Independent Auditor's report

To the Minister for Infrastructure, Transport and Regional Development

Opinion

In my opinion, the financial statements of the Department of Infrastructure, Regional Development and Cities for the year ended 30 June 2018:

  1. comply with Australian Accounting Standards—Reduced Disclosure Requirements and the Public Governance, Performance and Accountability (Financial Reporting) Rule 2015; and
  2. present fairly the financial position of the Department of Infrastructure, Regional Development and Cities as at 30 June 2018 and its financial performance and cash flows for the year then ended.

The financial statements of the Department of Infrastructure, Regional Development and Cities, which I have audited, comprise the following statements as at 30 June 2018 and for the year then ended:

  • Statement by the Secretary and Chief Financial Officer; Statement of Comprehensive Income;
  • Statement of Financial Position; Statement of Changes in Equity; Cash Flow Statement;
  • Administered Schedule of Comprehensive Income; Administered Schedule of Assets and Liabilities;
  • Administered Reconciliation Schedule; Administered Cash Flow Statement; and
  • Notes to the financial statements, comprising a summary of significant accounting policies and other explanatory information.

Basis for Opinion

I conducted my audit in accordance with the Australian National Audit Office Auditing Standards, which incorporate the Australian Auditing Standards. My responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of my report. I am independent of the Department of Infrastructure, Regional Development and Cities in accordance with the relevant ethical requirements for financial statement audits conducted by me. These include the relevant independence requirements of the Accounting Professional and Ethical Standards Board's APES 110 Code of Ethics for Professional Accountants {the Code) to the extent that they are not in conflict with the Auditor-General Act 1997. I have also fulfilled my other responsibilities in accordance with the Code. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion.

Key Audit Matters

Key audit matters are those matters that, in my professional judgement, were of most significance in my audit of the financial statements of the current period. These matters were addressed in the context of my audit of the financial statements as a whole, and in forming my opinion thereon, and I do not provide a separate opinion on these matters.

Key audit matterHow the audit addressed the matter
Valuation of Advances and Loans

Refer to Note 4. 1B ‘Administered—Trade and Other Receivables’

I focused on this area given the significance of this balance to the Department of Infrastructure, Regional  Development  and  Cities  (DIRDC) financial statements and the complexity of the accounting treatment and calculations required for the recognition and valuation of these loans given:
  • existing and  new advances and loans contain concessional terms with interest rates that are lower than comparable market rates;
  • the   level   of  estimation  and judgement required to determine the market interest rate to be used in the valuation of these concessional loans and associated discount expense and revenue; and
  • the range and potential combination of concessional loan  terms that may  be included in individual loans.
As at 30 June 2018 the value of Trade and Other Receivables  for  Advances  and  Loans  was $2,150.9 million.
To address the matter, I performed the following procedures:
  • evaluated the application of DIRDC's change in accounting policy for concessional loans;
  • evaluated the application of DIRDC's accounting policy in respect of recognition and measurement of the concessional component and fair value of new loans;
  • evaluated the methodology adopted by DIRDC to determine the market interest rate used in the fair valuation of loans entered into during 2017–18, including the appropriateness of assumptions used and sensitivity analysis undertaken; and
  • tested, on a sample basis, loans advanced during the year to signed funding agreements and approvals required under the applicable legislation to assess amounts and timing of advances, actual interest rates applied and loan terms.
Valuation of the Australian Government's Investment in the Australian Rail Track Corporation and Airservices Australia

Refer to Note 4. 1D ‘Administered—Investments’ 

I focused on this balance given the significant value of these investments to DIRDC's financial statements and the judgement and estimations involved in determining the fair value of the Australian Rail Track Corporation and Airservices Australia investment assets.

The  discounted  cash  flow  models   used  to  determine the fair value of these investments requires a high level of judgement and estimation by DIRDC because the primary inputs applied in the valuation models are not based on observable market data.

As at 30 June 2018 the value of the investments recognised for the Australian Rail Track Corporation was $3,710.8 million and for Airservices Australia was $893.8 million.
To audit the valuation of the  Australian Government's investment in the Australian Rail Track Corporation and Airservices Australia, I  performed the following procedures :
  • engaged experts to assist me with assessing the reasonableness of key assumptions and inputs used in DIRDC's valuation models for these investments . This included comparing the key inputs used in the valuation models against comparable external data where it was available;
  • considered the sensitivity of the valuation methodologies by adjusting key assumptions for reasonably foreseeable alternate scenarios; and
  • assessed the competence and objectivity of management's valuation experts who performed the valuation of these investments for DIRDC.

Accountable Authority's Responsibility for the Financial Statements

As the Accountable Authority of the Department of Infrastructure, Regional Development and Cities the Secretary is responsible under the Public Governance, Performance and Accountability Act 2013 for the preparation and fair presentation of annual financial statements that comply with Australian Accounting Standards—Reduced Disclosure Requirements and the rules made under that Act. The Secretary is also responsible for such internal control as the Secretary determines is necessary to enable the preparation and fair  presentation of financial statements  that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Secretary is responsible for assessing the Department of Infrastructure, Regional Development and Cities' ability to continue as a going concern, taking into account whether the entity's operations will cease as a result of an administrative restructure or for any other reason. The Secretary is also responsible for disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the assessment indicates that it is not appropriate.

Auditor's Responsibilities for the Audit of the Financial Statements

My objective is to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes my opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian National Audit Office Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements .

As part of an audit in accordance with the Australian National Audit Office Auditing Standards, I exercise professional judgement and maintain professional scepticism throughout the audit. I also:

  • identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for my opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;
  • obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control;
  • evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Secretary;
  • conclude on the appropriateness of the Secretary's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the entity's ability to continue as a going concern. If I conclude that a material uncertainty exists, I am required to draw attention in my auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify my opinion. My conclusions are based on the audit evidence obtained up to the date of my auditor's report. However, future events or conditions may cause the entity to cease to continue as a going concern; and
  • evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

I communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that I identify during my audit.

From the matters communicated with those charged with governance, I determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. I describe these matters in my auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, I determine that a matter should not be communicated in my report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication .

Australian National Audit Office

Grant Hehir
Auditor-General

Canberra
3 September 2018

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Last Updated: 12 November, 2018