4. Planning for year-end financial statements

Effective project management underpins successful financial statements preparation processes. The primary aim is to achieve a quality work outcome within given timeframes and resource limits. It encompasses planning, control, monitoring and coordination.

Devoting sufficient time at the beginning of the project to fully consider financial reporting requirements, stakeholders’ expectations, team resourcing, opportunities and risks, will:

  • ensure all parties have a consistent understanding of the project parameters
  • set an agreed approach that the finance team can then follow, and
  • help individual staff members and stakeholders to plan for their role in the project.

The project plan should, to the extent possible, incorporate all aspects of financial reporting for both internal and external purposes.

As the financial statements project recurs annually, the prior year’s project plan may be a useful base-document for the planning process—noting that it would need to be carefully scrutinised and amended to reflect the scope of work, governance arrangements, timeframes, risks and personnel etc. for the current year. In this way, project plans could continuously build from the experience of prior years, taking account of processes that worked well in the past, and those that could be improved.

Most importantly, the plan should clearly assign individual responsibilities and indicate key timelines for carrying out and completing each task.

4.1 Undertaking effective planning

The preparation of an entity’s annual financial statements is a significant project for most entities, due to factors such as:

  • the complexity of the applicable financial reporting framework
  • the nature of assets and liabilities managed by the entity
  • the need for suitably skilled and experienced finance staff
  • the operation of multiple business information systems
  • the devolution of financial responsibility
  • shared services arrangements, and
  • the reporting deadlines required by the accountable authority, the Government and the Parliament.

The planning and preparation of financial statements involves a range of managerial and technical tasks and considerations, many of them inter-related and requiring a wide range of knowledge, skills and experience.

The process requires careful and timely planning, disciplined and structured consideration of a range of technical issues, coupled with a regime of review and quality assurance.

4 .1.1 Appointment of the project manager

Careful consideration should be given to the appointment of a project manager (this is often a senior officer or leader/manager of the financial statements team). The project manager is responsible for planning and day-to-day oversight of the whole financial statements process and for ensuring that allocated tasks are completed on time and to a high standard.

Ideally, the project manager/team leader would have:

  • appropriate experience and technical expertise
  • sufficient authority to achieve results, and
  • interpersonal skills to manage stakeholder relationships and allocate suitable work to the finance team.

In appointing the project manager/team leader, the CFO should also consider issues such as, the experience and skills of the finance team, their own availability to support the project manager, the complexity of tasks and existing relationships with business areas.

If tasks are particularly complex, the project manager role may be shared between the CFO and/or another senior member of the finance team.

Noting that the project manager is likely to also have significant line area responsibilities, it may be beneficial to allocate responsibility for maintenance of project documents (such as the project plan, schedule, risk register and the register of lessons learned) to a member of the finance team. This will enable the project manager/team leader to focus on project development and control activities, including engagement with key stakeholders, without getting bogged down in day-to-day administrative tasks.

4.1.2 When project planning should start

As a general rule, as one financial statements project is completed, planning and scheduling for the next should commence. This will help the CFO, the project manager and finance team to transfer the learnings from one process into the next.

The plan and project schedule (and other project documents) are living documents that should be regularly reviewed and refreshed to reflect significant events that may affect the plan, such as the receipt of:

  • updated rules and guidance
  • the Commonwealth Financial Statements Preparation Guide and PRIMA Forms
  • the receipt of the ANAO’s audit strategy for the entity, and
  • entity changes or decisions to change the planning approach to the project.

4.1.3 Documenting the project plan

The planning process does not need to be onerous and documentation does not need to be overly complex. Before documenting the project plan, clarify whether the CFO, the audit committee or other senior officers have specific requirements for the structure, content and the level of documentation required.

Many entities may have a project management framework that includes pro forma templates for project planning. If so, these may provide a structured approach for considering the various dimensions of the project. The project plans should outline, at a minimum, the factors that can affect the preparation process:

  • the scope of work, including:
    • financial reporting requirements
    • activities required for setting and applying materiality
    • activities required for a ‘hard close’ or ‘soft close’ process. More information is available at: 7.3.1 Deciding on a hard or soft close process.
  • team resourcing, recruitment and any procurement requirements
  • project risks and dependencies
  • stakeholders and communication/reporting arrangements
  • FMIS or other systems issues to be managed, and
  • quality assurance activities.

4.2 Planning the scope of work

The planning process should begin with clarifying the scope of work to be managed for preparing the financial statements. Scope planning includes preparing detailed project documentation that captures and defines all the work that must be done as part of the project. A well-written scope statement clearly defines the boundaries of a project.

The process of defining the scope of work will also assist the project manager in identifying those activities that contribute to the production of the financial statements but are to be managed by other parties. This information will be helpful for planning the management of dependencies, stakeholder engagement and communication.

At this early stage, it is also wise to confirm any governance structures that may be planned to oversee, guide or influence the project. For example, will there be a financial statements sub-committee, a steering committee and/or a stakeholder working group?

4.2.1 Establishing the entity’s financial reporting requirements

It is important to establish the financial reporting requirements that apply to the entity at the beginning of the project. However, the project manager must also remain alert to changes that may arise and adjust the scope of work accordingly, to ensure the financial statements meet the reporting requirements that apply at year-end.

This is covered in detail at: 3.1 Knowing the applicable legislation and requirements.

4.2.2 Taking account of the prior-year’s learnings

Learning from past experiences is an important input to project planning. It provides the opportunity to develop better ways of doing things and to implement continuous improvement. Some key things to consider when reviewing past experiences:

  • What practices and processes worked well and can these be replicated?
  • What processes took longer than originally expected?
  • Was additional documentation required for the CFS?
  • What did the auditors focus on (both internal and external)?
  • Were there any audit findings, qualifications, recommendations or repeat issues and what is the status of these?

4.2.3 Clarify expectations for activities required before year-end

Better-practice entities review their year-end processes and identify tasks that are able to be completed prior to year-end. This may include:

  • conducting a hard or soft close process
  • deciding on the need for actuarial and other valuations well before year-end and completing as many of those valuations as possible prior to year-end
  • obtaining early management approval for key accounting policies
  • calculating balances where it is expected that there will be no major changes between the date of calculation and year-end e.g. depreciation, valuations, commitments, lease liabilities and loans, and
  • determining the accounting implications of any organisational changes prior to their implementation.
  • This is covered in detail at: 7. Development processes and procedures.

4.2.4 Identifying stakeholders and project dependencies

There are a lot of people involved in preparing the financial statements. There are also many dependencies, where the finance team must receive information from, or give information to another person, business area or stakeholder to keep the project on track.

A stakeholder is either an individual, group or organisation who is impacted by the outcome of a project. Stakeholders can have a positive or negative influence on the project.

It is therefore important to work collaboratively with stakeholders and foster two-way communication. In the planning process the project manager and finance team needs to consider how these relationships will be managed.

This may include working with the entity’s business areas and/or share services hubs. More information is included at: 7.9 Shared services.

4.2.5 Planning for stakeholder engagement

Better-practice entities organise and structure their year-end activities in a way that encourages ongoing engagement, communication and sharing of accountability between the business areas and the finance team.

In planning the project, considerations should include the need for:

  • regular communication through meetings during the year to brief business areas on the latest developments in accounts processing and requirements
  • training seminars held prior to the distribution of information packs
  • policies and procedures being kept up-to-date and accessible
  • hotline assistance and advice on accounting matters
  • prompt feedback to business areas so that errors are corrected by the originators of transactions in the business areas
  • rotating staff members between the finance team and the business areas, and
  • suggestions for continuous improvement are sought from business areas.

There should also be ongoing dialogue with Finance and the ANAO on new or revised reporting requirements, opportunities to improve the effectiveness of financial reporting, and with the ANAO on the implementation of any audit recommendations. These matters should first be discussed with the audit committee and the ANAO during the planning phase of the financial statements preparation process.

4.2.6 Resources

Resource name

Resource description

Template: Lessons learned tracking sheet

This template assists in the tracking of lessons learned from previous years and implementing related proposed solutions.

Template: Schedule of activities

A schedule of activities outlines the activities to be completed in the preparation process.

Example: Financial statements reporting timetable

A summary timetable to set out key financial reporting dates in a form that is easily consumable by key stakeholders.

4.3 Assessing the maturity of financial statement processes

Assessing and understanding business arrangements enables entities to assess the maturity of their approach to financial statement preparation, and therefore identify areas for improvement in future years.

In the context of this guide, the maturity of the entity’s financial statements processes refers to making a judgement on the adequacy of the entity’s current financial governance, processes and systems to support the preparation of high-quality annual financial statements on time.

The appropriate level of maturity for one entity may vary considerably to another, depending on the entity’s legal status, size, complexity and whether it is categorised as either material or non-material.

4.3.1 Basic ratings for assessing financial statements maturity

Undertaking an assessment of the entity’s financial statements maturity enables entities to identify areas of strength and areas for further development. The assessment may also support the identification of project risks and risk treatments.

In order to undertake an assessment, it is helpful to establish a matrix setting out maturity rating levels such as:

  • Developing —partial accrual financial reports are produced; financial statements are completed by the due date, mostly through individual initiative and commitment
  • Mature —there is management commitment to ongoing financial management, and to the preparation of accurate and timely financial statements, and
  • Better-practice —there is a strong commitment to financial management practices at all levels underpinning the timely preparation of high quality financial statements.

4.3.2 Areas to consider for assessing current process maturity

Key questions for assessing the maturity of financial statement arrangements could include:

  • What emphasis do the board and/or the executive team place on both their own responsibility and a culture of collective responsibility for financial matters?
  • What is the current level of financial management capability of the:
    • accountable authority
    • audit committee
    • finance committee
    • finance team, and
    • business areas and other staff working outside finance?
  • What training and continuous professional development in financial management is provided to staff both within and outside the finance team?
  • What is the quality of the FMIS, including the transactional processing systems?
  • How do the systems of internal control, governance arrangements and risk management processes operate to support the financial statements process?
  • What is the quality, accuracy and timeliness of the organisation’s financial management and forecasting information, including information on income, expenditure, cash flow, and working capital?
  • How are the reports of financial and performance information tailored to the needs of the user, both internal and external?
  • How timely are the reports that are presented to internal and external users?
  • How open, clear and concise are reports for internal and external users?
  • How well-defined are the processes?
  • Are the processes being followed?
  • Are they difficult to complete?
  • Are they measured?
  • Are all the steps relevant and effective?
  • How regularly are processes reviewed?

4.3.3 Linking maturity assessment with risk management

Better-practice entities would then conduct a risk assessment of the areas/processes assessed for maturity using their risk management framework.

As the inherent risk of a process rises (i.e. high/extreme rating) generally there would be a greater need for entities to ensure that these processes have a high-level of maturity or have strategies in place to improve the maturity level within a reasonable timeframe.

The risk assessment can then be used by the project management as a platform for conversations with senior officials on whether the current level of process maturity is appropriate to the organization.

4.4 Planning for the management of project risks

The project manager and finance team members will find that they are managing emerging risks and issues on a daily basis.

The Commonwealth Risk Management Policy supports the PGPA Act, which requires accountable authorities of entities to establish and maintain appropriate systems and internal controls for the oversight and management of risk.

Where possible, the entity’s risk management framework should be used for undertaking the risk assessment. This is likely to result in the risk ratings and treatment plan being prepared in a manner and format that is consistent with other risk assessments reviewed by the audit committee, the CFO or other senior officers.

4.4.1 Prioritising development activities to mitigate risks

Some entities find that a useful starting point for determining the most efficient and effective approach to the preparation of financial statements, is the conduct of a risk analysis of each financial statements item and the accompanying note.

This approach can:

  • identify data sources and tasks required for the item
  • assist in the allocation of resources to the items of highest risk and identifying the timing of the required work
  • provide a framework for the identification, documentation and review of the controls that exist in managing risks of misstatement in the financial statements, and
  • identify areas where controls can be strengthened.

As the management of risks is an on-going process until the financial statements are signed, the initial risk analysis should be included as an agenda item for audit committee meetings, and updated as unforeseen events arise during the financial statements process.

4.4.2 Managing project delivery risks

The project risk analysis will contribute to developing risk treatment activities, which should then be detailed in the project plan and schedule. The degree of formality and rigour of the risk assessment will depend on a number of factors including the overall complexity of the entity and financial statements, the maturity of an entity’s financial statements processes and the level of reporting risk the entity is prepared to accept.

Examples of risks that may affect the preparation of financial statements include:

  • insufficient appropriately skilled resources —a lack of appropriately trained personnel will hinder an entity’s ability to properly perform its financial management and reporting responsibilities
  • incorrect recording & non-recording of transactions —errors in recordkeeping are likely to result in misclassification of financial statements items and posting of amounts to incorrect reporting periods. This could be caused by an unsuitable FMIS
  • restructures —restructures resulting from internal or external events may be accompanied by staff changes or other changes that affect an entity’s risks or internal controls. The transfer of assets and liabilities may also result from a MoG change or other government decision. These changes may significantly impact on an entity’s financial statement preparation process
  • fraudulent activity —the availability, and extensive use, of information and communication technologies has resulted in increased opportunities for fraud, including intentional misstatements, such as omissions of amounts or disclosures, intended to deceive or mislead users of the financial statements. This could be caused by an unsuitable FMIS, and
  • lack of timely reporting of information —delays in financial reporting may mean that reported information is out-of-date and of little value to users.

4.4.3 Resources

Resource name

Resource description

Commonwealth Risk Management Policy

Provides the requirements of section 16 of the PGPA Act for systems and internal controls to manage risk.

PGPA Act

This online resource links sections of the PGPA Act to related rules and guidance.

4.5 Planning to have the right skills at the right time

The effective management of staff, skills and expertise is a critical component for development of the financial statements. It is important that the finance team collectively possesses the appropriate skills and knowledge required to prepare the financial statements. This will largely be achieved through sound workforce planning, recruitment, on-going training, and keeping abreast of accounting developments.

Addressing resource shortfalls may include:

  • recruiting or contracting staff with the skills, experience or expertise needed
  • arranging additional training for staff (including for use of the FMIS), and/or
  • eliminating or modifying roles or tasks by reprioritisation or re-engineering of processes.
  • As staff engagement and on-boarding processes can take some time, it is wise to plan for succession arrangements in the event of the loss of key project personnel.

4.5.1 Defining and assigning key project roles

Early assignment and clarification of key project roles is important, including:

  • project manager —responsible for planning, monitoring and implementing the project
  • audit liaison officer —a central point of contact for all internal audit and ANAO matters and responsible for analysing the impact of audit findings and recommendations on the entity’s financial statements
  • business area relationship manager/s —responsible for managing relationships with business managers and their staff
  • technical specialists —responsible for particular technical or specialist aspects, and
  • quality assurance reviewers —responsible for assuring the quality of the financial statements working papers, and the financial statements as a whole.

Team members may have more than one role, and roles can be filled by more than one team member, depending on the size and complexity of the entity. Allocation of responsibilities should be flexible enough to enable team members to assist in other roles where required.

4.5.2 Business managers and their staff

Business managers and their staff also play an important role. They typically manage day-to-day accounting activities and most of an entity’s assets and liabilities. Their primary responsibility is ensuring that reported information is accurate, timely and internal controls are effectively applied. Other responsibilities can include:

  • processing transactions in financial management information systems
  • providing financial and non-financial information in the format and by the timeframes requested by the CFO, and
  • maintaining complete and accurate documentation to substantiate all transactions for their areas of responsibility for review, if required, by entity management and audit.

4.5.3 Identifying activities where exper tise may be required

A common feature of financial statements preparation is the need to obtain specialist expertise and knowledge to provide reports, opinions, valuations or statements to assist entities in determining certain financial statements items at year-end. Examples of activities where independent expert assistance is often used include:

  • valuations of PPE and intangible assets
  • actuarial assessments of superannuation, long service leave liabilities and impairment allowances
  • measurement of work completed or work in progress on construction contracts
  • advice on the treatment of specialised accounting matters, or
  • legal opinions on legislation, legislative instruments or agreements.

4.5.4 Considering the need to engage an expert

When determining the need to engage an expert, management would generally consider:

  • whether the knowledge and expertise is available in-house
  • the benefits and cost involved
  • the risk of material errors based on the nature, complexity and materiality of the subject matter
  • the timing of the expert’s involvement during the various phases of the financial statements, and
  • availability of accurate and reliable data and information.

More information on engaging experts is provided at: 7.10 Sourcing experts.

4.6 Planning for the application of materiality

The project manager, CFO and finance team should also plan for the application of materiality in the preparation of the financial statements, with a view to improving the effectiveness of financial reporting, particularly the overall relevance and readability of the financial statements.

More information on materiality, when and how it is applied is provided at: 7.2 The application of materiality.

4.7 Planning for the presentation of the statements

It is wise to plan for document management arrangements early in the project as delays may result if, for example, key working papers are misplaced or lost during the process.

Issues such as safe custody, distribution, retention, storage and confidentiality including backup of electronic documents, should be documented and understood by relevant staff members.

4.7.1 The entity’s financial statements model

There are many different approaches to the assembly of the financial statements, but most entities use a model to bring together the information from the FMIS into a publishable format. It is wise to consider the entity’s model and what this means for project activities.

More advanced models allow a trial balance to be imported from your FMIS, and automatically populate with the different notes before summarising them in the ‘face statements’ to ensure consistency.

4.7.2 Must a pro forma approach be developed?

Each entity needs to make judgements on the appropriateness of their disclosures based on the accounting and reporting framework, taking into account, primarily, the information needs of users, especially the Parliament. Some entities decide to follow pro forma approaches, particularly if this minimises the likelihood of lengthy debates.

A review of the format of the financial statements need not wait until year-end. It could, for example, be undertaken in the middle of the financial year, allowing time to consider various options and seek feedback from the ANAO, the audit committee and Finance with the aim of reaching consensus on the approach proposed.

Early feedback would be useful for the entity in deciding whether particular disclosures are useful to users.

Applying the above approaches will involve some time, effort and judgement. Improving the presentation of the financial statements does not automatically reduce the preparation time for financial statements.

Presentation of the financial statements is covered in AASB 101 and at: 8. Structuring the financial statements.

4.7.3 Automated consistency and validation checks

More sophisticated models have the ability to track changes made by users. If that is not a facility within your model, the use of a log is better practice as it allows records to be kept of changes to the document.

4.7.4 Managing version control for the financial statements

The task of checking that appropriate document security requirements are in place and setting up the file structure for the project, should be assigned to an appropriate finance team member in the early stages of the project.

Version control allows tracking and identification of the financial statements model throughout the project. This is important as it allows the development of the document to be followed and understood, and reversion if something goes wrong.

4.7.5 Resources

Resource name

Resource description

Example: Internal consistency checks

This spreadsheet provides examples of the consistency checks that agencies should consider including.

AASB 101

The AASB standard that prescribes the basis for presentation of general purpose financial statements including guidelines for their structure and minimum requirements for their content.

4.8 Planning for the use of information systems

4.8.1 The Financial Management Information System

Sound understanding of the FMIS, any other systems and their capabilities can make the financial statements planning process more effective. For example, conducting quality assurance checks, producing reports and processing correcting journals can be performed more efficiently if the finance team understands the systems from which information is sourced.

At the planning stage, the project manager and other members of the finance team should obtain assurance that the FMIS is reliable and technical support is available. Peak workloads and deadlines should be communicated to the entity’s ICT area. This minimises the risk of delays due to scheduled maintenance and system upgrades.

4.8.2 Training for effective and efficient use of systems

Once the project manager has established the systems to be used, consideration should be given to whether the project team (or key staff in business areas) have sufficient knowledge and experience in using the systems for their role in preparing the financial statements.

Consider whether some staff may benefit from ICT systems training or coaching, such as for the processing of journals, running reports or transferring systems data into the financial statements model.

In the later stages of the process, agencies should rely on a single person (or a small group) to make required changes to the model, as this reduces the risk of version control errors.

A well-designed financial statements model will have inbuilt internal consistency checks that allows easy confirmation that all the notes and face statements are consistent across the document.

4.9 Planning for quality assurance processes

4.9.1 Defining and assigning quality assurance activities

The primary focus of quality assurance arrangements for the financial statements should be heightened in areas that are material and/or where the risk of error or misstatement is the highest. The degree of focus on the assurance process should be in proportion to the risk of error or misstatement.

Responsibility for quality assurance arrangements should be clearly articulated in relevant planning documentation and priority given to adherence to the arrangements and documentation requirements.

Officers with responsibility for this work should be experienced finance officers who are able to apply a level of objectivity and independence to maximise its effectiveness. They should be aware of the possibility of misstatement due to unintentional or deliberate errors or fraud. This may include identifying unusual circumstances, inappropriate assumptions or information that contradicts other supporting evidence.

4.9.2 Management sign-off processes

Management sign-offs are designed to provide assurance to the accountable authority, through the CFO, on the quality of the entity’s financial statements. The content and form of management sign-offs should be agreed as part of the planning process and be communicated at an early date to all relevant entity managers.

It is customary for such sign-offs to be provided to the audit committee to assist the committee in its review of the financial statements.

More information on quality assurance processes is provided at: 9. Quality assurance and certifications.

4.9.3 Performance indicators for assurance processes

Better-practice entities develop performance measures for key elements of the financial statements development process. When planning for financial statements assurance processes, the project manager should consider:

  • any existing quality assurance performance indicators that may be applied
  • if the CFO requires quality assurance performance indicators to be established, and/or
  • possible mechanisms to measure assurance arrangements, in the interest of continuous improvement.

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