Part 2: Overview of the audit results
2.1
The Auditor-General is responsible for auditing all entities in the public sector. This supports Parliament's function of holding public entities accountable for their performance, in accordance with Parliament's intentions. Under the Public Audit Act 2001, our Office is required to audit and report the findings of those audits to Parliament.
2.2
This Part provides a summary of the audit results of the central government agencies, including the number and types of audit reports that we issued. The main distinction is between "standard" and "non-standard" audit reports. Appendix 1 contains an outline of the different types of audit report and how they are decided.
2.3
A standard audit report means that the auditor was able to obtain reasonable assurance that the audited information was free from material misstatement and presented in accordance with relevant accounting principles.
2.4
A non-standard audit report is one that contains a modified opinion and/or an "emphasis of matter" (or an "other matter") paragraph.
2.5
A modified opinion indicates:
- a misstatement about the treatment or disclosure of a matter in the financial and/or service performance information; or
- that the auditor was unable to obtain sufficient appropriate audit evidence to conclude that the financial and/or service performance information is free from material misstatement.
2.6
An "emphasis of matter" paragraph or "other matter" paragraph in the audit report indicates a matter that, although it may be appropriately presented or disclosed in the financial and service performance information, is considered to be sufficiently important that it is fundamental to a reader's understanding of the information or the audit. In such instances, the auditor draws readers' attention to matters such as fundamental uncertainties, breaches of law, or concerns about probity or financial prudence.
Summary of audit reports issued
2.7
During the year ended 31 December 2013,5 we issued 669 audit reports for central government agencies, excluding school boards of trustees (schools). Of these 669 audit reports, 557 reports (including the report on the Government's financial statements) were standard and 112 were non-standard.
Financial Statements of the Government
2.8
We issued a standard audit report on the Government's financial statements, which we reported on in December 2013. In our 2011 and 2012 audit reports, we drew attention to the uncertainties arising from the Canterbury earthquakes with the inclusion of an "emphasis of matter" paragraph in our audit report. For 2013, we concluded that it was no longer necessary to include this paragraph.
Audit results for government departments
2.9
Figure 1 summarises the number of standard and non-standard audit reports issued for government departments, the Student Loan Scheme, which is the subject of an audit that is separate from those of individual entities, and for the subsidiaries of government departments (which include trusts).
Figure 1
Government departments – number and type of audit reports issued during 2012/13
| Number of standard audit reports issued | Number of non-standard audit reports issued | |
|---|---|---|
| Government departments | 34 | 3 |
| Student Loan Scheme | 1 | 0 |
| Subsidiaries | 21 | 2 |
| Total | 56 | 5 |
2.10
Of the 61 audit reports we issued, five were non-standard audit reports. Three of these were reports for government departments and two for government departments' subsidiaries.
2.11
We issued a qualified opinion on the Ministry of Health's service performance information. The Ministry relies on performance information from third parties and we could not obtain enough evidence to provide an audit opinion over many service performance measures (including some of the six key national health targets). The measures are reported by DHBs and aggregated in the Ministry's reporting. We could not get the assurance because the DHBs' annual reporting, and their respective audits, had not been completed when we completed our audit of the Ministry.
2.12
We also issued non-standard audit reports for two other government departments for 2012/13. The reports included unmodified opinions but contained "emphasis of matter" paragraphs drawing attention to particular disclosures:
- by the Ministry of Education about matters arising from the new payroll service, Novopay; and
- by the Canterbury Earthquake Recovery Authority about uncertainties after the Canterbury earthquakes.
2.13
We reported last year that we had issued two modified (adverse) opinions for two trusts (which are a type of subsidiary) because of their failure to recognise and depreciate museum collection assets. We have again issued modified opinions for these trusts because the matters we raised in previous years have not been addressed.
Audit results for Crown entities
2.14
Figures 2 to 9 summarise the types of audit reports we issued for different types of Crown entities. Crown entities comprise statutory entities (including DHBs), Crown entity subsidiaries, Crown entity companies (including CRIs), TEIs, and school boards of trustees. Given their specific business and sector focus, we have decided to separate DHBs, CRIs, and TEIs from "other Crown entities" (such as Crown agents and independent Crown entities). The results for school boards of trustees will be reported separately.
District health boards
Figure 2
District health boards – number and type of audit reports issued during 2012/13
| Number of standard audit reports issued | Number of non-standard audit reports issued | |
|---|---|---|
| District health boards | 0 | 20 |
| Subsidiaries | 16 | 10 |
| Total | 16 | 30 |
2.15
We issued modified audit reports for all 20 DHBs, which included:
- unqualified opinions on each DHB's financial statements; and
- qualified opinions on each DHB's service performance information.
2.16
DHBs generally have limited controls over much of the performance information from third-party health providers, and we were not able to obtain the evidence needed to express an audit opinion on all the performance information reported by each DHB. This issue affected our audits of all DHBs and the Ministry of Health.
2.17
We also qualified our opinion on other performance information reported by Lakes District Health Board and Wairarapa District Health Board.
2.18
We will discuss the reasons why we qualified our audit opinions on the service performance reporting by DHBs and the Ministry of Health in a forthcoming report on the results of the 2012/13 audits of entities in the health sector.
Crown research institutes
Figure 3
Crown research institutes – number and type of audit reports issued during 2012/13
| Number of standard audit reports issued | Number of non-standard audit reports issued | |
|---|---|---|
| Crown research institutes | 7 | 0 |
| Subsidiaries | 24 | 2 |
| Total | 31 | 2 |
2.19
We issued two non-standard audit reports for two CRI subsidiaries for 2012/13. The reports included unmodified opinions but contained "emphasis of matter" paragraphs drawing attention to disclosures about:
- the disestablishment or expected disestablishment of Paraco Technology Limited (a subsidiary of AgResearch); and
- the appropriate use of the going-concern assumption for AgResearch (Meat Biologics Consortia) Limited.
Tertiary education institutions
Figure 4
Tertiary education institutions – number and type of audit reports issued during 2012/13
| Number of standard audit reports issued | Number of non-standard audit reports issued | |
|---|---|---|
| Tertiary education institutions | 27 | 2 |
| Subsidiaries | 93 | 21 |
| Total | 120 | 23 |
Note: The balance date for TEIs was 31 December 2012.
2.20
We issued non-standard audit reports for two TEIs and 21 TEI subsidiaries.
2.21
We issued an unmodified opinion for the University of Canterbury. We included an "emphasis of matter" paragraph in the audit report, drawing attention to disclosures outlining the effect of the Canterbury earthquakes and appropriate use of the going-concern assumption.
2.22
We issued an unmodified opinion for the University of Auckland. The audit report included an "emphasis of matter" paragraph drawing attention to disclosures outlining the accounting treatment used by the University for Partnerships for Excellence funding (see paragraph 3.16).
2.23
Of the 21 non-standard audit reports issued for TEI subsidiaries, 12 included unmodified opinions but contained "emphasis of matter" paragraphs drawing attention to disclosures about:
- uncertainties about using the going-concern assumption;
- disestablishment or expected disestablishment; and
- uncertainties in the valuation of investments.
2.24
We issued modified (qualified) opinions for nine TEI subsidiaries:
- We issued a qualified opinion for the New Zealand Vice-Chancellors Committee because the group financial statements were not consolidated with that of a subsidiary that the Committee controls.
- We issued a qualified opinion for WaikatoLink Limited and Group for the years ended 31 December 2010 and 31 December 2011 because WaikatoLink and Group included unaudited financial information about its associate, ZyGEM Corporation Limited. The associate is not a public entity and it was uncertain when its audit would be completed.
- We issued a qualified opinion for Massey Ventures Limited and Group because we could not verify that the financial information about the company's associates was properly recorded and disclosed in the financial statements. These associates are not public entities and, as decided by their directors, are not audited.
- We issued qualified opinions for Ivey Hall and Memorial Hall 125th Anniversary Appeal Gifting Trust Limited and Ivey Hall and Memorial Hall 125th Anniversary Appeal Taxable Activity Trust Limited for the years ended 30 June 2011 and 30 June 2012 because we could not get enough assurance about the completeness of revenue.
- We also issued a qualified opinion for Te Tapuae O Rehua Limited for the year ended 31 December 2010 because we could not verify that expenditure was properly recorded or classified correctly (see paragraph 3.41).
Other Crown entities
Figure 5
Other Crown entities – number and type of audit reports issued during 2012/13
| Number of standard audit reports issued | Number of non-standard audit reports issued | |
|---|---|---|
| Other Crown entities | 62 | 4 |
| Subsidiaries | 73 | 4 |
| Total | 135 | 8 |
2.25
Of the 143 audit reports for other Crown entities, eight were non-standard. Seven included unmodified opinions but contained "emphasis of matter" paragraphs drawing attention to disclosures about:
- disestablishment or expected disestablishment;
- uncertainties in the value of unlisted investments for New Zealand Venture Investment Fund Limited and Group and for a subsidiary of New Zealand Venture Investment Fund Limited;
- uncertainty in the value of unlisted mortgage-backed securities for Public Trust; and
- uncertainties in the outstanding claims liability after the Canterbury earthquakes and the appropriate use of the going-concern assumption for the Earthquake Commission.
2.26
We again issued a modified (qualified) opinion for the New Zealand Fire Service Commission. This is a consequence of industrial action a few years ago that has reduced the usefulness of comparative service performance information.
Other central government entities
2.27
Figure 6 summarises our audit reports for other types of central government agencies, including those listed in Schedule 4 of the Public Finance Act 1989.
Figure 6
Other central government agencies – number and type of audit reports issued during 2012/13
| Number of standard audit reports issued | Number of non-standard audit reports issued | |
|---|---|---|
| Central government other* | 58 | 28 |
| Subsidiaries | 16 | 0 |
| Total | 74 | 28 |
* This group includes entities such as Air New Zealand, the Reserve Bank, the National Provident Fund, Producer Boards, and Health and Medical Councils.
2.28
The non-standard audit reports included "emphasis of matter" paragraphs drawing attention to disclosures outlining:
- the disestablishment or expected disestablishment of:
- Ngai Tahu Ancillary Claims Trust;
- Road Safety Trust; and
- Learning State Limited;
- uncertainties about the provision of secretariat and office functions in the future for 16 health regulatory entities and two secretariats;7 and
- uncertainties involved in estimating the insurance claims liability and reinsurance receivables for Southern Response Earthquake Services Limited.
2.29
Three audit reports included modified (qualified) opinions:
- Ngati Whakaue Education Endowment Trust Board, because the value of land was not recognised in a way that was in keeping with generally accepted accounting practice;
- the Māori Trustee and Group, because we were unable to confirm the financial information of an associated company; and
- New Zealand Māori Arts and Crafts Institute, because we could not get enough assurance that the comparative information about revenue was complete.
Māori trust boards
Figure 7
Māori trust boards – number and type of audit reports issued during 2012/13
| Number of standard audit reports issued | Number of non-standard audit reports issued | |
|---|---|---|
| Māori trust boards | 6 | 6* |
| Subsidiaries | 0 | 0 |
| Total | 6 | 6 |
* This number includes four audit reports for a previous year.
2.30
We issued five audit reports that included "emphasis of matter" paragraphs drawing attention to disclosures outlining the disestablishment or expected disestablishment of:
- Aupouri Māori Trust Board and Group (for the four years ended 30 June 2008, 30 June 2009, 30 June 2010, and 30 June 2011); and
- Tuhoe-Waikaremoana Māori Trust Board (for the year ended 31 March 2013).
2.31
For the Tuhoe-Waikaremoana Māori Trust Board (for the year ended 31 March 2012), our audit report included an "emphasis of matter" paragraph drawing attention to disclosures outlining the Board's intention to significantly change the nature of its operations. The Board was proposing to transfer certain assets to a separate charitable trust.
State-owned enterprises and entities with a mixed ownership model
Figure 8
State-owned enterprises and entities with a mixed ownership model – number and type of audit reports issued during 2012/13
| Number of standard audit reports issued | Number of non-standard audit reports issued | |
|---|---|---|
| State-owned enterprises and entities with a mixed ownership model | 15 | 3 |
| Subsidiaries | 89 | 7 |
| Total | 104 | 10 |
2.32
We issued non-standard audit reports for Solid Energy New Zealand Limited and its three subsidiaries:
- Solid Energy Land Holdings Limited;
- Solid Energy Renewable Fuels Limited; and
- Spring Creek Mining Company.
2.33
The reports included "emphasis of matter" paragraphs to draw attention to:
- the appropriate use of the going-concern assumption;
- the group's capital restructure agreed by its shareholder, the Crown, and some bank creditors after balance date; and
- the assumptions used in the discounted cash flow projections for the Stockton mine.
2.34
We issued a non-standard audit report for Spring Creek Mine Holdings Limited. The "emphasis of matter" paragraph drew attention to:
- the group's capital restructure agreed by its shareholder, the Crown, and a number of its principal bank creditors after balance date; and
- the assumptions used in the discounted cash flow projections for the Stockton mine.
2.35
We issued a non-standard audit report for Biodiesel New Zealand Limited. The "emphasis of matter" paragraph drew attention to:
- the company appropriately not using the going-concern assumption;
- the group's capital restructure agreed by its shareholder, the Crown and some bank creditors after balance date; and
- the key assumptions used in the discounted cash flow projections for the Stockton mine.
2.36
We issued three non-standard audit reports that included "emphasis of matter" paragraphs. The paragraphs drew attention to disclosures outlining the disestablishment or expected disestablishment of:
- Electricity Corporation of New Zealand;
- Learning Media Limited and Group; and
- Air Post Limited, a subsidiary of New Zealand Post Limited.
2.37
We issued a modified (qualified) opinion for New Zealand Post Recycle Centre Limited because we could not get enough assurance about the completeness of revenue information.
Rural Education Activities Programmes
Figure 9
Rural education activities programmes – number and type of audit reports issued during 2012/13
| Number of standard audit reports issued | Number of non-standard audit reports issued | |
|---|---|---|
| Rural Education Activities Programmes | 14 | 0 |
2.38
We issued standard audit reports for each of the 14 Rural Education Activities Programmes.
Detailed audit findings
2.39
The following Parts of this report contain a more detailed discussion of non-standard audit reports (Part 3) and of our audit findings for different groups of entities. We discuss non-standard audit reports for government departments in Part 5, for Crown entities in Part 6, and for CRIs, as a separate sub-category, in Part 7.
2.40
This report does not contain a detailed discussion of DHBs, either on their own or as part of Crown entities, because we will publish a separate report on entities in the health sector later in 2014. We will do the same for State-owned enterprises. We have already published a report focused on entities in the social sector (December 2013).
5: Our audit reports were issued between 1 January and 31 December 2013. Most of these audit reports relate to 2012/13, except where we explain otherwise. We note where balance dates differ from 30 June.
6: The going-concern assumption means that financial statements are prepared assuming that the entity will continue to operate in the foreseeable future.
7: Four audit reports were issued for 2012 for four of the 16 health regulatory entities discussed in this section.
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