Reporting on early close procedures
Reporting on Early Close Procedures
Application
Type of audit and assurance work:
Type of entities:
•
•
departments
•
statutory bodies
•
state-owned corporations.
These instructions apply to procedures
conducted in response to an agency’s own early
close procedures.
Instructions
TC 16-13 ‘Agency guidelines for the 2016-17 Mandatory Early Close’ applies to all NSW public sector
agencies.
Performing Early Close Procedures
All NSW public sector agencies (including State Owned Corporations) must perform early close procedures
(ECPs) in accordance with TC16-13.
Engagement Controllers (ECs) may use their discretion to determine the extent of audit procedures they will
perform at early close. Contract Audit Agents (CAAs) must consult with EC on the level of audit procedures to
be performed. ECs may decide it is appropriate to perform limited, or no audit procedures at early close for
some agencies.
Reporting Observations on Early Close Procedures
Letters reporting observations on ECP must be issued for all agencies where audit procedures were performed
at early close.
The CAA must draft the letter, only after consulting the EC. Before sending the draft letter to the EC to review,
sign and issue, the CAA must have:
•
given informal feedback on management’s ECP (such as discussions or emails)
•
discussed the form, timing and expected content of the letter with management. CAAs may provide a draft
letter for discussion.
This template addresses all mandatory ECPs required by TC 16-13. CAAs must tailor the content of the letter
to the entity’s circumstances, the nature of their balances and the ECPs the agency performed.
CAAs in consultation with the ECs can determine the extent of detail to include in the letter, or provide to
management through informal feedback. However, including detail in the letter may demonstrate how audit
procedures on agency ECPs have added value.
CAAs must provide the draft letter to the EC in sufficient time to allow its issue within one month (but no later
than six weeks) of receiving agency early close materials, so management can incorporate audit observations
in the year-end financial reporting process.
The letter must be addressed to the head of the entity, usually the Department Head or the Chief Executive
Officer. Copies may be sent to the Chair of the Audit and Risk Committee. Do not send the letter to the relevant
Minister or the Treasurer.
Where an entity does not complete relevant early close procedures required by TC 16-13, the letter must
record this and advise the non-compliance will be reported in the entity’s Statutory Audit Report. The
circumstances giving rise to the non-compliance should also be reported.
Objective
The letter formally reports the audit team’s observations of management’s adherence to required ECPs, the
outcomes and achievement of timeframes.
At ECP, the audit is not yet complete. Accordingly, letters must not indicate the audit of a particular area is
complete, or provide any sort of ‘clearance’. Audit teams will revisit account areas previously subject to ECPs
through update testing, addressing developments in the period following early close and performing final audit
procedures.
27/04/17
D1708810 Version 2.0
Reporting on early close procedures
Background
TC 16-13 requires all NSW public sector agencies to implement early close procedures set out in the Circular
This year, mandatory ECPs are limited to non-financial asset valuations and proforma financial statements.
However, Treasury and the Audit Office encourage agencies, where practicable to complete the additional
good practice procedures listed in the Circular, and hard close procedures.
In keeping with prior practice, and to encourage better quality and timeliness in financial reporting, the Audit
Office provides formal feedback to agencies via its observations on entities’ ECPs. This process helps
discharge our reporting obligations under ASA 260 and provides an opportunity to demonstrate value within
the audit process.
27/04/17
D1708810 Version 2.0
[Name]
[Title]
[Client Name]
[Client Address]
Contact:
Phone no:
Our ref:
[date]
Dear [Mr/Mrs/Ms]
Observations on early close procedures performed by [Name of Client]
prior to 30 June 2017
NSW Treasury is continuing its initiative to improve the quality and timeliness of financial reporting. In
December 2016, Treasury issued TC 16-13 ‘Agency guidelines for the 2016–17 Mandatory Early
Close’, which requires agencies to perform specific early close procedures and provide the outcomes
to the audit teams.
Section One of this letter details mandatory early close procedures your agency performed. It sets out:


whether the required outcomes were supplied to the audit team within specified timeframes
the audit team’s observations on your [Department’s, Authority’s, Corporation’s] early close
procedures and actions required by management

management’s comments.
Exclude the next paragraph if the agency performed all mandatory early close procedures.
Section Two of the letter details mandatory early close procedures management advised [would not
be/were not] performed, together with management’s reasons for non-performance.
Exclude the next paragraph if the agency did not perform any non-mandatory early close procedures.
Section Three of the letter details additional non-mandatory early close procedures performed by your
[Department, Authority, Corporation].
My audit process is continuous. Further matters may arise later in the audit in areas previously subject
to early close procedures.
I will report a high level summary of your [Department’s, Authority’s, Corporation’s] efforts in respect of
early close procedures in my Statutory Audit Report at the same time as I issue my Independent
Auditor’s Report.
I will also report on agencies’ compliance with the requirements of TC 16-13 as part of the
Auditor-General’s Reports to Parliament. Your agency’s efforts will be included in the results reported.
The Audit Office supports efforts aimed at improving the quality and timeliness of financial reporting
and I acknowledge the efforts of your [Department’s, Authority’s, Corporation’s] staff in relation to the
early close initiative.
If you need more information about any matter noted in this letter, please contact me on [9275 XXXX]
or [Audit Leader’s name] on [9275 XXXX].
Yours sincerely
[Name]
Director, Financial Audit Services
[Client Name]
Observations on 30 June 2017
early close procedures
INSERT CLIENT LOGO
Section One: Mandatory early close procedures performed
Early close procedure
Date
advised
Date
received
Observations, results and actions required by
management
Complete proforma accounts, and ensure
management has reviewed the statements and
work papers and endorsed the proforma financial
statements.
[Date per
[Date
[example only]
CSP]
received]
The proforma financial statements were prepared as
at [date] using Treasury mandates, Accounting
Standards, the Financial Reporting Code1 and last
year’s financial statements as the basis. The proforma
contained comparative information, current year-todate figures, an updated accounting policy note, and
notes to the accounts. The proforma also considered
the impacts of new and not yet effective Accounting
Standards, Treasury policies and restructures.
Proforma statements include:

comparative information

current year-to-date figures

updated accounting policies

notes to the accounts updated to reflect new
and revised Accounting Standards and
Treasury policies

consideration of the possible effects of
Standards issued, but not yet effective

impacts of restructures.
Management comments
There was substantial compliance with the Accounting
Standards and Treasury mandates and the accounting
policies had been updated.
Items of non-compliance were referred to
management to help ensure full compliance in the
year-end financial statements.
Significant areas of non-compliance were:

[………….]

[………….].
Management reviewed and endorsed the proforma
financial statements and working papers prior to
submission to the Audit Office.
Confirm format of proforma as agreed with the
Audit Office.
1
[xxxx]
[xxxx]
[xxxx]
The Financial Reporting Code (the Code) is no longer mandatory, However, if the agency used the Code to draft their proforma statements, it should be included.
Agencies need only comply with Accounting Standards and Treasury Mandates.
2
Early close procedure
Date
advised
Date
received
Observations, results and actions required by
management
Confirm compliance with Treasury’s mandatory
accounting policies including a detailed
explanation for any non-compliance.
[xxxx]
[xxxx]
[xxxx]
Complete the revaluation of property, plant and
equipment (PPE) by early close, including:
[xxxx]
[xxxx]
[example only]

performing and documenting an annual
assessment of fair value, useful lives and
residual values, including reasons why the
carrying value was not materially different to
fair value

determining whether comprehensive
independent valuations or interim
revaluations are required in accordance with
TPP 14-01

assigning the revaluation process to an
officer with appropriate authority

determining the scope of assets subject to
review, timeframes and the impact of
previous audit issues and recommendations

engaging with the Audit Office when scoping
and meeting with external valuers

instructing the valuer to carry out the
revaluation in accordance with TPP 14-01

agreeing with the external valuer the
appropriate valuation methodology including
the valuation technique(s), use of indexation,
sampling and key assumption.

reviewing the external valuer’s approach
before the valuation takes place to ensure it
is appropriate and complies with accounting
standards
Management comments
While the independent valuation appears appropriate
for financial reporting purposes, instructions to the
valuer were provided verbally and were not explicit.
This practice increases the risk that any valuation will
not be suitable for financial reporting.
3
Early close procedure
Date
advised
Date
received
Observations, results and actions required by
management
Reconcile all movements between opening and
closing balances of PPE/intangibles by level and
class and agree to the note disclosures.
[xxxx]
[xxxx]
[xxxx]
Confirm there are no changes to the 2015–16
closing balances. Where a change is proposed:
attach journals, explanations and proposed
disclosures.
[xxxx]
[xxxx]
[xxxx]

reviewing the external’s valuer’s reports to
ensure the findings are consistent with the
agency’s assets and circumstances, and
adequately documented to support the
results of the valuation

demonstrating and documenting why assets
have been placed in each level of the fair
value hierarchy

conducting an annual assessment of
impairment indicators

ensuring revalued asset amounts in the
valuation worksheets/reports reconcile to the
fixed asset register/ general ledger, provided
to Treasury

for each class of assets providing Treasury
with the date of the last comprehensive
valuation, gross dollar amount of last
comprehensive valuation, date of next
scheduled comprehensive revaluation.
Management comments
4
Early close procedure
Date
advised
Date
received
Observations, results and actions required by
management
Assess the impact of new and updated
Accounting Standards and provide supporting
work papers to evidence management’s
consideration of the requirements of these
standards.
[xxxx]
[xxxx]
[xxxx]
Management comments
5
Section Two: Mandatory early close procedures not performed
Early close procedure
Date
advised
Date
received
Observations, results and actions required by
management
[example only]
[Date per
N/A
[example only]
Complete proforma accounts. Management must
review the statements and work papers and
endorse the proforma financial statements.
CSP]
Proforma financial statements include:

comparative information

current year-to-date figures

updated accounting policies

notes to the accounts updated to reflect new
and revised Accounting Standards and
Treasury policies

consideration of the possible effects of
Standards issued but not yet effective

impacts of restructures.
Management comments
The [Department/Authority/Corporation] did not
implement this early close procedure. Management
advises [insert rationale for non-performance].
I will record this non-compliance in my Statutory Audit
Report.
The financial reporting timetable may shorten in future
years. Management needs to overcome obstacles to
implementing early close procedures.
6
Section Three: Non-mandatory early close procedures performed
Audit teams should document all the non-mandatory procedures performed by the agency in the table.
To assist audit teams the good practice procedures listed in TC 16-13 have been included.
Audit teams should:

remove the procedures that were not performed

include any additional procedures performed by the agency.
Early close procedure
Date
advised
Date
received
Observations, results and actions required by
management
[xxxx]
[xxxx]
[xxxx]
Identify, evaluate and conclude on accounting
issues, including all one-off, complex and
significant transactions, and submit these to
Treasury.
[xxxx]
[xxxx]
[xxxx]
[Issue 1]
[xxxx]
[xxxx]
[xxxx]
[Issue 2]
[xxxx]
[xxxx]
[xxxx]
[Issue 3]
[xxxx]
[xxxx]
[xxxx]
Reconcile key account balances (including
calculation of employee annual provisions), and
clear reconciling items.
Management comments
Perform variance analysis with meaningful
explanations, for actuals versus budget, and
year-to-date actuals for the previous year and:

document management’s review and
endorsement of the monthly reports

consider public reporting of quarterly or
half-yearly public reports.
7
Early close procedure
Date
advised
Date
received
Observations, results and actions required by
management
Confirm an agreed action plan is in place to
address prior year Management Letter and Client
Service Report issues from the Audit Office.
Provide explanations for any unresolved issue(s).
[xxxx]
[xxxx]
[xxxx]
Confirm interagency balances and transactions
have been disaggregated by the agency and
ensure:
[xxxx]
[xxxx]
[xxxx]
[xxxx]
[xxxx]
[xxxx]

processes are in place to agree interagency
balances

supporting work papers evidence the
disaggregation of inter-agency assets,
liabilities, revenues and expenses.
Include in the financial statement work papers
evidence of authorities and approvals within
delegations for significant items such as:

restructured arrangements

material, complex or one-off transactions

equity transfers.
Management comments
8