D. Areas of higher material misstatement risk for certain entities in 2022-23

D. Areas of higher material misstatement risk for certain entities in 2022-23

Areas of higher material misstatement risk for certain entities in 2022-23 (including areas identified as a key audit matter [KAM])

Entity

Areas of higher material misstatement risk

Airservices Australia

Impact of the COVID-19 pandemic (Government provided financial assistance grants for 2021–22 and 2020–21 and an equity injection in 2022–23);[$862.6 M] completeness and accuracy of airways revenue (complexity of the flight traffic data, dependence on multiple integrated IT systems);[$1.79 B] management, recognition and valuation of assets (assumptions and judgements required)

ASC Pty Ltd (supports Australia’s naval capabilities)

[$767.8 M] Revenue and profit recognition for Offshore Patrol Vessel projects and Collins Class submarine contracts (significant judgements required)

Australian Bureau of Statistics

[$78.3 M] Recognition of revenue from rendering of services (risks relating to when revenue is recorded, whether it is recognised accurately, and relating to the maintenance of supporting documentation)

Australian Communications and Media Authority

[$2.65 B] Recognition and measurement of administered income, receivables and unearned income (professional judgement is required in determining when to recognise revenue)

Australian Federal Police

[$1.44 B] Recognition and measurement of payroll expenses including underpayment of superannuation obligations (size and complex nature of the payroll function; underpayment of superannuation on certain allowances)

Australian Hearing Services (Hearing Australia)

[$258.9 M] Completeness and accuracy of revenue (complexity of timing and recognition of numerous revenue streams and judgement in determining balances)

Australian Office of Financial Management

[$825.5 B] Valuation and disclosure of Australian Government Securities (material impactof fair value movement; price changesin local and global markets;complex financial statements disclosure requirements) (moderate risk rating but KAM)

Australian Naval Infrastructure Pty Ltd

[$1.44 B] Valuation of property, plant and equipment (uses the depreciated replacement cost method which requires significant judgements and estimates); [$31.8 M] completeness and accuracy of capital work in progress (involves judgement in relation to capitalisation)

Australian Nuclear Science and Technology Organisation

Valuation of the decommissioning [$502.9 M] and nuclear waste management [$130.2 M] provisions (complexity of calculations and reliance upon significant judgement)

Australian Postal Corporation (Australia Post)

[$8.86 B] Valuation of unearned revenue liability (judgement needed in estimating postage products sold but still unused) (KAM); [component of intangible assets $501.6 M]valuation of goodwill (estimation process is complex and involves significant judgement) (KAM);[$800.5 M] valuation of the net superannuation asset (sensitive to movements in long-term assumptions, subject to judgement) (KAM)

Australian Rail Track Corporation Ltd

[$3.7 B] Fair value of infrastructure assets (estimated using a complex discounted cash flow model subject to high degree of judgement); [component of impairment expenses for construction in progress of$866.5 M] impairment of Inland Rail assets (judgement and estimation required); [$796.9 M] recognition and measurement of access revenue (subject to management estimates and judgement; complexity of underlying processes)

Australian Securities and Investments Commission

[$519.0 M] Valuation of the provisions for future payments of unclaimed monies (relies on a legislative framework that can be subject to change; sensitive to movements in general market conditions); [$29.9 M] appropriate capitalisation of software (prior period error; increasing move to cloud-based systems and lower capitalisation rate of assets)

Australian Signals Directorate

[$1.58 B] Measurement and recognition of nonfinancial assets (significant capital budget, complexity, judgement, fair valuing of specialist assets)

Australian Taxation Office

[$592.1 B] Accuracy of taxation revenue (KAM) and [$29.3 B] accuracy of expenses (complexity and judgement; completeness and accuracy of source data; consideration of historical taxpayer behaviours together with assumptions about economic factors); [$126.7 B] valuation of taxation receivables and provisions for refunds (complex methodologies and assumptions; accuracy of source data) (KAM); [$592.1 B] completeness of taxation revenue and compliance and risk management process relating to its collection (taxpayer self-assessment; effectiveness of compliance risk management regime; judgements); accuracy and completeness of balances due to complex IT business systems (large and complex IT environment and reliance on bespoke reports)

Australian War Memorial

[$1.1 B] Valuation of the heritage and cultural assets collection (subject to judgement and assumptions)

Bureau of Meteorology

[$452.0 M] Valuation of plant and equipment, particularly specialised weather equipment; [$346.4 M] valuation of computer software; [$311.0 M] high volume of leases with varying terms and conditions and high level of manual input and judgement, and material prior period errors, related to estimating lease liabilities and right-of-use assets; [$81.8 M] recognition of own source revenue

Clean Energy Finance Corporation

[$202.0 M] Recognition and measurement of interest and fee income (calculating revenue from a diverse set of financial assets);[$3.61 B] accounting for complex finance agreements including adequacy of impairment provisions and concessional loan adjustments (complexity of information)

Coal Mining Industry (Long Service Leave Funding) Corporation

[$1.9 B] Valuation of investments (complexity surrounding the valuation of unlisted unit trusts); [$1.7 B] valuation of provision for reimbursements (complex methodology and estimation process)

Comcare

[$2.8 B] Valuation of workers’ compensation and asbestos related disease management claims provisions (complex nature of the valuation of the provisions including reliance on the accuracy of underlying assumptions)

Commonwealth Scientific and Industrial Research Organisation

[$777.6 M] Completeness and accuracy of research and associated measurement of work-in-progress and unearned revenue (revenue is recorded with reference to contracted milestones and significant judgement is required); [$895.9 M] valuation of unlisted equity instruments (requires significant estimation and judgement)

Defence Housing Australia

[$179.3 M] Valuation of inventories –management’s assessment of net realisable value (significant judgement in the determination of market conditions); [$3.1 B] impairment of investment properties (complex valuation method, subject to management judgement); [$829.5 M] revenue recognition for services provided to Defence (complexity of transactions and systems; judgements and assumptions needed).

Department of Agriculture, Fisheries and Forestry

Financial sustainability (significance of forecast financial position during 2022-23); [$521.1 M] accuracy and completeness of own-source revenue relating to import and export functions (complexity, reliance on services, decentralised approach) (moderate risk rating but KAM); [$2.83 B] valuation of loans to state and territory governments and farm businesses (complexity, assumptions and reliance on third parties) (KAM)

Department of Climate Change, Energy, the Environment and Water

[$4.1 B] Valuation of water entitlements assets (significant judgement required and a reliance on third party information) (KAM); [$8.75 B] valuation of the Australian Government’s investment in Snowy Hydro Limited (complex discounted cash flow models that require significant judgements; significance of the balance of administered investments) (KAM); [$451.3 M] valuation of the Antarctic restoration provision (nature of the Madrid Protocol obligations; complex mathematical modeland significant judgement and estimation) (KAM)

Department of Defence

[$84.3 B] Accuracy and valuation of specialist military equipment (complexity, subjectivity, high degree of judgement) (KAM); [$137.9 B] accuracy, valuation and disclosure of administered employee provisions (complexity, significant judgement required) (KAM); [$8.7 B] existence and completeness of inventory balances (variety and number of inventory items which are managed differently) (moderate risk rating but KAM)

Department of Education

Completeness, accuracy and classification of transactions and balances resulting from machinery of government changes and complexity of IT systems; [component of trade and other receivables $47.4 B] valuation of the outstanding Higher Education Loan Program (HELP) loan receivable (KAM); [$5.1 B] valuation of the Higher Education Superannuation Program (HESP) provision (moderate risk rating but KAM);[component of personal benefits expenses of $11.1 B] accuracy of ‘assistance to families with children’ personal benefit expenses (may be significantly impacted by the provision of inaccurate information) (KAM)

Department of Employment and Workplace Relations

Completeness, accuracy and classification of transactions and balances resulting from machinery of government changes (judgement and assumptions in determining opening balances split between Education and DEWR) (KAM); [$1.6 B] accuracy of ‘Workforce Australia’ supplier expenses (new employment service delivered by the department); [a component of trade and other receivables totalling $4.59 B] valuation of the vocational student and trade support loans receivables(complex judgments and assumptions needed) (moderate risk rating but KAM)

Department of Finance

[$1.4 B] Valuation of outstanding claims liability under the Government’s self-managed general insurance fund (involves significant judgement over key assumptions) (KAM); [$175 B] valuation of the non-defence superannuation provision (significant judgement in the selection of long-term assumptions) (KAM); [$3.3 B] valuation of properties (dependent on assumptions) (moderate risk rating but KAM); [$12.6 B] valuation of private market investments (inherent subjectivity and significant judgements) (KAM)

Department of Foreign Affairs and Trade

[$4.69 B] Valuation of overseas properties (KAM) (degree of subjectivity in valuing a large number of properties with a wide geographic spread);[$3.7 B] accuracy of international development assistance (broad range of agreements with multiple third parties) (moderate risk rating but KAM)

Department of Health and Aged Care

[$59.3 B] Accuracy of personal benefits (payments calculated using multiple, complex IT systems) (KAM); [$16.1 B] accuracy of subsidies (payments based on complex regulatory requirements) (KAM); [$1.1 B] valuation of personal benefits’ provisions (significant actuarial assumptions and judgements involved) (KAM); [$3.1 B] valuation of inventories (judgement applied to estimating current cost and service potential) (KAM)

Department of Home Affairs

[$17.1 B] Accuracy of customs duty (significant value, geographically dispersed revenue collection points and IT complexity) (KAM); [$3.2 B] accuracy of visa application charges (significant value and IT complexity) (KAM)

Department of Industry, Science and Resources

[$2.1 B] Completeness and accuracy of royalty revenue (reliance on third parties) (KAM); [$2.1 B] valuation of the rehabilitation provision (complexity of the valuation) (KAM)

Department of Infrastructure, Transport, Regional Development, Communications and the Arts

[$22.0 B] Valuation of administered investments accounted for using the discounted cash flow method (complexity in determining the estimated fair value) (KAM); [$9.4 B] valuation of administered advances and loans (complexity of model, judgements and assumptions) (moderate risk rating but KAM)

Department of Parliamentary Services

[$2.7 B] Valuation of buildings (complexity and judgement arising from unique nature of each building component that comprises Parliament House) (KAM)

Department of Social Services

[$125.8 B] Accuracy and occurrence of personal benefits expenses (reliance on the correct self-disclosure of personal circumstances; reliance on Services Australia’s complex IT processing system) (KAM); valuation of [$4.0 B] personal benefits provisions and [$5.4 B] personal benefits receivables (use of estimation models which require significant judgements; accuracy and completeness of the source data) (KAM); [$2.5 B] validity of grant expenses (large number of grants programs with differing legislative and policy requirements) (moderate risk rating but KAM)

Department of the Treasury

[$6.5 B] Completeness and valuation of the Disaster Recovery Funding Arrangements (DRFA) Provision (reliance on information provided by state and territory governments; complexities in judgements) (KAM); [$118.9 B] accuracy and occurrence of payments to states and territories under the Federal Financial Relations Act 2009 (significance of the value and complex eligibility criteria; reliance on information from other entities) (moderate risk rating but KAM)

Department of Veterans’ Affairs

[$55.7 B] Valuation of military compensation provision (judgements involved in determining assumptions and calculations) (KAM); [$10.5 B] accuracy of personal benefits and health care payments (complexity of IT systems and applicable legislation, and reliance on accurate and complete veteran provided information)

Future Fund Management Agency

[$103.4 B] Valuation of private market investments (inherent subjectivity and significant judgements and estimates required where market data is not available) (KAM)

National Archives of Australia

[$1.55 B] valuation of archival collection (complexity)

National Disability Insurance Agency

[$35.2 B] Accuracy and occurrence of participant plan expenses (growth and varying needs of participants and high volume of transactions) (KAM);[$1.9 B] valuation of participants’ plan provisions (significant judgements and assumptions due to complexity in estimating support) (KAM);[$2.2 B] completeness, occurrence and accuracy of contributions of in-kind services from state and territory governments (reliance on third party data; in-kind revenue and expenses may be misstated) (KAM)

National Gallery of Australia

[$6.9 B] Valuation of items in the heritage and cultural collection (judgement required in valuations of artwork and complexity of the valuation model)

National Indigenous Australians Agency

[$1.6 B] Performance of grantees in meeting grant conditions (significant number and value of grants paid; complexity of grants management in remote areas; different IT systems operated by different entities) (KAM)

National Intermodal Corporation Limited

[$169.2 M] Valuation of the land preparation; Moorebank Avenue works and voluntary planning contributions (judgements and estimates involved and sensitivity of key inputs)

National Library of Australia

[$1.1 B] Valuation of the national collection (significant judgement and expertise required due to the unique nature of the collection assets)

NBN Co Limited

[$5.1 B] Accuracy and occurrence of telecommunications revenue (high volume of transactions and multiple IT systems and tools utilised) (KAM); [$1.95 B] valuation and disclosure of derivatives (judgements involved in determining the fair value; accounting complexity) (KAM [valuation]); [$3.1 B] accuracy and completeness of depreciation and amortisation (significant judgement needed and complexity of the manual depreciation models used) (KAM)

Reserve Bank of Australia

[$589.5 B] Valuation of Australian dollar securities and foreign currency investments (complexity in valuing a range of investments and securities; fluctuations in the Australian dollar exchange rate) (KAM); [$101.3 B] accuracy of the liability for Australian banknotes (assumption that legal tender status is retained by all Australian notes on issue; significant financial impact from any fluctuations in the value of the Australian dollar supply and security of banknotes)

Services Australia

[$988.9 M] Valuation of child support receivables yet to be paid by noncustodial parents (significant judgements and assumptions around the collection rates of child support obligations; complexity around bespoke IT application) (moderate risk rating but KAM); [$894.3 M] valuation of intangible assets (significant judgements involved) (moderate risk rating but KAM); [$2.0 B] valuation of right-of- use assets (judgements associated with right-of-use valuations, particularly the treatment of lease options) (moderate risk rating but KAM)

Snowy Hydro Limited

[$1.77 B] Valuation, existence and completeness of financial instruments –energy derivatives (judgement and level of estimation; arithmetical and financial statement complexity) (KAM); [component of $5.3 B construction in progress] valuation of property, plant and equipment for Snowy 2.0 (complexity and judgement) (KAM); [$906.4 M] completeness and accuracy of the impairment of retail debtors (level of judgement and estimation involved in measuring the allowance for doubtful debts) (KAM)

Voyages Indigenous Tourism Australia Pty Ltd

[$435.0 M] Valuation of Ayers Rock Resort (complexity due to judgements and assumptions in determining future cash inflows)

WSA Co Limited (construction and operation of Badgerys Creek airport)

[$1.6 B] Recognition of capital work in progress for airport construction activities (judgement and estimation required in apportioning capital and operating costs)

Source: Auditor-General Report No. 9 2023–24