1.1. In New Zealand, recent years have seen significant changes in the environment in which public sector auditing takes place and in the nature of such auditing. The environmental changes include the corporatisation and privatisation of major state trading functions (e.g. Telecom, Electricorp), the setting up of local authority trading enterprises and substantial reform in the core public sector (the State Sector Act 1988 and the Public Finance Act 1989). These changes have been reflected in important developments in public sector auditing, such as the introduction of accruals - based financial statements for the government as a whole and the requirement to report meaningful non-financial information (e.g. specified outputs and performance indicators).
1.2. The environmental changes in auditing are continuing. It is the intention to redirect public sector audit effort away from the traditional preoccupation with financial attest audits to a greater concentration on attesting to the management of public expenditure risks and on matters of management performance and accountability in the state sector.
2.1. The current legislative mandate for the Auditor-General is set out mainly in Part II of the Public Finance Act 1977. The mandate covers:
2.2. Given the degree of change that has taken place in the public sector in New Zealand, the role of the Auditor -General is under review with the aim of developing a new legislative mandate in the form of an Auditor-General's Act. The intention is that the relevant legislation will be passed in 1996.
2.3. Some organisational change has already taken place. The New Zealand Audit Office has been split into two units, known respectively as the Office of the Controller and Auditor -General and as Audit New Zealand. The first unit, the Office of the Controller and Auditor-General, is responsible for determining Audit Office policy, for setting standards, for oversight of the provision of public sector audit services and for maintaining liaison with Parliament. The second unit, Audit New Zealand, performs the operational audit functions of the Audit Office, but does so, for a substantial part of its portfolio, in competition with other potential providers of audit services.
2.4. It should be added that the Audit Office is fully independent in terms of the investigations it undertakes and the advice it supplies. Nonetheless, the Auditor-General is, in effect, an Officer of Parliament, given the role is performed primarily to assure Parliament on the use of authority and resources it confers on the government. For this reason, the Audit Office seeks to target its efforts in the direction of greatest value to Parliament.
3.1. Infrastructure auditing in the New Zealand public sector, carried out by the Audit Office is subject to the same objectives as the auditing of other operations, activities or assets in the public sector. The wider audit objectives to which such audits aim to contribute are:
(a) Maintenance of the integrity of:
(b) Better use of public resources
(c) Legal disbursement of public funds.
3.2. More specifically, the aims of public sector infrastructure auditing (and that of other forms of auditing carried out by the Audit Office) are to:
4.1. Infrastructure investment has always been recognised in New Zealand as an indispensable part of the country's overall investment programme and because of this importance the government has traditionally financed much infrastructure investment activity. As a result of this, the government has become the owner of substantial infrastructural assets.
4.2. However, in the past few years there has been a distinct trend for central government to divest itself of non-core assets as part of its privatisation programme. This transfer into private ownership has inevitably reduced the quantum of infrastructural assets in the central government sector which is still owned by the government.
4.3. A major infrastructural asset still owned by the government through a crown agency (Transit New Zealand) is the roading asset, valued at around $NZ7 billion dollars. The investment in infrastructure by local authorities is also very substantial. This investment has been affected to a lesser extent by the drive towards privatisation. Recent figures indicate that local authorities have more than $NZ20 billion dollars invested in infrastructure. For many local authorities, the reported value of their infrastructure is over 70% of their total asset holdings.
5.1. Capital works delegations form part of the general financial delegations from the Cabinet to chief executives of government departments. The normal rule is that smaller capital works are a matter for chief executives to decide themselves, but where the financial cost of a capital project exceeds the delegations, Ministerial or Cabinet approval is necessary.
5.2. All submissions for financial authority must include all costs associated with the capital works and project and estimates are qualified if there is any uncertainty about the figures. Aid projects are subject to separate individual approvals.
6.1. Accounting treatment for infrastructural assets is still evolving. Acceptable practice has still not been fully determined.
6.2. The issues are perceived to be somewhat more complex than in the private sector, where valuation and accounting treatment are based largely on earnings potential. The public sector, in contrast, has a different focus by reason of its ownership and tends to be largely service- oriented rather than focused on return on investment. The question is how well the assets are managed and maintained for service, something which in turn requires a different valuation treatment because of the absence of cash flows. There is also a different emphasis based on quality of service.
6.3. The various issues involved in accounting for infrastructural assets are currently the subject of discussion in a number of quarters. The New Zealand Society of Accountants.is one of the participants in mis discussion. The Society has issued Statements of Standard Accounting Practice for Accounting for Fixed Assets and Accounting for Depreciation and in 1992 clarified that these Statements also apply to infrastructural assets. However, because of the conceptual and practical difficulties in applying existing standards to infrastructural assets, the Society intends to review the standards.
6.4. Another participant in the debate, the Society for Local Government Managers (SOLGM) has issued guidelines for financial measurement and reporting which refer to infrastructural assets. These state that infrastructural assets should be separately disclosed as a sub-category of fixed assets. They also state that using depreciated replacement values appears to be the most appropriate valuation method pending the development of a recognised practice over time. A SOLGM working party is developing further guidelines for accounting for infrastructural assets in local government.
6.5. The discussion is one in which the New Zealand Audit Office has been closely involved. In the meantime, while various infrastructure accounting approaches are being applied, the Audit Office recommends that the accounting treatments used:
Normal standards apply. Major areas of expenditure would be subject to review as part of the normal audit by the Auditor-General.
In New Zealand there is some competition by the public sector with private contractors for public works and projects. In particular, local authorities own companies that compete for such work.
Computers are widely used by audited organisations. Computer-assisted audit techniques are employed to interrogate the data bases of auditees.
These are no special audit arrangements and obligations in relation to foreign-funded projects.
The New Zealand Audit Office does not generally audit the design of public works and projects. However, such an audit could be conducted if the Auditor-General decided to include it in the scope of a particular audit.
The New Zealand Audit Office is not associated with the evaluation of tenders for public works and projects.