Results of the 2015 tertiary education institution audits

Letter sent on 31 January 2017 to Dr Jian Yang MP, Chairperson of the Education and Science Committee, House of Representatives.

For your information, we set out in this letter the summary results of the tertiary education institution (TEI) audits for the year ended 31 December 2015. We provide a brief overview, an update on timeliness and completion of the 2015 audits, the types of audit opinions we issued, and note the main matters we identified from our audits.

We had intended to send this letter to you late last year but the disruption caused to our office by the Kaikoura earthquake led to a slight delay in our work. The Committee may find this information useful in its examination of accountability and performance of agencies in the sector. We will publish this letter on our website and copy it to TEIs, the Minister and Ministry of Education, and the Tertiary Education Commission.

1 Introduction

As the auditor of all TEIs, my office provides independent assurance that TEIs are appropriately accounting for the resources entrusted to them.

The assurance and comment we provide on the financial and service performance information tells readers whether that information, in our opinion, is a fair reflection of the TEIs’ performance. We intend our audit work to assist in the effective and efficient governance and management of TEIs.

Reporting requirements for TEIs vary from those of other Crown entities. In recent years, we separately reported on TEIs’ service performance reporting. This letter includes our comments on both financial and service performance, as well as summarising other matters we identified in our 2015 audits.

2 Timeliness and completion of 2015 TEI audits

An important aspect of the accountability of public entities is for them to issue audited financial statements within statutory time frames. We want to provide our audit assurance to all those interested in accountability as soon as possible after the end of the financial year.

All the TEI group audits for the year ending 31 December 2015 were completed within the statutory timeframe (by 30 April 2016).

Of the 84 TEI subsidiaries that we completed audits of in 2015, 70 were completed within the statutory timeframe. The timeliness of our audits of TEI subsidiaries has historically affected the overall timeliness of TEI audits. There were 14 audits that were completed but signed late because we were unable to obtain audit information from those subsidiaries within the required timeframe. There are 19 TEI subsidiaries that we did not complete audits because they did not provide us with information to audit (that is, they are now in arrears). We note that recent legislative amendments to the Education Act 1989 removed the requirement for separate preparation and reporting of TEI subsidiaries’ financial statements from 2016.

3 The types of audit opinions we issued

We issued audit opinions for:

  • each TEI (usually referred to as “the parent accounts”);
  • for each TEI related entity that is also a public entity (which we refer to as TEI subsidiaries); and,
  • for the combined entities (of the parent and its subsidiaries) that represent the TEI group (usually referred to as the “group accounts”).

We issued unmodified opinions for all 29 TEI group accounts in 2015. This means that the financial statements that we audited complied with generally accepted accounting practice and fairly reflected each TEI group’s financial position and the results of their operations and cash flows for the year ended 31 December 2015.

These audit opinions also mean that the performance information reported by the TEIs fairly reflected their service performance as measured against the performance targets adopted for the year ended 31 December 2015.

Non-standard audit reports can contain a modified audit opinion and/or draw attention to matters of importance to readers of the financial statements. We modify our opinion when we are unable to obtain sufficient evidence about an issue or we conclude there is a misstatement in the financial information. If we consider the matter is pervasive to the understanding of the financial information, we may issue an adverse opinion or not give an opinion on the financial statements (a disclaimer of opinion.).

We issued non-standard audit reports for some TEI parent accounts that is, the unmodified audit opinions of four TEI parents (University of Auckland, Aoraki Polytechnic, Bay of Plenty Polytechnic, and Waiariki Institute of Technology) contained explanatory paragraphs. For the University of Auckland, we drew readers’ attention to the accounting treatment used by the University for Partnerships for Excellence funding. For Aoraki Polytechnic, Bay of Plenty Polytechnic, and Waiariki Institute of Technology, the explanatory paragraphs brought readers attention to the disclosures in the financial statements that referred to the disestablishment accounting basis appropriately being used in preparing the financial statements.

We issued non-standard audit reports on the financial statements of 18 TEI subsidiaries. These non-standard reports included explanatory paragraphs drawing readers’ attention to matters of importance, for example, in cases where a decision had been taken to disestablish the subsidiary. They also included six instances where we modified our audit opinion because, for example, we were unable to obtain complete information.

3 Matters we identified from our audits

We set out below the main matters identified in our TEI audits. They were:

Financial viability

Financial viability remained a significant area of focus in our TEI audits due to factors such as declining enrolments affecting revenue and changes in other funding streams. Movement in student numbers, both domestic and international, put revenue targets under pressure and in some instances required repayments or review by the Tertiary Education Commission. Our audit work for all TEIs involved reviewing the going concern assumption. Associated with a focus on financial management, TEIs continue to look for new revenue sources and efficiencies, including mergers with other providers. Our review of management controls, governance, and processes associated with financial management, including the establishment or disestablishment of subsidiary or other ventures, involved significant audit hours. Early preparation of good information for these entities can improve the efficiency of our audit.

Valuation of land and buildings

The fair value of land and buildings featured as a common area of audit focus. A number of TEIs revalued their assets or assessed whether asset carrying values were materially different from their fair value. These processes required significant work to get audit assurance. Early preparation of good information can improve efficiency of the audit.

Capital expenditure and associated processes

There is a substantial level of capital expenditure forecast in the sector as TEIs look to maintain and develop their campuses. Our TEI audits frequently involved the review of Capital Asset Management processes as well as procurement, contract management, and risk management processes. We reported our findings to TEI management.

Performance reporting

We continued to work with TEI councils and management to assess whether performance reporting in the annual report fulfilled requirements and fairly reflected the performance of the TEI. Generally, in 2015, most TEIs’ performance reporting met requirements. However, we noted that development of comprehensive performance frameworks remains a work in progress throughout the sector and delays in obtaining Statement of Service Performance information sometimes generated delays in the audit.

New Public Benefit financial reporting standards

For 2015, the new financial reporting standards for public benefit entities (PBEs) applied to TEIs for the first time. Although some TEIs were well prepared, others were not. Implementation of the new standards required significant extra preparatory work for the TEI and, in some instances, we needed to spend additional audit hours working with TEIs on this transition.

Subsidiaries and offshore operations

Our audit work on TEI subsidiaries, including gaining assurance on information from offshore operations, has been plagued by timeliness issues.

Between 2009 and 2015, about 5% of total university revenue each year came from universities’ subsidiaries. In 2009, around 0.5% of total revenue came from polytechnics’ subsidiaries, increasing to 2.27% in 2015.1 We have also noted above that recent legislative amendments to the Education Act 1989 removed the requirement (under that Act) for separate preparation and reporting of TEI subsidiaries’ financial statements from 2016. Changes also included liberalisation of regulations about investment by TEI parents in their related entities.

We will continue to encourage good practice reporting by TEIs in our future audit work. We would expect such reporting to include disclosure in the notes to the financial statements of TEI investments in subsidiaries, associates, and joint ventures. The information noted would likely include the amount of the investment in each subsidiary recorded in the parent financial statements and also a brief narrative explaining the principal activities of each subsidiary.

We note that some of these themes are consistent with the areas of focus in our audits of TEIs in previous years. We expect that most will also remain the areas of focus for our 2016 TEI audits.

If you have any questions, or need any further information on the matters raised in this letter, please contact Mark Evans in the first instance. You can contact Mark on 021 2221791 or at

Yours sincerely

Signature - LP

Lyn Provost
Controller and Auditor-General

1: Due to differences in the way entities report, variances are introduced to these figures in some cases. Numbers are based on group revenues from TEIs’ annual reports.