Part 2: Audit reports for 2017

Tertiary education institutions: Results of the 2017 audits.

Responsibilities of tertiary education institutions for financial statements

Under the Crown Entities Act 2004, TEIs are responsible for preparing annual financial statements for their organisations.

Two members of the governing body (the council) must sign a "statement of responsibility" that says that those members were responsible for:

  • the preparation of the financial statements and statement of service performance and for the judgements in them;
  • providing reasonable assurance on the integrity and reliability of the financial and performance reporting, which fairly reflected the financial position and operations of the TEI; and
  • any end-of-year information provided by the TEI under the Public Finance Act 1989, regardless of whether that information was included in the TEI's annual report.

By default, TEIs prepare their annual reports using the "going concern" assumption. This means that, in preparing its financial statements, the TEI had assessed that it did not intend or need to stop or materially cut back its operations in the foreseeable future. The foreseeable future is defined as 12 months from the TEI's reporting date.4

If, when making this assessment, the TEI was aware of uncertainties related to events or conditions that could cast significant doubt on the TEI's ability to continue as a going concern, it should disclose those uncertainties in notes to the financial statements.

Our audits of the financial statements

The Auditor-General appoints auditors to carry out annual audits on his behalf. An annual audit in the public sector includes:

  • examining a public organisation's financial statements, performance information, and other information that must be audited, including a statement of service performance;
  • assessing the results of that examination against a recognised framework – for TEIs' financial statements, this is generally accepted accounting practice (GAAP); and
  • expressing an audit opinion.

Auditing TEIs involves obtaining reasonable assurance that the financial statements and other information are not materially misstated. Where we are satisfied, we issue a standard audit report with an unmodified opinion.

Standard audit reports – unmodified audit opinions

We issued standard audit reports with unmodified opinions for 25 of the 27 TEIs. This means that, in our view, the financial statements that we audited complied with GAAP and fairly reflected each TEI's financial position and the results of its operations and cash flows for 2017.

Non-standard audit report – unmodified audit opinion

If we consider a TEI to be in serious financial difficulty based on the information presented for audit, we will check that the TEI has disclosed this uncertainty in its financial statements. We draw attention to these disclosures by issuing a non-standard audit report containing an "emphasis of matter" paragraph. Using an emphasis of matter paragraph does not change, or modify, the audit opinion because the information is still fairly represented.

We issued a non-standard audit report for Unitec Institute of Technology (Unitec), drawing attention to disclosures in the financial statements about the ongoing financial viability of Unitec.

Non-standard audit report – qualified opinion

We qualify the audit opinion only where we consider that the financial statements or statements of service performance could be misleading. Where this happens, we issue a qualified audit opinion, and explain why in our audit report. We issued one qualified audit opinion for Tai Poutini Polytechnic (Tai Poutini), because of the way it had accounted for revenue and debt in 2016 and 2017.

We also included an emphasis of matter paragraph in Tai Poutini's audit report, drawing attention to disclosures in the financial statements about Tai Poutini's ongoing financial viability.

Appendix 2 describes in more detail the events that led us to issue non-standard reports for Tai Poutini and Unitec.

Our audits of the service performance information

We also audit the statement of service performance in the TEIs' annual reports. This means that readers can be confident that the information reported by TEIs in their statements of service performance fairly reflect their achievement of the performance targets they have chosen to report on.

We have been auditing the content of statements of service performance for some years, but there has been no legal compulsion for these statements to comply with GAAP. This meant that we could not qualify our audit opinion unless we considered there were serious deficiencies5 in the information reported. We were limited to making recommendations for change.

For example, we made several suggestions to individual TEI councils and managers to further improve their performance reporting. These suggestions included:

  • more clearly reporting on progress against the TEIs' strategic objectives, as well as achievement of investment plan measures;
  • providing more context to inform the reader about why certain measures were important, and what good performance would look like; and
  • providing clearer explanations where there was variation between actual results and targets.

A few TEIs were failing to highlight significant performance results in their annual reporting. We saw some discrepancies between the sentiments expressed in the forewords of annual reports and the actual results in the statements of service performance. Often, limited or no explanation was given for a variance from what was expected. We expect more transparency when results do not meet targets.

In compiling the analysis for this report, we noticed that some non-financial information is expressed in ways that makes comparison difficult. For example, not all TEIs consistently report the number of students enrolled. Some report on headcounts and others use the "full-time equivalent student" measure.6

Recent changes to the Education Act 1989 mean that the TEIs' statements of service performance will have to comply with GAAP for 2019 and beyond. Consequently, some TEIs may be at risk of having their audit opinions qualified because of inadequate statements of service performance.

We encourage TEIs to discuss the new reporting requirements with their auditors. We have asked auditors to assess the TEIs' 2018 audit reporting to highlight where improvements are needed before the new requirements are in place. This should give TEIs some time to realign their reporting with the new requirements.

Providing timely financial and performance information

It is important that TEIs recognise that accountability is not achieved until audited financial and service performance information is made publicly available. Consequently, an important part of the performance and accountability of public organisations is issuing audited financial statements and performance information within statutory time frames. For the 2017 TEI audits, the statutory deadline was 30 April 2018.

Three TEIs breached the statutory reporting deadline – Unitec, Tai Poutini, and Southern Institute of Technology. Unitec and Tai Poutini's breaches were related to the going concern issues referred to above. Southern Institute of Technology was late because one of its subsidiaries was unable to prepare its financial statements for audit in a timely way.

4: The definition is in an international public sector accounting standard on the presentation of financial statements, referred to as IPSAS1.

5: Examples of a serious deficiency would be the complete omission of any service performance information, significant and persistent errors in what was presented, or an inability to show how the information had been calculated.

6: The equivalent full-time student measure is for funding purposes. Headcounts count the actual number of students. For example, two half-time students would be counted as one equivalent full-time student, but a headcount would count them separately.