CHAPTER FOUR DEPARTMENTAL FINANCIAL STATEMENTS

CHAPTER FOUR

DEPARTMENTAL FINANCIAL STATEMENTS

49

CHAPTER FOUR ? Departmental financial statements

INDEPENDENT AUDITOR'S REPORT To the Minister for Industry, Innovation and Science Opinion In my opinion, the financial statements of the Department of Industry, Innovation and Science for the year ended 30 June 2017: (a) comply with Australian Accounting Standards and the Public Governance, Performance and

Accountability (Financial Reporting) Rule 2015; and (b) present fairly the financial position of the Department of Industry, Innovation and Science as at 30 June

2017 and its financial performance and cash flows for the year then ended. The financial statements of the Department of Industry, Innovation and Science, which I have audited, comprise the following statements as at 30 June 2017 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 and forming part of 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 Industry, Innovation and Science in accordance with the relevant ethical requirements for financial statement audits conducted by the Auditor-General and his delegates. These include the relevant independence requirements of the Accounting Professional and Ethical Standards Board's APES 110 Code of Ethics for Professional Accountants to the extent that they are not in conflict with the Auditor-General Act 1997 (the Code). 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.

GPO Box 707 CANBERRA ACT 2601 19 National Circuit BARTON ACT Phone (02) 6203 7300 Fax (02) 6203 7777

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CHAPTER FOUR ? Departmental financial statements

Key audit matter

How the audit addressed the matter

Completeness and accuracy of royalty revenue

I focused on this balance given the significant value of royalty revenue collected and reported by the Department of Industry, Innovation and Science (Industry) and the complexities associated with its administration.

The collection of royalties is reliant on administrative functions performed by other parties and is dependent on information provided by taxpayers in a selfassessment regime. The absence of an effective assurance framework over the collection and administration of royalties increases the risk of inaccurate or incomplete royalty revenue.

In 2015?16, a moderate audit finding was reported in the ANAO Report No. 33 2015?16 Audits of the Financial Statements of Australian Government Entities for the Period Ended 30 June 2016.

For the year ended 30 June 2017, Industry reported royalty revenue of $950.106m.

To audit the collection of administered royalty revenue, I performed the following audit procedures: evaluated the design and effectiveness of

Industry's framework to obtain assurance over the completeness of North West Shelf royalty revenue collections; activities relating to the collection of Joint Petroleum Development Area and Ranger Uranium Mine royalties; re-performed, on a sample basis, a selection of key assurance activities undertaken by Industry for its royalty revenue streams;

examined, on a sample basis, supporting documentation to assess the accuracy of royalty revenue earned for 2016?17;

examined large royalties received after 30 June 2017 to identify potential significant unrecorded royalty revenue; and

analysed the relationship between production and commodity prices to assess the reasonableness of royalty revenue.

Accountable Authority's Responsibility for the Financial Statements

As the Accountable Authority of the Department of Industry, Innovation and Science 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 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 Industry, Innovation and Science's 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 matters related to going concern as applicable 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;

51

CHAPTER FOUR ? Departmental financial statements

evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Accountable Authority;

conclude on the appropriateness of the Accountable Authority'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

Kristian Gage Executive Director Delegate of the Auditor-General Canberra 6 September 2017

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CHAPTER FOUR ? Departmental financial statements 53

CHAPTER FOUR ? Departmental financial statements

Department of Industry, Innovation and Science Statement of Comprehensive Income for the year ended 30 June 2017

NET COST OF SERVICES Expenses

Employee benefits Suppliers Grants Depreciation and amortisation Finance costs Write-down and impairment of assets Losses from asset sales Other expenses Total expenses

Own-Source Income Own-source revenue

Sale of goods and rendering of services Interest Rental income Other revenue Total own-source revenue

Gains Foreign exchange gains Reversals of previous asset write-downs and impairments Other gains

Total gains Total own-source income Net cost of services Revenue from Government Deficit attributable to the Australian Government

Notes

2017 $'000

1.1A 1.1B 1.1C 3.2A

1.1D

293,456 165,340

3,499 38,089

16,854

338 604 518,180

1.2A 1.2B

67,826 63

4,468 12,191 84,548

1.2C 1.2D

3 2 24,852 24,857 109,405 (408,775) 365,838 (42,937)

OTHER COMPREHENSIVE INCOME

Items not subject to subsequent reclassification to net cost of services Changes in asset revaluation reserve

Total other comprehensive income/ (loss)

(2,166) (2,166)

Total comprehensive loss attributable to the Australian Government (45,103)

2016 $'000

Original Budget

$'000

306,781 167,058

7,822 42,351

122 51 14

712 524,911

314,957 148,813

210 43,486

728 508,194

57,565 98

700 9,465 67,828

62,862 -

6,099 68,961

5,186

125 5,311 73,139 (451,772) 400,205 (51,567)

728 728 69,689 (438,505) 395,710 (42,795)

2,746 2,746

(48,821)

-

(42,795)

The above statement should be read in conjunction with the accompanying notes, including the budget variance commentaries. 54

Department of Industry, Innovation and Science Statement of Financial Position as at 30 June 2017

CHAPTER FOUR ? Departmental financial statements

ASSETS Financial assets

Cash and cash equivalents1 Trade and other receivables1 Accrued revenue Total financial assets

Non-financial assets Land and buildings Property, plant and equipment Laboratory equipment Intangibles Inventories Prepayments

Total non-financial assets

Total assets

LIABILITIES Payables

Suppliers Grants Other payables Total payables

Provisions Employee provisions Other provisions

Total provisions

Total liabilities Net assets

EQUITY Contributed equity Asset revaluation reserve Accumulated deficit

Total equity

Notes

3.1A 3.1B

3.2A 3.2A 3.2A 3.2A

2017 $'000

13,761 104,446

3,394 121,601

108,061 53,815 24,560 48,699 2,337 9,401

246,873

368,474

2016 $'000

30,732 144,413

2,186 177,331

132,168 52,934 25,013 42,265 2,468 8,483

263,331

440,662

Original Budget

$'000

5,328 162,053

2,635 170,016

119,498 48,699 22,225 51,683 2,198 8,112

252,415

422,431

3.3A 3.3B

6.1A 3.4A

17,662 270

45,406 63,338

85,851 1,747

87,598

150,936 217,538

471,444 9,079

(262,985) 217,538

20,040 1,177

56,531 77,748

98,863 20,825 119,688

197,436 243,226

452,029 11,245

(220,048) 243,226

47,169 1,983

40,556 89,708

79,967 16,557 96,524

186,232 236,199

482,057 8,499

(254,357) 236,199

1. Restatement of comparatives as a result of reclassification of special account from Trade and other receivables to Cash and cash equivalents, as per the Financial Reporting Rule.

The above statement should be read in conjunction with the accompanying notes, including the budget variance commentaries.

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CHAPTER FOUR ? Departmental financial statements 56

Department of Industry, Innovation and Science Statement of Changes in Equity for the year ended 30 June 2017

Opening balance Balance carried forward from previous period Adjusted opening balance

Comprehensive income Deficit for the year Other comprehensive income Total comprehensive income Total comprehensive income attributable to

Australian Government

Closing balance attributable to Australian Government

Retained earnings 2017 $'000

2016 $'000

Original Budget $'000

(220,048) (220,048)

(168,481) (168,481)

(211,562) (211,562)

Asset revaluation reserve

2017

2016

$'000

$'000

Original Budget $'000

11,245 11,245

8,499 8,499

8,499 8,499

(42,937) -

(42,937)

(42,937)

(262,985)

(51,567) -

(51,567)

(51,567)

(220,048)

(42,795) -

(42,795)

(42,795)

(254,357)

(2,166) (2,166)

(2,166)

9,079

2,746 2,746

2,746

11,245

-

-

8,499

The above statement should be read in conjunction with the accompanying notes, including the budget variance commentaries.

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