Appendix 3: Public entities not audited by the Auditor-General

Under section 14 of the Public Audit Act 2001, the Auditor-General is the auditor of every public entity. The definition of public entity in section 5 includes any entity controlled by one or more public entities.

Section 5 uses both legal and financial reporting definitions of control. Section 5(2) says that an entity is controlled by one or more other entities if:

1. the entity is a subsidiary of any of those other entities; or
2. the other entity or entities together control the entity within the meaning of any relevant approved financial reporting standard; or
3. the other entity or entities can together control directly or indirectly the composition of the board of the entity within the meaning of sections 7 and 8 of the Companies Act (which, for the purposes of this paragraph, are to be read with all necessary modifications).

Applying paragraph (b) requires us to consider the substance of the relationship between two entities to determine whether one controls the other (within the meaning of any relevant approved financial reporting standard).

The judgements involved in applying paragraph (b) are not always clear cut. The application of the "control test" to trusts is particularly difficult.

In many cases, our judgements about whether trusts are public entities align with the view of, or are accepted by, the entities concerned. However, there are some trusts that do not agree with us. In the past two years, we have named a number of trusts and associated entities in our annual report as entities that are not currently audited by the Auditor-General because they do not accept that they are public entities.

Earlier this year, we decided to review our approach to these issues. That work is not yet complete. Therefore, we have decided not to name any entities this year.