Public Finance Amendment (No. 1) Standard 1994 (Qld)

Queensland Subordinate Legislation 1994 No. 364 Financial Administration and Audit Act 1977 PUBLIC FINANCE AMENDMENT (No. 1) STANDARD 1994 TABLE OF PROVISIONS Section Page 1 Short title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2 Standards amended . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3 Omission of s 101 (Arrangement) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 4 Amendment of s 100 (Commencement) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 5 Insertion of new s 100 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 100 Short title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 6 Replacement of s 102 (Interpretation) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 102 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 7 Amendment of s 230 (Asset identification and control) . . . . . . . . . . . . . . . . 4 8 Replacement of ss 610 and 611 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 610 Establishing and maintaining internal audit . . . . . . . . . . . . . . . . . . . 5 611 Role of internal audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 612 Independence of internal audit organisation . . . . . . . . . . . . . . . . . . . 5 613 Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 614 Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 9 Insertion of new s 627 and Div 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 627 Contract performance guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Division 4—Transitional 628 Internal audit charters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 10 Amendment of Sch 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

2 Public Finance Amendment (No. 1) No. 364, 1994 11 Replacement of Sch 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 SCHEDULE 2 ACCOUNTING CONCEPTS AND STANDARDS

s1 3 s6 Public Finance Amendment (No. 1) No. 364, 1994 ˙ Short title 1. This standard may be cited as the Public Finance Amendment (No. 1) Standard 1994 . ˙ Standards amended 2. This standard amends the Public Finance Standards . ˙ Omission of s 101 (Arrangement) 3. Section 101— omit. ˙ Amendment of s 100 (Commencement) 4.(1) Section 100, second sentence— omit. (2) Section 100— renumber as section 101. ˙ Insertion of new s 100 5. Before section 101, as renumbered— insert— ˙ ‘ Short title ‘ 100. These standards may be cited as the Public Finance Standards 1990 .’. ˙ Replacement of s 102 (Interpretation) 6. Section 102— omit, insert —

s7 4 s8 Public Finance Amendment (No. 1) No. 364, 1994 ˙ ‘ Interpretation ‘ 102.(1) In these standards— “Australian Accounting Standards” or “AAS” means the Australian Accounting Standards issued jointly by or for the National Councils of the Australian Society of Certified Practising Accountants and The Institute of Chartered Accountants in Australia. “Statements of Accounting Concepts” or “SAC” means the Statements of Accounting Concepts issued jointly by or for the National Councils of the Australian Society of Certified Practising Accountants and The Institute of Chartered Accountants in Australia. ‘ (2) An accounting term used, but not defined, in these standards has the same meaning given to the term under the prescribed accounting standards.’. ˙ Amendment of s 230 (Asset identification and control) 7. Section 230(2)(d)— omit, insert — ‘(d) the recording of up-to-date information about assets necessary to meet— (i) management information needs including, for example, the valuation of non-current physical assets according to the deprival value principle; 1 and (ii) external reporting requirements;’. ˙ Replacement of ss 610 and 611 8. Sections 610 and 611— omit, insert— 1 Further information about this principle and the way it is applied is available in the Treasurer’s policy called ‘Recording and Valuation of Non-Current Physical Assets in the Queensland Public Sector’. Copies of this policy are available, without charge, from the Treasury Department at 100 George Street, Brisbane.

s8 5 s8 Public Finance Amendment (No. 1) No. 364, 1994 ˙ ‘ Establishing and maintaining internal audit ‘ 610.(1) This section applies when— (a) the accountable officer of a department exercises the accountable officer’s powers under section 36(1)(i) of the Act; or (b) a statutory body exercises the body’s powers under section 46C(ha) of the Act. ‘ (2) The officer or body may establish and maintain an adequate internal audit function by— (a) making appointments to the internal audit organisation of the department; or (b) entering a contract with a person or unincorporated body to perform the internal audit function for the department or body. ˙ ‘ Role of internal audit ‘ 611.(1) The role of the internal audit function of a department or statutory body is to help the accountable officer of the department, or the body, perform the functions of the accountable officer, or body, imposed by the Act including, for example, giving advice about the cost effectiveness of internal control. ‘ (2) The accountable officer of a department, or a statutory body, must ensure that the officer in charge of the internal audit organisation of the department or body— (a) is responsible directly to the accountable officer or board of the body about the internal audit function; and (b) if an audit committee is established for the department or body—may give advice about the internal audit function to the committee. ˙ ‘ Independence of internal audit organisation ‘ 612.(1) The accountable officer of a department, or a statutory body, must ensure— (a) the internal audit function and organisation of the department or

s8 6 s8 Public Finance Amendment (No. 1) No. 364, 1994 body is independent of the activities it audits; and (b) the internal audit organisation operates under an internal audit charter. ‘ (2) The charter must— (a) be consistent with standards, professional statements or other documents issued by relevant professional bodies including, for example, the Australian Society of Certified Practising Accountants, The Institute of Chartered Accountants in Australia and the Institute of Internal Auditors; and (b) include the matters mentioned in Schedule 1, Part 6, clause 4 (Miscellaneous); and (c) be approved by the department’s accountable officer or the body; and (d) be freely available to persons employed in the department or body. ˙ ‘ Planning ‘ 613. The accountable officer of the department, or a statutory body, must ensure its internal audit organisation develops effective audit planning for the organisation to perform its function including, for example, a strategic audit plan and annual audit plan. 2 ˙ ‘ Reporting ‘ 614.(1) The accountable officer of a department, or a statutory body, must consider each internal audit report given to the officer or body. ‘ (2) The officer or body— (a) must consider the action required because of the report; and (b) must document the consideration and action required of the relevant managers of the department or body; and (c) if the officer or body has referred the report to relevant managers 2 Schedule 1, Part 6, clauses 23 to 26 deal with audit planning.

s9 7 s9 Public Finance Amendment (No. 1) No. 364, 1994 of the department or body for consideration or implementation—must review the outcome of the referral.’. ˙ Insertion of new s 627 and Div 4 9. After section 626— insert— ˙ ‘ Contract performance guarantee ‘ 627.(1) This section applies if a department, or statutory body, enters into a contract with a person and the person agrees to give security as a guarantee for the performance of 1 or more of the person’s obligations under the contract (a “contract performance guarantee” ). ‘ (2) A contract performance guarantee must be 1 or more of the following types of security— (a) a banker’s undertaking; (b) cash; (c) government bonds and inscribed stocks; (d) insurance bonds or guarantee policies; (e) interest bearing deposits. ‘ Division 4—Transitional ˙ ‘ Internal audit charters ‘ 628.(1) If a department or statutory body has established an internal audit function but does not have an internal audit charter for its internal audit organisation when this section commences, the accountable officer of the department, or the body, must ensure a charter for the department or body is established by 30 December 1994. ‘ (2) Section 612(1)(b) has effect subject to subsection (1).’.

s 10 8 s 10 Public Finance Amendment (No. 1) No. 364, 1994 ˙ Amendment of Sch 1 10. Schedule 1, Part 6 (Miscellaneous)— omit, insert — ‘ PART 6—MISCELLANEOUS Discussion 1. The role of the internal audit function centres on giving advice to the accountable officer of a department, or a statutory body, on whether or not the system of internal controls over the functions of the department or body are adequate and effective. The role includes, but is not limited to, advice on whether or not the financial management functions imposed under the Act are being discharged. This advice is independent of advice given by the managers of the department or statutory body. 2. Internal audit performs this role by reviewing— (a) the efficient, effective and economic use of the resources under the control of the accountable officer or the statutory body; and (b) the adequacy and reliability of management information systems, including systems under development; and (c) compliance with legislation including, for example, section 36 or 46C of the Act; and (d) the quality of systems appraisal. 3. This Practice Statement specifies the minimum content of internal audit charters and gives guidance about them to help the internal audit organisation of a department or statutory body achieve the outcomes underlying its function. Practice Statement 4. The internal audit charter of a department or statutory body must cover each of the following matters in a way that has regard to the specific circumstances of the department or body—

s 10 9 s 10 Public Finance Amendment (No. 1) No. 364, 1994 • scope of internal audit • organisational relationships and independence • ancillary roles • competence and standards • conduct of audit work • audit planning • reporting • shared internal audit staff, contract internal audit and consultancies. The following provides specific guidance on the content of internal audit charters. Scope of Internal Audit 5. The scope of internal audit of a department or statutory body must be clearly defined in its internal audit charter. The role must also cover any controlled entities including offices, committees, instrumentalities or other entities that are part of, attached to, subsidiary to or otherwise controlled by, the department or body. 6. If a separate internal audit function operates for a controlled entity, the scope of the internal audit charter of the department or statutory body controlling the entity must be based on a clear understanding of— (a) the scope of the internal audit function in the controlled entity; and (b) the oversighting responsibility of the internal audit function in the department or body, so the accountable officer of the department or, the body, is able to be kept informed of audit issues arising in the controlled entity on a timely basis. Organisational Relationships and Independence 7. The internal audit charter of a department or statutory body must outline the organisational arrangements or, if relevant, contractual arrangements for the internal audit function and the relationship of internal

s 10 10 s 10 Public Finance Amendment (No. 1) No. 364, 1994 audit with the other elements of the organisation and the authorised auditors. The outline must provide that— (a) the internal audit function must be directly responsible to the department’s accountable officer, or board of a statutory body, for internal audit activities; and (b) the internal audit function must operate independently from management to ensure objectivity in the conduct of internal audits including, for example, a statement that the internal auditor must not be responsible for any operational functions; and (c) if an audit committee is established—the role of the committee is advisory. 8. The provisions of the charter must— (a) provide for staffing, resourcing and administrative arrangements, including free access to all staff, records, equipment and property relevant to each audit; and (b) indicate that the existence of internal audit does not diminish the financial management responsibilities of managers, including responsibility for the periodic conduct of systems appraisals by the managers. 9. Because the board members of a statutory body must receive advice on significant audit issues, the internal audit function should report directly to the board, or to an audit committee of the board, rather than to the chief executive officer. However, the internal audit function may be responsible to the chief executive officer of the statutory body for administrative purposes. 10. If an audit committee is established within a department or statutory body, the internal audit charter must outline the nature of the relationship of internal audit with the committee. Guidance about this relationship is given in the ‘Guidelines on Audit Committees’ issued by the Treasurer and available from the Treasury Department.

s 10 11 s 10 Public Finance Amendment (No. 1) No. 364, 1994 Relationship with Authorised Auditors 11. To achieve the most effective relationship with the authorised auditors and the most cost-effective use of audit resources overall, it is beneficial that a professional relationship be fostered between the internal audit organisation of a department or statutory body and the authorised auditors. This relationship should include consultation on a regular basis. Liaison processes between the 2 should be specified in the internal audit charter of the department or body to minimise unnecessary duplication and promote economy of audit activities. 12. Close co-ordination would be beneficial in a range of areas including, for example, the production of the annual financial statements of the department or body. If an authorised auditor is able to rely on the work of internal audit concerning financial management systems and records, timely production of the annual report of the department or body may be facilitated. Ancillary Roles for Internal Audit 13. The related activities that may be performed by internal audit include— (a) conducting program evaluations and, if internal audit is not involved in conducting an evaluation, reviewing the evaluation; and (b) reviewing risk management procedures, including prevention of fraud and corruption; and (c) advising on physical and information security; and (d) advising about management matters. 14. The inclusion of the related activities within the role of internal audit may lead to— (a) a more efficient use of scarce resources, particularly in smaller departments or statutory bodies; and

s 10 12 s 10 Public Finance Amendment (No. 1) No. 364, 1994 (b) a way to broaden the knowledge and experience of internal audit staff. 15. The following factors must be considered before deciding to include any of the related activities in the internal audit role— (a) any limitation on internal audit’s ability to give independent advice on the activities; (b) the impact on the core internal audit function; (c) the availability of skills and knowledge required to effectively perform the activities. 16. If the role of internal audit does not include the conduct of program evaluations, internal audit must review completed program evaluations and, to the extent practicable, assess the quality of the methodology employed and the integrity of the information given. Competence and Standards 17. This section of the internal audit charter of a department or statutory body must include a policy on the skills, competence, experience and preferred qualifications required by internal audit staff. For employees of the department or statutory body in the internal audit organisation, it must contain a policy on professional development. This policy should, having regard to needs identified in the performance management process, ensure internal auditors keep their competence through both internal and external training and development on a planned basis. 18. The internal audit function should have the knowledge, skills and disciplines needed to satisfactorily perform its role. The range of skills required depends on the nature of audit plans and the scope of the audit function, including the extent or likely extent of computerised information systems within the department or body. 19. The charter must require internal auditors to be cognisant of the functions imposed on auditors in applicable standards and professional

s 10 13 s 10 Public Finance Amendment (No. 1) No. 364, 1994 statements. The applicable standards and professional statements include standards and statements issued by the Institute of Internal Auditors, the Australian Society of Certified Practising Accountants, The Institute of Chartered Accountants in Australia, the EDP Auditors Association, the Australasian Evaluation Society (if the internal audit function is responsible for program evaluation) and other relevant professional bodies. 20. The charter must establish procedures to provide quality assurance of the internal audit function. The procedures may include regular peer review of audit work and feedback about the review. Performance standards to be achieved by internal audit must also be developed. 21. If appropriate, the charter may specify a mechanism by which internal audit staff have the opportunity to rotate into management positions. This opportunity gives benefits by broadening the development of internal audit staff and providing them with an alternative career path. The rotation of internal audit staff into management positions must be planned in a way to ensure the auditor’s independence is not hampered when the person returns to internal audit duties. Conduct of Audit Work 22. The charter must require individual auditors to have proper regard to their professional duties. The charter must ensure high professional standards are kept by including requirements that— (a) audits are performed in accordance with accepted professional standards and practices, including a professional standard of working papers; and (b) the work of less experienced staff is reviewed to ensure the quality control of audit work; and (c) productive work relationships are established between auditors and managers; and (d) suitable confidentiality requirements are established; and (e) situations that may lead to actual or potential conflicts are avoided.

s 10 14 s 10 Public Finance Amendment (No. 1) No. 364, 1994 Audit Planning 23. Effective audit planning is important to the success of the internal audit function. In the planning phase, both managers and auditors should be encouraged to consider and communicate their views on the potential risk areas to be covered. This ensures the audit process benefits from the knowledge and experience of both parties. 24. The audit plans of a department or statutory body must provide for target audit cycles for all auditable areas of the department or body, having regard to current risk assessment. 25. The audit plan must also provide for internal audit input into the process of specifying, developing and testing of new or revised information systems, to ensure adequate audit trails and internal controls are built into the systems. 26. The charter must provide for the regular review and update of the audit plans. Each audit plan must be approved by the department’s accountable officer or the board of the statutory body on the advice, if applicable, of the audit committee. Reporting 27. The reporting section of an internal audit charter must state the type of reporting to be used by the department or statutory body and the minimum content of audit reports. 28. An audit report must state the results of the audit clearly and objectively, and be made on a timely basis to enable appropriate action. To achieve this, an audit report would normally include the following— (a) the objective of the audit; (b) the scope of the audit; (c) the audit methodology; (d) audit conclusions for each key issue identified, including

s 10 15 s 10 Public Finance Amendment (No. 1) No. 364, 1994 acknowledgment of good practice and remedial action in progress; (e) a summary of the comments of the relevant managers; (f) recommendations, including solutions as far as practicable; (g) a summary of the resources applied to each audit and expected savings, if quantifiable. 3 29. As well as giving reports on audits to the department’s accountable officer or the board of a statutory body, internal audit must provide copies of the report to the relevant managers and, if established, the audit committee. To promote acceptance of audit findings, managers should generally be kept informed of the audit’s progress by regular briefings throughout the course of the audit. 30. Activity reports summarising major audit findings, action taken and action outstanding must also be prepared and given at least twice yearly to the accountable officer of the department, or the board of the statutory body and, if established, the audit committee. The twice yearly reports must include the progress of actual internal audit work performed in the report period compared to the audit work forecast in the audit plan to be performed, to enable the department or board to monitor the internal audit performance. Shared Internal Audit Staff, Contract Internal Audit and Consultancies 31. The internal audit charter for a department or statutory body must include the circumstances in which— (a) internal audit staff may be shared with other departments or statutory bodies; and (b) a contractor may be engaged to perform the internal audit function. 3 This information may be included in a separate report to the accountable officer of the department or the board of the statutory body if desired.

s 10 16 s 10 Public Finance Amendment (No. 1) No. 364, 1994 Shared Internal Audit Staff 32. If internal audit staff are shared between departments and statutory bodies, administrative agreements about the arrangement must be developed. The agreement must include— (a) the confidentiality obligations of the staff to the departments and bodies; and (b) the access to information that is authorised for particular audits; and (c) relevant administrative and resource arrangements. Internal audit performed by a contractor 33. If a contractor is engaged to perform internal audit services, a formal contract for the services must be entered into under the State Purchasing Policy. To avoid a conflict of interest, the terms of reference for a contract proposal must require the contractor to disclose areas in which the contractor has a real or potential conflict of interest, including the development of systems subject to audit. 34. The specific requirements for internal audit contracts must include— (a) a description of the services to be supplied including audit coverage, types of audits and, if relevant, the audit methodologies; and (b) the reporting requirements, including to whom the report is to be made, the type of report, the minimum content of the report (reference may be made to professional standards and statements) and the timing or frequency of reports; and (c) the term of the contract including the starting and finishing dates, the number of audits to be performed and the number of hours to be spent auditing; and (d) resourcing arrangements including accommodation, computing resources and stationery; and (e) confidentiality obligations.

s 11 17 s 11 Public Finance Amendment (No. 1) No. 364, 1994 35. If adequate detail of internal audit services is included in the internal audit charter, a detailed description is not necessary in the contract. 36. If a contractor for internal audit services to a department or statutory body supplies, or has supplied, other services or products to the department or body that may create a potential conflict of interest, the authorised auditor must be advised of the potential conflict of interest.’. ˙ Replacement of Sch 2 11. Schedule 2— omit, insert — ‘ SCHEDULE 2 ‘ ACCOUNTING CONCEPTS AND STANDARDS (section 502) Column 1 Statement SAC 1 (8/90) SAC 2 (8/90) SAC 3 (8/90) Column 2 Statement and any applicable proviso under the Public Finance Standards Definition of the Reporting Entities Objectives of General Purpose Financial Reporting Qualitative Characteristics of Financial Information Column 3 Application Each reporting entity 1 as defined in SAC 1 Each reporting entity as defined in SAC 1 Each reporting entity as defined in SAC 1 1 Generally, departments, statutory bodies and controlled entities of a department or statutory body are reporting entities.

s 11 AAS 1 (8/92) AAS 2 (11/89) AAS 3 (11/89) AAS 4 (11/89) AAS 5 (11/86) AAS 6 (4/86) AAS 7 (11/89) AAS 8 (4/86) AAS 9 (10/72- 3/83) AAS 10 (9/91) AAS 11 (6/87) AAS 13 (3/83) 18 Public Finance Amendment (No. 1) s 11 No. 364, 1994 Profit and Loss or other Operating Statement M ea su rement an d Presentation of Inventories in the Context of the Historical Cost System Accounting for Company Income Tax (Tax-effect Accounting) Depreciation of Non-Current Assets Materiality in Financial Statements Accounting Determination, and Disclosure Policies: Application Accounting for Extractive Industries Events Occurring After Balance Date E xpenditure Carried Forward to Subsequent Accounting Periods Accounting for Revaluation of Non-Current Assets Accounting for Construction Contracts Accounting for Research and Development Costs Bu siness undertakings 2 and statutory bodies Business undertakings and statutory bodies Business undertakings and statutory bodies Business undertakings and statutory bodies Each reporting entity as defined in SAC 1 Each reporting entity as defined in SAC 1 Business undertakings and statutory bodies Each reporting entity as defined in SAC 1 Business undertakings and statutory bodies Business undertakings and statutory bodies Business undertakings and statutory bodies Business undertakings and statutory bodies 2 Clause 5 of the practice statements in Schedule 1, Part 5 deals with business undertakings. The term includes the activities mentioned in section 501(2).

s 11 19 s 11 Public Finance Amendment (No. 1) No. 364, 1994 AAS 15 (5/86) AAS 16 (4/87) AAS 17 (6/87-5/88) AAS 18 (3/84) AAS 19 (8/86) AAS 20 (12/87) Disclosure of Operating Business undertakings Revenue and statutory bodies Financial Reporting by Business undertakings Segments and statutory bodies Accounting for Leases Accounting for Goodwill Accounting for Interests in Joint Ventures Foreign Currency Translation Business undertakings and statutory bodies Business undertakings and statutory bodies Business undertakings and statutory bodies Business undertakings and statutory bodies AAS 21 (12/85) AAS 23 (6/90) AAS 24 (9/91-6/92) Accounting for Acquisition of Assets (including business entities) Set-off and Extinguishment of Debt Provided that— where reporting foreign currency balances in accordance with AAS 20 that have been hedged and there is a gain or loss accruing under incomplete hedge contracts or the like, the net gain or loss accruing must be recognised in the financial statements Consolidated Reports Financial Business undertakings and statutory bodies Business undertakings and statutory bodies Business undertakings or statutory bodies that control another entity within an economic entity

s 11 AAS 25 (5/92) AAS 26 (12/90) AAS 28 (12/91) AAS 29 (12/93) AAS 30 (3/94) 20 Public Finance Amendment (No. 1) s 11 No. 364, 1994 Financial Reporting by Superannuation Plans Finance Reporting of General Insurance Activities Statement of Cash Flows Financial Reporting by Government Departments Accounting for Employee Entitlements Each reporting entity as defined in SAC 1 — f or gene ral purpose financial reports of Superannuation Plans Business undertakings a n d s t at u t o r y bodies—for general insurance activities Business undertakings and statutory bodies Each department that prepares general purpose financial reports Each reporting entity that prepares general purpose financial reports’. ENDNOTES 1. Made by the Minister on 5 October 1994. 2. Notified in the Gazette on 14 October 1994. 3. Laid before the Legislative Assembly on . . . 4. The administering agency is the Treasury Department. © State of Queensland 1994