Download Financial Management Institute PD Week

Financial Reporting and the Expectations of
Departmental Audit Committees
Arn van Iersel, FCGA
November 26, 2008
Importance of Audited Financial
Statements
 Departmental Audited Financial Statements are key to the
Federal Government Accountability Initiative.
 Audited Statements help improve departmental
accountability and overall financial practices including
reporting e.g.
 Demonstrate proper stewardship for resources entrusted to
departments.
 Provide credible (audited) financial information for reporting
back to the public.
 Can be married up with non-financial performance
information for comprehensive performance reporting.
 DAACs can be useful advisors to get to audited statements.
DAAC Mandate-Financial Reporting
TB Directive (Section 4.2.7):
Prior to audited statements:
 The DAAC is to review the statements and recommend acceptance to
deputy head.
 Review includes discussions with management, examination of
accounting policies, estimates, and adjustments.
Once audited statements are prepared:
 The DAAC is to review the statements with the external auditor (OAG)
and senior management.
 Review includes examining significant audit adjustments as a result of
the audit, review of any difficulties with management during the audit,
OAG findings and recommendations, management’s responses to audit
issues, and performance of the external auditor.
DAAC Responsibilities-Financial
Reporting
 To understand the business of the department.
 To understand the statements and related financial
information.
 To assess the appropriateness of the accounting
policies, underlying estimates, judgements made.
 To review the overall transparency of the statements in
reporting the financial status and operating results.
 To understand not only the numbers but the quality of
the financial information and how they have been
assembled.
DAAC Expectations of Department
 Management clearly acknowledges they are responsible for





the statements.
Professionally prepared statements consistent with GAAP.
Statements free of material error.
A frank and timely flow of accurate and relevant
information.
Prompt follow up and response to DAAC enquiries.
A strong financial statement preparation team that works
toward best practice and continuous improvement.
DAAC Expectations of DepartmentCont’d
 Strong support from the deputy head, executive and




CFO.
Excellent understanding of public sector GAAP and its
interpretation and application.
Clear supporting documentation and rationales.
A strong internal control environment supporting the
financial reporting function.
Close working relationship with the internal auditor
and tracking and prompt follow up of audit
recommendations.
Departmental Expectations of
DAACs
 Constructive independent advice aimed at improving the
financial statements and reporting practices of the department.
 At least one member that:
 Is experienced in reviewing financial statements and knows public
sector GAAP.
 Understands internal controls and the certification process as it
relates to financial reporting.
 Asks probing questions in the area of accounting policy, processes
and timing, and financial statement presentation and review.
 Probing of unusual and significant transactions.
 Works well with Management and the external Auditor (OAG).
 Adds value to the departmental financial function including
financial reporting.
Questions the DAAC will ask
Before Audited Statements:







What are the major financial reporting and internal control issues
facing the department in moving to audited statements?
What have we learned from the assessment of readiness for audited
statements?
Is there a realistic and defensible plan that gets the department to
audited statements?
How do you justify the timing for introducing audited statements?
What are the major risks and opportunities in the audited financial
statements implementation plan?
How will the plan be monitored and reported on back to the Audit
committee?
Does the department have the necessary resources (people, systems
and controls) for achieving the plan?
Questions DAAC will ask-Cont’d
When Audited Statements are in place:
 How appropriate are the accounting polices, principles and
practices?
 What were the key judgements and major estimates in pulling
the financial statements together?
 Were alternative accounting approaches considered and what is
the best representation of the substance of the transaction?
 What were the unusual transactions for the period?
 How does the deputy and CFO know what they are signing off is
correct?
 What was the sign off process for the statements?
 What audit adjustments were not made and why?
 Were there any frauds or defalcations?
Some Challenges
 Acknowledge that audited statements are a means to an





end not the end itself.
Departments need to put in place the people, the controls
and the systems.
Take accountability and make it happen.
Establish a detailed plan and make it work.
Fitting DAAC’s into the financial statement preparation
and review process, including the requirements of the
OAG.
Being ready for a controls reliant audit rather than a
substantive audit
The Opportunities
 The Federal government will be one of only two senior




governments to publish audited departmental or ministry
financial statements below the Summary Financial Statement
level.
Developing audited statements will help to improve the financial
systems, provide discipline and improve rigour.
The Federal government will be ahead of PSAB just having
approved a project on “Issues with Entity level Financial
Statements”.
Using the expertise and guidance of your audit committee
members in resolving issues.
Confirms the Federal commitment to improving oversight and
departmental accountability per the Federal Accountability Act.
Summary Comments/Conclusions
1.
2.
3.
4.
5.
6.
This is a great opportunity for Federal departments
to improve financial practices and reporting
Departments will only succeed if they take
responsibility and make it happen.
Recognize that there will likely be improvements to
the statements over time.
This is one big step in the journey not the final
destination.
Work closely with the DAAC and OAG.
Make a realistic plan and stick to it.
Questions/Comments/Contacts
Are there any questions/comments?
Contact Information:
Arn van Iersel, FCGA
[email protected]
Phone: Home-250-652-4865
Cell-250-516-4865