Part 1: Introduction

Annual Plan 2014/15.

Why is there an Auditor-General?

In New Zealand's system of government, Parliament authorises all government expenditure and gives statutory powers to public entities.

Public entities 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 independent assurance through the Auditor-General that public entities are operating and accounting for their performance in the way that Parliament intended.

The need for independent assurance also covers local government. Local authorities are accountable to the public for how they use the resources they collect through rates and other sources.

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

The Auditor-General's role is to assist Parliament to scrutinise the effectiveness, efficiency, and accountability of public entities. To be effective and credible in this role, the Auditor-General must be independent of executive government.

Consulting with members of Parliament about the proposed annual work programme is one of the ways in which the Auditor-General is accountable to Parliament.

The Auditor-General's work

The Auditor-General's work is designed to give assurance to Parliament, public entities, and the public that public entities fairly reflect the results of their activities in their annual reports. The Auditor-General is the auditor of all public entities.

The Auditor-General also keeps an eye on whether public entities are carrying out their activities effectively and efficiently, and on significant matters of waste, probity, legislative compliance, and financial prudence in the public sector.

The Auditor-General reports findings and makes recommendations so that those responsible for making improvements can do so. This includes highlighting examples of good practice that can help improve public sector management and performance.

Providing assurance

Most of our work (about 87%) comprises annual audits of the financial reports of public entities. This work is required by statute, and we carry it out in keeping with professional standards. In 2013/14, we expect to provide audit opinions on about 3800 financial statements and about 400 performance statements. About 3300 of these are for small public entities, including about 2500 schools. The audit opinion sums up the auditor's view on the reliability of the audited information. The cost to us of carrying out our annual audit work is funded mainly by audit fees paid by the entities.

Each public entity is required to prepare and report its annual financial statements and, in many instances, to report on its service performance. The Auditor-General has a statutory duty to audit the information that the public entity must report, as set out in the legislation applying to each public entity.

These independent annual audits play an essential role in the stewardship of public resources and the corporate governance of public services. An annual audit aims to provide assurance to the public about whether a public entity's financial statements (and any other information, such as performance statements, that is required to be audited):

  • complies with a recognised framework, usually generally accepted accounting practice; and
  • fairly reflects the public entity's performance and position.

Annual audits also provide assurance to managers and governors of public entities about significant matters arising from the audit. We do this by preparing management reports for each public entity. Management reports detail our main findings and recommendations, and give managers and governors an insight into how well their management systems and controls are working. For example, a management report can include our views on how a public entity is managing its resources and performance, including its policies, practices, and risk management.

Forming an audit opinion on financial and performance statements and their accompanying notes requires the auditor to examine the underlying accounts and records, including the systems and processes used to generate this information. We adopt a risk-based approach to gathering and assessing audit evidence, as required by auditing standards. To address identified risks, we look for evidence that balances, results, and disclosures are not materially misstated.

The results of our auditing work, including our understanding of the public entity and its internal control systems, are collated once the audits of the public entities in each significant sector of activity (such as local government) are complete. Comparing the audit results between public entities within each sector lets us identify and report on any systemic issues.

Each year, before the annual audits are carried out, we issue an audit brief for each category of public entities. An audit brief provides instructions for audit emphasis and guidance for the auditors of those entities. Figure 1 shows the categories of entities for which we have issued audit briefs.

Figure 1
Audit brief categories of public entities

Government departments Crown entities
State-owned enterprises and mixed-ownership companies Crown research institutes
Local authorities Council-controlled organisations
District health boards Tertiary education institutions
Licensing trusts Rural Education Activities Programmes
Energy companies Port companies
Section 19 entities1 Airports
Fish and game councils Schools
Administering bodies and boards Central government (other)
Local government (other) Cemetery trustees
Māori trust boards2

1: Entities connected with the public sector that are audited by the Auditor-General "by arrangement".

2: Māori trust boards are expected to progressively move out of the Auditor-General's mandate as a result of the Māori Trust Boards Amendment Act 2011.

We continue to work with public entities to help them improve performance information and use it to consider effectiveness and efficiency. We also provide advice to select committees to help them hold public entities to account. The Auditor-General's revised standard on auditing reporting service performance information now applies to our audits of most public sector entities that are required to include service information in their annual reports. The revised standard was scheduled to apply to all applicable audits for reporting periods beginning on or after 1 July 2013. However, in the large and varied council-controlled organisation (CCO) sector, we have decided to phase in the approach more slowly. Although we are applying the standard to Auckland Council's substantive CCOs for 2013/14, we have deferred full implementation for other CCOs until the 2015/16 reporting period. We will do a practice run in 2014/15, which means that we will follow the approach in the standard but that it will not have any effect on our audit opinions.

Performance audits, inquiries, and other studies

Our core business is carrying out annual audits, which are the foundation for our ability to have a positive influence on public sector performance. Alongside annual audits, the Public Audit Act 2001 provides the Auditor-General with discretion to carry out performance audits and to inquire into a public entity's use of its resources.

Our performance audits, inquiries, and special studies allow us to review in depth how a public entity uses (or several entities use) resources. They also allow us to suggest opportunities to improve performance where we have considered specific matters. They allow the Auditor-General to consider and provide advice about the above matters in greater depth than is possible within the statutory scope of an annual audit. They have benefits not only for the audited entities but also for the wider public sector. For example, our work can help to:

  • develop methods to evaluate aspects of public sector management;
  • encourage beneficial changes and best practice in the performance of public entities; and
  • increase understanding of an audited entity, the wider environment in which public entities operate, and/or public sector management.

Performance audits look at:

  • the extent to which activities are carried out effectively and efficiently;
  • compliance with statutory obligations;
  • any acts or omissions, to determine whether waste has resulted or may result; and/or
  • any act or omission showing or appearing to show a lack of probity or financial prudence by a public entity or its members, office holders, or employees.

Our inquiries work is undertaken largely in reaction to issues of public concern. If there is general public interest in an inquiry, we may publicly report the results.

Our other work

The rest of our work is done under the Auditor-General's other reporting powers. It includes:

  • advising Parliament and select committees in support of financial reviews and Estimate examinations;
  • carrying out and reporting on our responsibility to review the service performance of the Auckland Council under the requirements of section 104 of the Local Government (Auckland Council) Act 2009;
  • promoting improvement in sector and specific-entity matters through our in-depth performance audits and other studies;
  • building opportunities for co-operative work with other professional and representative organisations working towards integrity, transparency, and accountability for New Zealand;
  • working with the accounting and auditing profession, including contributing to the international auditing community and to the development of accounting and auditing standards; and
  • providing wider assurance and advice, including liaison with government bodies and other agencies in the public sector.

The standards of integrity and accountability within our public sector are well regarded internationally and underpin trust in the public sector. We make a significant contribution in the wider Pacific region through our work with the Pacific Association of Supreme Audit Institutions (PASAI). PASAI is the official association of supreme audit institutions (SAIs – government audit offices and similar organisations) in the Pacific region, and is one of the regional working groups belonging to the International Organisation of Supreme Audit Institutions (INTOSAI).

As the current Secretary-General of PASAI, New Zealand's Auditor-General provides leadership and guidance to its Secretariat in carrying out PASAI's long-term strategic plans and work programmes, and advises the PASAI Congress and the Governing Board. The strategic goals of PASAI are:

  1. strengthening SAI independence;
  2. advocacy to strengthen governance, transparency, and accountability;
  3. high-quality audits completed by Pacific SAIs;
  4. enhancing SAI capacity and capability; and
  5. a PASAI Secretariat capable of supporting Pacific SAIs.

The Auditor-General is also a member of the Governing Board of INTOSAI, and we actively contribute to a range of INTOSAI projects that are designed to develop guidance for audit offices and similar organisations around the world.

We take part in a range of national and international organisations, forums, and working groups that develop guidance and standards for the auditing and accounting professions, and provide advice to public sector practitioners. These groups include:

  • the External Reporting Board's two sub-boards – the New Zealand Accounting Standards Board and the New Zealand Auditing and Assurance Standards Board;
  • the Financial Working Party of the Society of Local Government Managers; and

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