather feedback from our main stakeholders – primarily Parliament, central agencies, and sector organisations. During 2005-06, interviews were conducted with representatives from:

  • Local Government New Zealand;
  • Department of Internal Affairs;
  • Law and Order Committee;
  • Education and Science Committee;
  • Commerce Committee;
  • Finance and Expenditure Committee;
  • Social Services Committee; and
  • Health Committee.

On a scale from 1 (“strongly disagree”) to 5 (“strongly agree”), the average results were:

  • We focus on issues of importance – 4.25.
  • We are responsive to our stakeholders – 4.42.
  • Our staff have an excellent sector understanding – 4.25.
  • Our staff work effectively with our stakeholders – 4.50.

This was the first time that our stakeholder study was undertaken fully. In 2004-05, we conducted a pilot study only. The 2005-06 results will therefore form the benchmark for future years.

Measure 4: Reduction over time in the recurrence of key themes in enquiries we receive

We responded to 228 enquiries from taxpayers, ratepayers, and MPs in 2005-06, and 49 matters under the Local Authorities (Members’ Interests) Act 1968.

These enquiries concerned various issues, such as:

  • consultation and decision-making processes of local authorities;
  • the appropriateness of expenditure;
  • the sale and purchase of assets;
  • accountability arrangements for grants and funding; and
  • the legality and adequacy of processes and procedures generally.

Two common themes emerged from our review of all enquiries received:

  • procurement practices; and
  • parliamentary advertising.

Advertising was also a common theme in the previous two years. In 2004-05, we published a report on Government and parliamentary publicity and advertising. We have recently finished undertaking a review of publicity funded from parliamentary appropriations in the period before last year’s General Election, and have reported our findings to Parliament.

We are developing a good practice guide on sensitive expenditure, and are updating our guidance on procurement practices. We hope to see fewer enquiries on these topics in the future, once our guidance becomes embedded in the practices of public entities.

We continued to receive enquiries about conflicts of interest, which were common in the previous years.

Measure 5: Improvements in aspects of entity management (as measured through our assessments)

In the central government sector we have, since 1994, analysed trends in the assessments our auditors make about certain aspects of financial and service performance management – known as “the five management aspects”.

Figures 7 and 8 show changes in assessments of the five management aspects for 2004-05 compared with 2003-04, and for 2003-04 compared with 2002-03. (The data is always one year behind the year of our annual report.) We looked at this data in terms of net changes (that is, the number of higher assessments compared with the number of lower assessments).

Figure 7
Changes in assessments of the five management aspects, overall

Figure 7.

Figure 8
Changes in assessments of the five management aspects, class-by-class

Figure 8.

Overall, there has been some net improvement in our assessments of the five management aspects (that is, there were 18 higher and 14 lower assessments in 2004-05 compared with 2003-04). This indicates continuing improvement in the management of public sector entities generally, although the extent of improvement is lessening each year.

Within each class of entity, we observe:

  • Government departments showed an almost unchanged position, with the small number of assessments rated higher compared with the previous year being balanced by the same number of lower ratings.
  • District Health Boards showed a net overall improvement, with 10 higher assessments among the 21 entities in this class and 6 lower assessments.
  • Crown Research Institutes remain at almost identical levels to the previous year.
  • State-owned Enterprises were similar to government departments, with a small number of higher assessments being almost the same as those that were lower.

Did our work maintain or improve our desired outcomes?

We consider that, because of our work in 2005-06, our desired outcomes have been maintained at existing levels:

  • New Zealand maintained its ranking on the Transparency International Corruption Perceptions Index.
  • Our stakeholders indicated that our work is considered relevant and timely.
  • We expect the work we have performed on enquiries during the year is meeting our outcome of reducing the occurrence of certain themes, although new themes inevitably arise.
  • Overall, the management of entities stayed at similar levels (measured through our assessments of the five management aspects).

Governance report

Our governance framework was set out in our Annual Plan 2005-06 on pages 26-29. During the year, the Auditor-General reviewed that framework, and disestablished the Strategy Governance Team. Responsibility for strategy development and implementation now lies with the combined OAG and Audit New Zealand management group.

Measuring governance

We continue to work on designing suitable measures for governance. For 2005-06, we have used the following measures to assess the effectiveness, adequacy, and quality of our governance framework:

  • In the staff survey, we sought staff perceptions on ethics, values, and clarity of performance expectations.
  • The Audit and Risk Management Committee commissioned an independent review of our governance framework, due to be completed in September 2006.

Results for 2005-06

The average rating for governance-related questions in the staff survey, for both the OAG and Audit New Zealand, were:

  • ethics – 4.5 out of 6 (4.6 last year);
  • values – 4.4 out of 6 (4.5); and
  • performance expectations – 3.7 out of 6 (4.1).

Overall, these ratings are comparable with previous years. However, we recognise that internal frameworks and capability will need to be built to ensure that ratings improve in future.

Did we maintain or improve our governance objectives?

We consider that, through our work in 2005-06, we at least maintained our governance objectives. We acknowledge there is still further work to be done in this area, and we will implement the main recommendations from the independent reviewer in 2006-07.

Report of the Audit and Risk Management Committee
for the year ended 30 June 2006


Anthony N Frankham FCA, FAMINZ, FIOD (Chairman), professional director and specialist investigating accountant

Brigid McArthur BA, LLB (Hons), Partner, Chapman Tripp, Barristers & Solicitors

Ross Tanner MA (Hons), MPA (Harvard), Director, Ross Tanner Consulting Limited

Phillippa Smith BA, LLB, MPP (from 2 December 2005), Deputy Controller and Auditor-General

Robert Buchanan LLB (Hons) (to 2 December 2005), Assistant Auditor-General, Legal

The Audit and Risk Management Committee is an independent committee established by and reporting directly to the Auditor-General. The Committee was established in 2003, as the Audit Committee. The reference to risk management was included in the name of the Committee in December 2005, to better describe the Committee’s role.

The purpose of the Committee is to oversee:

  • risk management and internal control;
  • audit functions (internal and external) for the Office;
  • financial and other external reporting;
  • the governance framework and processes;
  • compliance with legislation, policies and procedures.

The Committee has no management functions.

During the past year, the Committee:

  • met on four occasions to fulfil its duties and responsibilities;
  • received briefings from the Auditor-General and other senior managers on key business activities of the Office, as a basis for ensuring risks facing the Office are being appropriately addressed;
  • reviewed the Office’s risk management and quarterly reports on the status of risks facing the Office;
  • recommended, for the Auditor-General’s endorsement, the internal audit programme for the year and monitored both the implementation of the programme and the timely implementation of endorsed recommendations;
  • discussed with the external auditors their audit plan for the year and findings from their audit work;
  • monitored the implementation of recommendations made by the external auditors;
  • reviewed the Annual Plan and annual financial statements of the Office prior to their approval by the Auditor-General, having particular regard to the accounting policies adopted, major judgemental areas, and compliance with legislation and relevant standards;
  • commenced a review of the governance framework of the Office.

The Committee has reported to the Auditor-General on the above and other matters it has seen fit to do so. There are no outstanding or unresolved concerns which the Committee has brought to the attention of the Auditor-General.

Anthony N Frankham

for the Audit and Risk Management Committee

4 August 2006

Risk report

We set out our framework for risk management on pages 20-21 of our Annual Plan 2005-06. During 2005-06, we reviewed our key strategic risks and our associated risk mitigation strategies to ensure that they remained relevant.

Measuring risk

In our Annual Plan 2005-06, we set out the measures we would use to assess how widely we have implemented our risk mitigation strategies, and the quality of those strategies. Our results are reported below.

Results for 2005-06

Strategic risk 1: Serious product failure

Measure: Our risk mitigation strategies are substantially implemented (90% completed).

The key risk mitigation actions for this risk include the implementation of appropriate standards and quality assurance regimes, ensuring the quality and ongoing training of our staff, and enhancement of our audits as part of our research and development programme.

We worked on five particular mitigation strategies for this risk during the year:

  • ensuring auditor readiness for the adoption of the New Zealand equivalents to international financial reporting standards (NZ IFRS);
  • developing a methodology for, and providing support to auditors carrying out, the audits of long-term council community plans;
  • continuing our work on the audit implications of the public sector legislation passed at the end of 2004;
  • continuing our ongoing research and development on the enhancement of our annual audits; and
  • assessing the implications of the new standard based on the international standard for quality control (PS1-Quality Control (Revised)).

The first four areas of work are described in the section on our research and development programme on pages 28-33.

While much of the work for these strategies is completed, work on the implementation of three of them will continue in 2006-07. NZ IFRS and the standard on quality control are not yet fully in force, and the work on audit enhancement is ongoing.

Strategic risk 2: Not maintaining our credibility and reputation

We manage this risk by ensuring that we have appropriate policies and procedures in place throughout the Office, and through our internal audit activity.

Measure 1: There are no instances where our credibility/reputation is badly damaged or litigation action is taken against the Office.

There were no instances where our credibility or reputation was badly damaged, and no litigation was taken against the Auditor-General. However, the question of audit quality arose in relation to the 2003 and 2004 audits of Te Wānanga o Aotearoa.

Measure 2: Sample stakeholders’ assessment of perceptions of the Office’s credibility and reputation.

Our stakeholder feedback study indicated that our stakeholders continue to see the organisation as credible and reputable (average rating: 5 out of 5).

Strategic risk 3: Not meeting our stakeholders’ expectations

We undertake a range of activities to ensure adequate communication with our stakeholders and to manage our relationships with them.

Measure: Sample stakeholders’ assessment of the value we add, our timeliness, and our relevance.

We received the following average ratings in relation to this strategic risk:

  • the Office focuses on issues of importance – 4.25 out of 5; and
  • the Office is responsive to our needs – 4.42 out of 5.

Strategic risk 4: Not maintaining and building our capability

Our key mitigations for this risk relate to the recruitment, management, and development of our staff.

Measure: Assessed through our capability measures – see pages 52-57.

Strategic risk 5: Failure to successfully implement our Five-year Strategic Plan

Measure: Implementation of our Strategic Plan is substantially on target (90%).

Our proposed management actions for 2005-06 (set out on pages 69-70 of our Annual Plan 2005-06) are the specific actions we intended to take to implement our Strategic Plan. We successfully implemented more than 80% of these management actions. Our progress in all of the actions is described on pages 58-59.

Strategic risk 6: Not maintaining our independence

Measure 1: There are no breaches of the Auditor-General’s auditing standard on independence, or, if any breaches are identified, they are resolved promptly.

During the year, several instances were identified that would have resulted in a breach of the Auditor-General’s Statement on Independence, had appropriate interventions not been put in place. All situations were resolved to the satisfaction of the Auditor-General.

Measure 2: Independence declarations for all OAG and Audit New Zealand staff are completed every six months.

This measure was reviewed during the year. Each OAG and Audit New Zealand staff member now completes an independence declaration once every 12 months, and a statement of compliance every six months. This new process is consistent with professional requirements on independence.

All OAG and Audit New Zealand staff completed independence declarations, most recently at 31 May 2006. The declarations were reviewed, and strategies were put in place to manage any conflicts of interest identified.

Our Annual Plan 2005-06 set out the measures we intended to use to assess our current capability, specifically:

  • base information – the number of staff, and the distribution of our staff by function, gender, and ethnicity;
  • other information on our current capability – particularly related to “supply” characteristics; and
  • information on how we have maintained and enhanced our capability – including how much we spent on training and development, turnover levels, experience levels, sick leave taken, and staff satisfaction.

Based on this information, as we did last year, we also make some tentative conclusions about the adequacy, quality, and effectiveness of our current capability.

Results for 2005-06

Base information

Overall, staff numbers increased slightly on the previous year across both the OAG and Audit New Zealand. The distribution of staff by function, gender, and ethnicity (see Figure 9) remained largely the same as in previous years. However, recruitment and retention of key staff was an issue.

Figure 9
Numbers and distribution of our staff – by function, gender, and ethnicity – during the last three years

As at 30 June 200620052004
Staff numbers (full-time equivalents)
Office of the Auditor-General 70.766.2 52.4
Audit New Zealand 189.1177.6 178.4
Total 259.8 243.8 230.8
Functional distribution

Audit/assurance 71% 69%65%
Technical and advisory 4% 4%4%
Corporate support21% 23% 27%
Management4%4% 4%
Gender distribution
All staff
Women51% 48% 46%
Men49% 52%54%
Management staff*
Women 33%30% -
Men67% 70% -
Ethnicity distribution
NZ European49% 53%56%
NZ Māori 3% 4% 3%
Pacific Islander 2% 2%1%
Asian 12% 14% 13%
Other European9% 7% 8%
Other ethnic groups 3% 2% 4%
Undeclared 22% 18% 15%

* This figure represents the staff reporting directly to the Auditor-General. It is not comparable to data shown in our annual reports before 2005.

Contracted resources
The implementation of LTCCP audits in 2005-06 made a significant demand on Audit New Zealand’s resources. As part of meeting this demand, Audit New Zealand seconded 43 staff from our audit service providers and international peer organisations.

On the other hand, during the year, we provided three staff to other audit offices, audit service providers, or government departments.

Other information
While we were generally able to attract applicants for operationally important vacancies, we continue to struggle in some locations and for some technical positions.

We also had an increased focus on building our internal management capability, with an increased number of staff promoted to management positions within the organisation. This included one promotion to Director and one to Associate Director.

Working capital and scale of information technology systems
As at 30 June 2006, the Office’s working capital was $1.5 million.

The Office is highly dependent on information technology (IT) to complete its work. Audit New Zealand is especially dependent – its field audit staff need to have remote access to deliver services to entities (that is, off-site access to its technical audit and accounting databases and its electronic audit management tool “TeamMate”).

All staff have access – both network and dial-up – to the operational systems required for their jobs.

There continue to be different IT systems in use within the OAG and Audit New Zealand. The Office will begin work in 2006-07 to align these systems.

Maintaining and enhancing our capability

Data on the experience and training of our staff is presented in Figure 10.

Figure 10
Staff experience and training

2005-06 2004-05


Average “time in job”OAG5.6 years 4.3 years

Audit NZ 5.0 years 3.5 years
Training and development
Average spent on formal training (each employee) OAG$1,754 $2,356

Audit NZ$2,298$2,087*
Average hours spent on upgrading skills (each employee) OAG47.8 57.3

Audit NZ87.0 102
Pass rate of staff undertaking NZICA accreditation
97% 100%

* Recorded in the Annual Report 2004-05 as $3,699. That figure had incorrectly included associated training costs, such as travel and other disbursements.

Training and development
“Developing our people” was our main business objective for 2005-06.

We reviewed our professional development programmes within the organisation. Audit New Zealand adopted a national approach to professional development, and enhanced its graduate and technical programmes. Our Performance Audit Group reviewed its professional development approach, in conjunction with our Australian counterparts.

In addition, we continued to provide specific training around our three research and development projects: auditing LTCCPs, the audit implications of new public sector management legislation, and introducing NZ IFRS.

In relation to personal and leadership development, we implemented:

  • three workshops for senior staff, with an emphasis on emotional intelligence and conflict management;
  • an accelerated development programme for selected “high potential” staff below manager level;
  • two applicant development programmes to prepare internal candidates for senior vacancies; and
  • individual development plans for all senior staff, incorporating emotional-intelligence-based 360-degree feedback for some.

Within the organisation, a number of senior staff also participated in local and international leadership programmes.

We continued to provide other courses, including presentation skills, media handling skills, writing skills, and health and safety.

Organisational health and staff satisfaction
Overall, the organisational health is at an acceptable level. The increase in turnover at the OAG was predominantly due to a restructuring of the Corporate Services Team. The previously separate corporate services teams of the OAG and Audit New Zealand were merged in 2005-06, and this resulted in a number of staff changes. Figure 11 shows various indicators of our organisational health and staff satisfaction.

Figure 11
Organisational health and staff satisfaction

2005-06 2004-05

Organisational health

TurnoverOAG17.8% 8.0%

Audit NZ 28.0% 34.8%
Average sick leave taken for each employee OAG4.3 days4.9 days

Audit NZ5.2 days 5.5 days
Staff survey results (scores out of 6)
Job satisfaction4.34.5
Organisational satisfaction 4.54.6
Satisfaction with management 4.14.4
Understanding of vision and purpose 3.64.1
Staff assessment of:
- The extent of innovation that occurs and is encouraged 3.42.9
- The extent of collaboration that occurs and is encouraged 2.53.0
- The quality and usefulness of business processes and systems 4.04.4
- The adequacy of our resource base 3.63.8
Audit New Zealand ratio of senior to junior staff hours 24:76 26:74

Equal Employment Opportunities (EEO) and Effectiveness for Māori (EFM)
We continued to implement our existing EEO and EFM programmes. The main initiatives in 2005-06 were:

  • We implemented an applicant development programme in Audit New Zealand, particularly to assist the preparedness of female staff applying for senior roles. Two women were appointed to senior roles in Audit New Zealand (out of a total of six successful applicants).
  • We conducted a pilot seminar to raise staff awareness of aspects of tikanga Māori and kaupapa Māori, including basic language skills, basic understanding of the Treaty of Waitangi, and general cultural awareness.
  • We continued to broaden our recruitment advertising, and ensured that the language in our advertisements was appropriate for diverse audiences.

Did we maintain or improve our capability outcomes?

As we did last year, we have formed some tentative conclusions (based on the information provided on the previous pages of this capability report) about the adequacy, quality, and effectiveness of our current capability.

Adequate staff numbers
During 2005-06, our staff numbers increased slightly in both the OAG and Audit New Zealand. However, it remained difficult to attract suitably qualified staff in tight labour market conditions. In addition, Audit New Zealand required significant extra resources for its audits of LTCCPs.

As part of the staff survey, we asked whether people felt there were enough skilled people to do the work. Audit New Zealand staff rated this as 3.6 out of 6, while OAG staff rated this more positively – 4.1 out of 6. Audit New Zealand’s result reflects the staff shortages and resource implications described above.

In our view, we generally have, or have access to, the staff we need to meet our needs. However, we continue to experience some difficulty recruiting suitably qualified staff in some locations, and for some specialist positions.

Effectiveness of our staff and systems
The results from our stakeholder study, and Audit New Zealand’s client survey, indicated continuing high levels of satisfaction with the expertise of our senior staff and the quality of our relationships with our stakeholders.

In our staff survey, we asked about the perceptions of staff on the availability and usefulness of our internal systems and processes, and access to the information they need to do their jobs. Staff rated this on average as 4.0 out of 6 (compared with 4.4 out of 6 last year).

Overall, therefore, we consider that we have maintained the effectiveness of our staff and systems.

Progress with our management actions for 2005-06

On pages 69-70 of our Annual Plan 2005-06, we set out a summary of the management actions we intended to take in 2005-06 to advance our Five-year Stategic Plan.

During 2005-06, we have:

Development of our people

  • implemented a broad range of leadership development initiatives for senior staff (see pages 54-55);
  • reviewed our professional development programme for performance auditors, in conjunction with some of our international counterparts (we now jointly run a performance audit training course in Australia each year);
  • designed and implemented a new graduate recruitment campaign for Audit New Zealand, and continued to explore options for secondments with our international counterparts – to help us fill difficult-to-recruit positions;

Development of our products and services

  • piloted a new approach to performance auditing, modelled on the UK National Audit Office methodology – this is now being progressively introduced;
  • reviewed and increased our staff resources for quality assurance, and started to implement our independent quality assurance reviews across all our products;
  • implemented a new strategy for considering requests for inquiries, and strengthened our systems and processes for managing inquiries;
  • enhanced our Corporate and Strategic Audit Planning processes to ensure integration, and to provide a clearer strategic perspective in the identification of the Auditor-General’s work programme – both for audit work and for areas of management focus;


  • restructured our corporate services teams, resulting in a single team supporting both the OAG and Audit New Zealand;
  • reviewed, within Audit New Zealand, the links between the Strategic Plan, performance management, and remuneration systems, and designed an innovative new framework for assessing rewards and recognition;
  • reviewed our key strategic risks and the associated risk mitigation strategies, and confirmed our leadership roles for risk management;
  • completed the implementation of our agreed impact evaluation process for performance audits;
  • developed an evaluation framework to assess the effect of the implementation of our Strategic Plan;
  • successfully completed the first full cycle of our stakeholder feedback study;
  • initiated an independent review of our governance;
  • started to implement a customised legislative compliance monitoring system; and
  • continued to implement our five-year Information Systems Technology Plan.

These management actions have further advanced the implementation of our Strategic Plan.

International financial reporting standards

The Accounting Standards Review Board announced in December 2002 that reporting entities must adopt NZ International Financial Reporting Standards (NZ IFRS) for periods beginning after 1 January 2007, with earlier adoption optional. The Minister of Finance announced in 2003 that the Crown will first adopt NZ IFRS for its financial year beginning 1 July 2007.

The Treasury is managing the adoption of NZ IFRS for the consolidated financial statements of the Government reporting entity. Individual entities included within the consolidated financial statements of the Government reporting entity are responsible for ensuring their own NZ IFRS preparedness. The Treasury provides guidance to these entities, and facilitates implementation on common issues.

As part of the Government reporting entity, we are adopting the Treasury timetable to implement NZ IFRS, with comparative figures required to be restated for the prior year on initial adoption.

We expect little impact on our financial statements, having identified employee entitlements as the one area where NZ IFRS accounting policies significantly differ. Currently sick leave is not recognised until the period in which it is taken. Under NZ IFRS, sick leave is accrued when it is earned, as a liability in the Statement of Financial Position. The Office has not yet completed an exercise to quantify the effect of this change, and is therefore unable to reliably quantify impacts on the financial statements that will arise from the transition to NZ IFRS. Additionally, the potential areas of impact from adoption of NZ IFRS may change materially as implementation occurs.

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