Part 3: Non-standard audit reports issued
Introduction
3.1
In this Part, we discuss the non-standard audit reports issued on the annual financial reports of entities that are part of the Crown reporting entity, and other public entities not within the local government portfolio.1
3.2
Our discussion covers non-standard audit reports issued during the period 1 January 2005 to 31 December 2005.
Why are we reporting this information?
3.3
An audit report is addressed to the readers of an entity’s financial report. However, all public entities are in one sense or another creatures of statute, and are therefore ultimately accountable to Parliament. We therefore consider it important to draw Parliament’s attention to the range of matters that give rise to non-standard audit reports.
3.4
In each case, the issues underlying a non-standard audit report are drawn to the attention of the entity and discussed with its governing body.
What is a non-standard audit report?
3.5
A non-standard audit report2 is one that contains:
- a qualified opinion; and/or
- an explanatory paragraph.
3.6
The auditor expresses a qualified opinion, as opposed to an unqualified opinion (which is issued when the auditor is satisfied, in all material respects, with the matters outlined in the financial statements), because of:
- a disagreement between the auditor and the entity about the treatment or disclosure of a matter in the financial report; or
- a limitation in scope because the auditor has been unable to obtain sufficient evidence to support, and accordingly is unable to express, an opinion on the financial report or a part of the financial report.
3.7
The types of qualified opinions are either an “adverse” opinion (explained in paragraph 3.11), or a “disclaimer of opinion” (paragraph 3.13), or an “except-for” opinion (paragraphs 3.14-3.15).
3.8
The auditor will include an explanatory paragraph (see paragraphs 3.16-3.17) in the audit report in order to emphasise a matter such as:
- a breach of law; or
- a fundamental uncertainty.
3.9
Auditors are required to ensure that an explanatory paragraph is included in the audit report in such a way that it cannot be mistaken for a qualified opinion.
3.10
Figure 3.1 outlines the different types of audit reports that auditors can issue.
Figure 3.1
Audit report options
Adverse opinion
3.11
An adverse opinion is expressed when there is disagreement between the auditor and the entity about the treatment or disclosure of a matter in the financial report and, in the auditor’s judgement, the treatment or disclosure is so material or pervasive that the report is seriously misleading.
3.12
Expression of an adverse opinion represents the most serious type of non-standard audit report.
Disclaimer of opinion
3.13
A disclaimer of opinion is expressed when the possible effect of a limitation in the scope of the auditor’s examination is so material or pervasive that the auditor has not been able to obtain sufficient evidence to support, and accordingly is unable to express, an opinion on the financial report.
Except-for opinion
3.14
An except-for opinion is expressed when the auditor concludes that either:
- the possible effect of a limitation in the scope of the auditor’s examination is, or may be, material but is not so significant as to require a disclaimer of opinion – in which case the opinion is qualified by using the words “except for the effects of any adjustments that might have been found necessary” had the limitation not affected the evidence available to the auditor; or
- the effect of the treatment or disclosure of a matter with which the auditor disagrees is, or may be, material but is not, in the auditor’s judgement, so significant as to require an adverse opinion – in which case the opinion is qualified by using the words “except for the effects of” the matter giving rise to the disagreement.
3.15
An except-for opinion can be expressed when the auditor concludes that a breach of statutory obligations has occurred and that the breach is material to the reader’s understanding of the financial statements. An example of this is where a Crown entity has breached a requirement of the Crown Entities Act 2004 by not including budgeted figures in its financial statements.
Explanatory paragraph
3.16
In certain circumstances, it may be appropriate for the auditor to include in the audit report additional comment, by way of an explanatory paragraph, to emphasise a matter that is regarded as relevant to a reader’s proper understanding of an entity’s financial report.
3.17
For example, it could be relevant to draw attention to an entity having breached its statutory obligations in respect of certain matters where that breach may affect or influence a reader’s understanding about the entity. In this situation, the audit report would normally draw attention to the breach only when the entity has not clearly set out the breach in its financial statements.
Full adverse opinions
| Royal New Zealand Navy Museum Trust Incorporated |
|---|
| Financial statements period ended: 30 June 2004 The Board did not recognise the museum collection assets it owns, nor the associated depreciation expense, in its financial statements. These are departures from Financial Reporting Standard No. 3: Accounting for Property, Plant and Equipment, which requires museum collection assets not previously recognised to be recognised at fair value and depreciated. In addition, we were unable to verify some material revenues due to limited controls over those revenues. |
| Kippenberger Trust Fund* |
| Financial statements period ended: 31 March 2004 The Trustees did not recognise the value of military books and archive assets it owns, nor the associated depreciation expense, in its financial statements. These are departures from Financial Reporting Standard No. 3: Accounting for Property, Plant and Equipment, which requires museum collection assets not previously recognised to be recognised at fair value and depreciated. In addition, as the financial statements of the Trust had not previously been audited, we were unable to form an opinion as to whether the statement of financial performance was fairly stated, and we also did not give an opinion about the comparative information. |
| RNZAF Museum Trust Board |
| Financial statements period ended: 30 June 2005 The Board did not recognise the museum collection assets it owns, nor the associated depreciation expense, in its financial statements. These are departures from Financial Reporting Standard No. 3: Accounting for Property, Plant and Equipment, which requires museum collection assets not previously recognised to be recognised at fair value and depreciated. |
| Queen Elizabeth II Army Memorial Museum |
| Financial statements period ended: 30 June 2005 The Board did not recognise the museum artefacts and collection assets it owns, nor the associated depreciation expense, in its financial statements. These are departures from Financial Reporting Standard No. 3: Accounting for Property, Plant and Equipment, which requires museum collection assets not previously recognised to be recognised at fair value and depreciated. In addition, we were unable to verify some material revenues due to limited control over those revenues. |
* A trust controlled by the New Zealand Defence Force.
Partial adverse opinions
| Christchurch Polytechnic Institute of Technology and Group |
|---|
| Financial statements period ended: 31 December 2004 We issued an unqualified opinion on the parent entity’s financial statements. However, we disagreed with the Council’s decision not to prepare consolidated financial statements. In our opinion, this was a departure from Financial Reporting Standard No. 37: Consolidating Investments in Subsidiaries. |
| Broadcast Communications Limited |
| Financial statements period ended: 30 June 2005 The company restated a settlement asset that had been written off in the prior year. We disagreed with the write-off of the asset in the prior year and, as a result, the restatement of that asset in the current year should not have been required. The restatement of the settlement asset has resulted in a fundamental mis-statement of the current year’s Statement of Financial Performance. We issued an unqualified opinion on the current year’s Statements of Financial Position and Cash Flows. We also drew attention to our qualified audit report for the year ended 30 June 2004 and noted that the comparative information in the financial statements for the year ended 30 June 2005 should be read in conjunction with that qualified audit report. |
Except-for opinions
| Auckland District Health Board and Group |
|---|
| Financial statements period ended: 30 June 2005 We disagreed with the amount at which land, buildings, and associated fit outs and services was recorded in the Board’s Statement of Financial Position. The Board had obtained from an independent valuer the fair value of the assets and, at the Board’s request, a valuation of the assets excluding land that was subject to restrictive covenants, which resulted in a value less than fair value. The Board decided to record the assets in the Statement of Financial Position at the value less than fair value. In our opinion, this was a departure from Financial Reporting Standard No. 3: Accounting for Property, Plant and Equipment, which requires assets that are revalued to be recognised at their fair value. |
| University of Auckland |
| Financial statements period ended: 31 December 2004 We disagreed with the accounting treatment to incorporate the net assets of the Auckland College of Education into the University as an unusual item in the University’s Statement of Financial Performance. In our opinion, the net assets should have been treated as a contribution from the Crown in the University’s Statement of Movements in Equity. |
| Ngati Whakaue Education Endowment Trust Board |
| Financial statements period ended: 31 December 2004 We disagreed with land being recorded at the value used for rating purposes. In our opinion, this was a departure from Statement of Standard Accounting Practice No. 17: Accounting for Investment Properties and Properties Intended for Sale. |
| Te Arawa Māori Trust Board |
| Financial statements period ended: 30 June 2004 We were unable to confirm the value of the Board’s fixed assets, as it did not revalue them in accordance with Financial Reporting Standard No. 3: Accounting for Property, Plant and Equipment. In addition, we were unable to confirm the value of the Board’s investment properties, as it did not revalue them in accordance with Statement of Standard Accounting Practice No. 17: Accounting for Investment Properties and Properties Intended for Sale. We were also unable to confirm payroll expenditure due to inadequate supporting documentation. The Trust Board also breached section 37(2) of the Māori Trust Boards Act 1955, as it did not obtain Ministerial approval for a payment made to a Board member for work performed outside his capacity as a member of the Board. |
| Te Arawa Māori Trust Board |
| Financial statements period ended: 30 June 2003 We were unable to confirm the value of the Board’s fixed assets, as it did not revalue them in accordance with Financial Reporting Standard No. 3: Accounting for Property, Plant and Equipment. In addition, we were unable to confirm the value of the Board’s investment properties, as it did not revalue them in accordance with Statement of Standard Accounting Practice No. 17: Accounting for Investment Properties and Properties Intended for Sale. We were also unable to confirm payroll expenditure due to inadequate supporting documentation. |
| Electricity Commission |
| Financial statements period ended: 30 June 2005 We did not agree that the information contained in the Statement of Service Performance enabled an informed assessment to be made of the performance of the Commission against the objectives and outcomes of the Government Policy Statement on Electricity Governance and the performance standards in the statement of intent for the year ended 30 June 2005. Our reason for this view was that the performance standards were largely task-oriented and short-term in focus, when we expected them to be more outcome-based. |
| West Auckland Catholic Transport Group |
| Financial statements period ended: 31 December 2004 The financial statements of the Group had not previously been audited. We therefore did not form an opinion about the comparative information. The lack of assurance about the comparative information meant that adjustments may have been necessary for the Statement of Financial Performance to be fairly stated. However, in our opinion, the financial position of the entity was fairly stated. |
| Tasman Aviation Enterprises (Queensland) Pty Limited* |
| Financial statements period ended: 30 June 2003 The financial statements of the Company had not previously been audited. We therefore did not form an opinion about the comparative information. The lack of assurance about the comparative information meant that adjustments may have been necessary for the Statement of Financial Performance to be fairly stated. However, in our opinion, the financial position of the entity was fairly stated. |
| Three Harbours Health Foundation** |
| Financial statements period ended: 30 June 2004 We were unable to verify certain revenue due to limited control over the receipt of this revenue. |
| Wilson Home Trust*** |
| Financial statements period ended: 30 June 2004 We were unable to verify certain revenue due to limited control over the receipt of this revenue. |
| McAlister Holdings Limited**** |
| Financial statements period ended: 31 December 2004 We were unable to verify certain revenue due to limited control over the receipt of this revenue. |
* A subsidiary company of Air New Zealand Limited.
** A trust controlled by the Waitemata District Health Board.
*** A trust controlled by the Waitemata District Health Board.
**** A subsidiary company of Te Whare Wānanga o Awanuiarangi.
Explanatory paragraphs
| Transmission Holdings Limited and Group |
|---|
| Financial statements period ended: 30 June 2005 We highlighted that we disagreed with an adjustment in the financial statements for the year ended 30 June 2004 and that we qualified our audit report for that year accordingly. In addition, we highlighted that the comparative information in the financial statements for the year ended 30 June 2005 should be read in conjunction with the qualified audit report for the year ended 30 June 2004. |
| Northland Polytechnic |
| Financial statements period ended: 31 December 2004 We drew attention to the uncertainties surrounding the going concern assumption. The validity of the going concern assumption was dependent on the continuing financial support of the Crown. |
| Western Institute of Technology at Taranaki |
| Financial statements period ended: 31 December 2004 We drew attention to uncertainties surrounding the going concern assumption. The validity of the going concern assumption was dependent on the continuing financial support of the Crown in line with the Institute’s business recovery plan. |
| Building Industry Authority |
| Financial statements period ended: 29 November 2004 We drew attention to uncertainties over the potential outcome of lawsuits alleging negligence on the part of the Authority regarding its performance on weathertightness issues. In addition, we highlighted that the going concern assumption appropriately had not been used in preparing the financial statements because the Authority was disestablished on 29 November 2004. |
| Meridian Limited* |
| Financial statements period ended: 30 June 2004 We drew attention to uncertainties surrounding the going concern assumption. The validity of the going concern assumption was dependent on the continuing financial support of the parent company. |
| ComOne Joint Venture** |
| Financial statements period ended: 31 March 2004 We drew attention to uncertainties surrounding the going concern assumption. The validity of the going concern assumption was dependent on the continuing financial support of the joint venture partners. |
| Aupouri Māori Trust Board and Group |
| Financial statements period ended: 30 June 2004 We drew attention to uncertainties surrounding the going concern assumption. The validity of the going concern assumption was dependent on the outcome of negotiations with the Board’s bankers over the recovery plan and its implementation. |
| NIWA Natural Solutions Limited*** |
| Financial statements period ended: 30 June 2004 We drew attention to uncertainties surrounding the going concern assumption. The validity of the going concern assumption was dependent on the continuing financial support of the parent company. |
| Geological Surveys (New Zealand) Limited**** |
| Financial statements period ended: 30 June 2005 We drew attention to uncertainties surrounding the going concern assumption. The validity of the going concern assumption was dependent on the continuing financial support of the parent company. |
| Air New Zealand Associated Companies (Australia) Limited§ |
| Financial statements period ended: 30 June 2004 We drew attention to uncertainties surrounding the going concern assumption. The validity of the going concern assumption was dependent on the continuing financial support of the parent entity. |
| Travelseekers International Limited§ |
| Financial statements period ended: 30 June 2004 We drew attention to uncertainties surrounding the going concern assumption. The validity of the going concern assumption was dependent on the continuing financial support of the parent entity. |
| Eagle Air Maintenance Limited§ |
| Financial statements period ended: 30 June 2004 We drew attention to uncertainties surrounding the going concern assumption. The validity of the going concern assumption was dependent on the continuing financial support of the parent entity. |
| Air New Zealand Travel Business Limited§ |
| Financial statements period ended: 30 June 2004 We drew attention to uncertainties surrounding the going concern assumption. The validity of the going concern assumption was dependent on the continuing financial support of the parent entity. |
| Jet Affair Holidays Limited§ |
| Financial statements period ended: 30 June 2004 We drew attention to uncertainties surrounding the going concern assumption. The validity of the going concern assumption was dependent on the continuing financial support of the parent entity. |
| Enzedair Tours Limited§ |
| Financial statements period ended: 30 June 2004 We drew attention to uncertainties surrounding the going concern assumption. The validity of the going concern assumption was dependent on the continuing financial support of the parent entity. |
| Ansett Australia & Air New Zealand Engineering Services Limited§ |
| Financial statements period ended: 30 June 2004 We drew attention to uncertainties surrounding the going concern assumption. The validity of the going concern assumption was dependent on the continuing financial support of the parent entity. |
| Auckland College of Education and Group |
| Financial statements period ended: 31 August 2004 We highlighted that the going concern assumption appropriately had not been used in preparing the financial statements, because the College was disestablished and its net assets were incorporated into the University of Auckland on 1 September 2004. |
| Wellington College of Education |
| Financial statements period ended: 31 December 2004 We highlighted that the going concern assumption appropriately had not been used in preparing the financial statements, because the College was disestablished and its net assets were incorporated into the Victoria University of Wellington on 1 January 2005. |
| Land Transport Safety Authority |
| Financial statements period ended: 30 November 2004 We highlighted that the going concern assumption appropriately had not been used in preparing the financial statements, because the Authority was disestablished on 30 November 2004. |
| Wanganui Regional Community Polytechnic |
| Financial statements period ended: 31 December 2001, 31 March 2002 We highlighted that the going concern assumption appropriately had not been used in preparing the financial statements, because the Polytechnic was disestablished on 1 April 2002. |
| NZVIF (IOM) Limited |
| Financial statements period ended: 30 June 2004 We highlighted that the going concern assumption appropriately had not been used in preparing the financial statements, because the Directors intended to realise the investment in the Company after 30 June 2004. |
| Early Childhood Development Board |
| Financial statements period ended: 6 April 2004 We highlighted that the going concern assumption appropriately had not been used in preparing the financial statements, because the Board was disestablished on 6 April 2004. |
| Transfund New Zealand |
| Financial statements period ended: 30 November 2004 We highlighted that the going concern assumption appropriately had not been used in preparing the financial statements, because the entity was disestablished on 30 November 2004. |
| Open Mind Journals Limited§§ |
| Financial statements period ended: 31 December 2004 We highlighted that the going concern assumption appropriately had not been used in preparing the financial statements, because the Company had ceased trading on 30 June 2004. |
| Auckland University of Technology Move Dance Foundation§§§ |
| Financial statements period ended: 31 December 2002, 31 December 2003, 31 December 2004 We highlighted that the going concern assumption appropriately had not been used in preparing the financial statements, because the Foundation was disestablished on 31 December 2004. |
| Patriotic and Canteen Funds Board |
| Financial statements period ended: 30 September 2004 We highlighted that the going concern assumption appropriately had not been used in preparing the financial statements, because the Board was disestablished on 17 May 2005. |
| Te Ohu Kai Moana (Treaty of Waitangi Fisheries Commission) |
| Financial statements period ended: 28 November 2004 We highlighted that the going concern assumption appropriately had not been used in preparing the financial statements, because the Commission was dissolved on 29 November 2004. |
| The Bay of Plenty Provincial Patriotic Council |
| Financial statements period ended: 30 September 2004 We highlighted that the going concern assumption appropriately had not been used in preparing the financial statements, because the Council had declared its intention to wind up its operations, subject to approval from the Minister of Veterans’ Affairs. |
| Northern Region Health Consortium Limited¶ |
| Financial statements period ended: 30 June 2005 We highlighted that the going concern assumption appropriately had not been used in preparing the financial statements, because the entity was disestablished on 30 June 2005. |
| Ngai Tahu Ancillary Claims Trust |
| Financial statements period ended: 30 June 2004, 30 June 2005 We highlighted that the going concern assumption appropriately had not been used in preparing the financial statements, because the Trust had received Ministerial consent to be disestablished on 30 June 2005. |
| Aupouri Māori Trust Board and Group |
| Financial statements period ended: 30 June 2005 We drew attention to a note in the financial statements regarding the Board’s financial difficulties and its business recovery plan. |
| Pacific Education Centre |
| Financial statements period ended: 31 December 2004 We drew attention to a note in the financial statements regarding the Centre’s financial difficulties and its business recovery plan. |
| Innes House Hostel¶¶ |
| Financial statements period ended: 31 December 2004 We highlighted that the Board breached the law by failing to meet its statutory reporting deadline. |
* A subsidiary company of Meridian Energy Limited.
** A joint venture between the University of Otago, Agresearch Ltd, and a private sector entity.
*** A subsidiary company of National Institute of Water and Atmospheric Research Limited.
**** A subsidiary company of Institute of Geological and Nuclear Sciences Limited.
§ Subsidiary companies of Air New Zealand Limited.
§§ A subsidiary company of The Open Polytechnic of New Zealand.
§§§ A controlled foundation of the Auckland University of Technology.
¶ A subsidiary company of Treaty Relationship Limited, itself a controlled company of the Auckland District Health Board and Te Rūnanga o Ngati Whatua.
¶¶ A joint venture between Marlborough Boys’ College and Marlborough Girls’ College.
1: We report separately on entities that are within the local government portfolio, in our yearly report on the results of audits for that sector.
2: A non-standard audit report is issued in accordance with the New Zealand Institute of Chartered Accountants Auditing Standard No. 702: The Audit Report on an Attest Audit.
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