Tertiary Education Institutions: Changes to the requirements for performance reporting in annual reports

Letter sent on 14 February 2019 to the Chancellors and Chairs of Tertiary Education Institution Councils/Te Mana Whakahaere. We have also sent a copy of this letter to the Chief Executives/Te Taiurungi/Vice-chancellors of the Tertiary Education Institutions, and to appointed auditors.

14 February 2019

Tēna Koe

As public organisations, Tertiary Education Institutions (TEIs) are accountable to New Zealanders for their performance and the money they spend. Because of this, you are required to prepare a statement of service performance (SSP) for your annual report.

Recent changes to the Education Act 1989 require your SSPs for 2019 to comply with generally accepted accounting practice (GAAP). GAAP is a set of objective principles and requirements for improving the consistency and transparency of performance reporting.

In this letter we:

  • describe why you are required to prepare an SSP;
  • discuss the upcoming changes to SSP requirements for your annual report;
  • provide some guidance on performance reporting that we expect to see in your SSP; and
  • recommend next steps and where you can get further information and support.

Statement of service performance

A TEI that prepares an Investment Plan is required to include an SSP in its annual report.1

Your SSP should describe your strategic goals and objectives and provide an easily understood picture of your organisation’s performance during the year, showing the relationship between your core services, associated costs, and how you achieved your objectives. Your SSP should give a sense of your progress, noting where you have made improvements and where you need to make further improvements.

Your SSP should set out what you expected to achieve and your actual performance, measuring performance against the proposed outcomes and performance indicators, including those described in your Investment Plan.2

In previous years, the information in your SSP was reviewed as part of our annual audit work. However, because there was no requirement for SSPs to comply with GAAP, our audit opinion did not report on this part of the annual report. Instead, we made recommendations in our management letter to you, identifying any deficiencies.

Upcoming changes

The Education (Tertiary Education and Other Matters) Amendment Act 2018 introduced a new subsection (section 220(2C)) to the Education Act 1989. The new subsection requires your SSP to comply with GAAP. This will apply to SSPs for financial years beginning on or after 1 January 2019.3

For any financial year beginning on or after 1 January 2019, our audit opinion will report on whether your SSP complies with GAAP. If your SSP does not comply with GAAP, you risk receiving a modified audit opinion.

For an SSP to comply with GAAP, it must meet the requirements of the relevant financial accounting standard. Currently, the relevant accounting standard is PBE IPSAS 1 Presentation of financial statements (PBE IPSAS 1), particularly paragraphs 150.1 to 150.10.4

You need to ensure that your staff who prepare SSPs are familiar with the PBE IPSAS 1 reporting requirements for SSPs, including the requirement to describe and disclose the cost of each output (paragraph 150.4).5 Few TEIs currently disclose their output costs.

For reporting periods beginning on or after 1 January 2021, a new standard, PBE FRS 48 Service performance reporting, will apply. This will replace the paragraphs in PBE IPSAS 1.

When applying PBE FRS 48, you should consider how you will meet the requirement to link the service performance information and financial statements in order to convey a coherent picture about your TEI’s performance. If you have more than one output class and do not plan to do this through output cost disclosures, you should discuss with your auditor how you will meet this requirement.

Early adoption of PBE FRS 48 is permitted. If you are considering early adoption, discuss this with your auditor.

Performance measures we expect to see

We expect that your SSP will include a range of performance measures, covering strategic goals and objectives, as well as measures directly relating to your outputs.

Your performance measures in your SSP should identify both the quantity (how much was provided) and quality (how well it was provided) of your service delivery.

In general, performance measures in your SSP should include targets. Targets are the specific levels or results that you intend to achieve. You might align targets to:

  • an external benchmark or required tertiary sector standard;
  • a level that represents a meaningful improvement on past performance; or
  • an aspirational level, if you anticipate a significant change in the relevant service’s performance.

If a performance measure does not have a target or it has not been reported on, you should explain why in the SSP’s commentary. Your reporting should be transparent when results do not meet targets and explain any variance from what you expected.

Performance measures and associated commentary should be: understandable, relevant, reliable, comparable, and complete. Comparing performance with other TEIs in the sector would be good practice, but this is not a requirement.

Figure 1
Principles of performance reporting

Understandable The SSP, its measures, and associated commentary are presented in a clear and concise format in a way that engages its users. Measures and commentary are easy to read and use minimal jargon and technical terms. Users can readily identify and understand the key performance issues.
Relevant There is a clear link between the measure and its particular outcome, impact, or output. The measure and associated commentary provides meaningful information about the TEI’s performance and progress towards its outcomes, meets the information needs of its users, and is useful for decision-making.
Reliable The measure and its commentary are free of errors, omissions, and bias and fairly represents the TEI’s performance in a balanced way. The measure represents what it purports to, and informed users would reach the same, or similar, conclusions to those made in the associated commentary.
Comparable A measure should include some comparison to required standards, forecasted or target values, previous year/s, and/or other TEIs. The commentary can then identify whether suitable targets were set, if there has been a decline or improvement in performance, and the TEI’s performance relative to standards and other TEIs in the sector.
Complete The performance information should cover the significant activities and all important aspects (including identifying the important dimensions of performance), and give them suitable emphasis, to present fairly, in all material respects, their significance to the TEI’s performance.

Your SSP must include the Educational Performance Indicators that you report to the Tertiary Education Commission (TEC). The TEC website provides further details.6

You should also include performance measures for your wider strategic goals and objectives that go beyond the Educational Performance Indicators, which focus on student achievement. A more complete picture of a TEI’s performance might also include, but is not limited to, measures of:

  • research products for research-active TEIs (such as post-graduate research, external research income, publications, research recognitions);
  • users’ views (often through student and/or graduate satisfaction measures);
  • post-study/employment status (often through graduate destination surveys and the TEC post-study information products7), recognising that there can be a lag in this data being available;
  • employers’ views (typically through employer satisfaction measures);
  • contributions to broader economic, social, and cultural outcomes (including community engagement, community support, and knowledge-sharing activities); and
  • results of independent external evaluations and reviews (such as those done by the New Zealand Qualifications Authority and the Academic Quality Agency for New Zealand Universities).

Recommended next steps

Changes in performance reporting requirements can take time to settle in and need the commitment of senior management. We recommend that you consider asking your Chief Executive, Vice-Chancellor, or Te Taiurungi to report on the TEI’s state of readiness for the SSP in your annual report to comply with GAAP.

Our auditors will review your SSP’s compliance with GAAP in your 2018 annual report on a "dry-run" basis to help identify any improvements you need to make. We encourage you to start your own improvement plan now, so you are better placed to meet the new requirements in 2019.

Further information and support

The Auditor General’s Auditing Standard AG-4 The audit of performance reports8 provides insight into what our auditors are looking for in a public organisation’s performance reporting.

If you require further information or have any questions, please speak to your appointed auditor in the first instance.

Yours sincerely

Patricia Johnson
Sector Manager, Parliamentary Group


1: See section 220(2A)(f) of the Education Act 1989.

2: See section 159P of the Education Act 1989 sets out statutory requirements for investment plans.

3: Clause 11E of Part 5A of Schedule 1 of the Education Act 1989.

4: For the accounting standards, see www.xrb.govt.nz.

5: Where a TEI has only one output (teaching/learning), a breakdown of costs does not necessarily need to be provided. This might apply to some wānanga and institutes of technology and polytechnics. There might, however, be value in reporting costs in a different way, such as by faculty. In our view, all universities have more than one output (teaching/learning and research as a minimum).

6: See www.tec.govt.nz.

7: See Tertiary Education Commission (2018) Infosheet: Post-Study Outcomes apps at www.tec.govt.nz.

8: See The Auditor-General’s Auditing Standards at www.oag.govt.nz

Photo acknowledgement: Chris Tse