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 and availability, team resourcing, opportunities and risks, will:

  • ensure all parties have a consistent understanding of the project parameters
  • set an agreed approach that the financial statements team can then follow
  • 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 is a useful base-document for the planning process—noting that it should be carefully scrutinised and amended to reflect such factors as the current year’s scope of work, governance arrangements, timeframes, risks and personnel. In this way, project plans are continuously built 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
  • 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 and a 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
  • interpersonal skills to manage stakeholder relationships and allocate suitable work to the financial statements team.

In appointing the project manager/team leader, the CFO should also consider issues such as, the experience and skills of the financial statements 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 financial statements 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 financial statements 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 financial statements 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 decisions to change the planning approach to the project, or the receipt of:

  • updated rules and guidance, including RMG-125 and PRIMA Forms
  • the auditor’s audit strategy for the entity
  • changes to the entity’s business and/or operating environment.

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
  • 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 should 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. Knowing your entity’s business.

4.2.2 Taking account of the prior year’s learnings

Learning from past experience 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 and why?
  • Was additional documentation requested by stakeholders (including for example, committee members or auditors), or required for the CFS?
  • What did the internal and external auditors (such as the ANAO) focus on and what questions were asked?
  • 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 and bring forward as many of these as possible. This may include:

  • conducting a hard or soft close process (see 7.3.1 Deciding on a hard or soft close process)
  • identifying the need for and, where required, engaging specialist expertise and knowledge to provide reports, opinions, valuations and/or statements to assist in determining specific financial statements items and/or quality assurance processes
    • For example, 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, legal opinions on legislation, legislative instruments or agreements. More information on engaging experts is provided at: 7.10 Sourcing experts.
  • wherever possible obtaining and reviewing valuations and/or other expert reports prior to year-end
  • obtaining early management approval for key accounting policies
  • documenting any new or changed accounting policy papers and providing these to the auditors and other interested stakeholders early in the planning process
  • calculating balances where it is expected that there will be no major changes between the date of calculation and year-end, such as depreciation, valuations, commitments, lease liabilities and loans
  • determining the accounting implications of any organisational changes prior to their implementation, including machinery of government changes.

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 financial statements 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 financial statements team needs to consider how these relationships will be managed.

This may include working with the entity’s business areas and/or shared 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 business areas, other entities that collect and/or expend money, perform processing and reporting on the entity’s behalf, shared services providers and the financial statements team.

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

  • regular communication through meetings during the year to brief business areas, other entities that collect and/or expend money on the entity’s behalf and shared services providers on the latest developments in accounts processing and requirements
  • training seminars for finance and business area teams 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 financial statements team and the business areas
  • suggestions for continuous improvement are sought from business areas.

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

4.2.6 Additional 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: Financial statements schedule of activities, year-end project plan and high-level timetable

This template contains:

  • a schedule of activities outlining those to be completed in the preparation process
  • a detailed project plan outlining the activities to be completed in the preparation process, including the timeline and responsibility for the completion of each activity and its status
  • a summary timetable setting out key financial reporting dates in a form that are easily consumable by key stakeholders.

4.3 Assessing the effectiveness of financial statement processes

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

In the context of this guide, the effectiveness 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 on-time preparation of high-quality annual financial statements that require minimal adjustments.

Undertaking an assessment of the effectiveness of an entity’s financial statement processes 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.

Better practice indicators of an effective financial statements process could include:

  • strong emphasis from the board and/or the executive team on both their own responsibility and a culture of collective responsibility for financial matters
  • strong financial capabilities of the accountable authority, audit committee, finance committee, financial statements team, business areas and other relevant staff
  • ongoing training and continuous professional development in financial management for staff both within and outside the financial statements team
  • a robust and reliable FMIS, including the transactional processing systems
  • good systems of internal control, governance arrangements and risk management processes, particularly around the financial statements process
  • quality, accurate and timely financial management and forecasting information is provided to decision makers and the Executive
  • reports of financial and performance information are tailored to the needs of the user, both internal and external, and reports are open, clear and concise
  • reports are presented in a timely manner to internal and external users
  • well-defined processes which are well understood and followed by all parties
  • regular monitoring of progress and review of processes to ensure they are operating efficiently and effectively.

4.3.1 Linking effectiveness with risk management

Better practice entities would assess the effectiveness of their financial statement process based on evidence of the better practice indicators detailed in 4.3 Assessing the effectiveness of financial statement processes then conduct a risk assessment of the areas/processes based on that assessment using their risk management framework.

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

The risk assessment can then be used by the project manager as a platform for conversations with senior officials on whether the current process is appropriate for the entity.

4.4 Planning for the management of project risks

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

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 and/or other senior officers.

Risks change over time and hence risk management will be most effective where it is dynamic and evolving. Monitoring and review is integral to successful risk management and entities should articulate, which team member is responsible for conducting monitoring and reviewing activities. Key objectives of risk monitoring and review include:

  • detecting changes in the internal and external environment, including evolving entity objectives and strategies
  • identifying new or emerging risks
  • ensuring the continued effectiveness and relevance of controls and the implementation of treatment programs
  • obtaining further information to improve the understanding and management of already identified risks
  • analysing and learning lessons from events, including near-misses, successes and failures.

4.4.1 Prioritising development activities to mitigate risks

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
  • identify areas where controls can be strengthened.

As the management of risks is an ongoing 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 and non-recording of transactions - errors in recordkeeping are likely to result in misclassification of financial statement items and posting of amounts to incorrect reporting periods. This could be caused by an unsuitable FMIS and/or ineffective internal controls, or inadequate procedures, training and guidance for finance and other teams that approve and/or record transactions in the entity’s FMIS and supporting business systems
  • 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 ICT 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
  • 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.

4.5 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 financial statements team collectively possesses the appropriate skills and knowledge required to prepare the financial statements. This will largely be achieved through sound workforce planning, recruitment, ongoing 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)
  • seconding appropriately skilled staff from other business areas or entities, such as internal audit
  • 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.

The APSC has developed an Australian Public Service Workforce Planning Guide, which may assist CFOs to develop their own workforce plans for their financial statements teams.

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 auditor 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
  • 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. However to ensure an effective quality assurance review is undertaken, quality assurance reviewers should not have any input into the initial preparation of the financial statement working papers they are reviewing.

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

4.5.3 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
  • 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 financial statements 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 team 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.

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. For an example of model financial statements for entities subject to the FRR, see the PRIMA forms. 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.

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 ensures a record is kept of changes to the document. In the later stages of the process, entities 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.

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.

It is not possible for a pro forma to address all possibilities and circumstances. While pro forma financial statements are a useful aid, strict adherence to their format may result in an unnecessary level of disclosure. This can detract from the financial statements explaining an entity’s particular financial circumstances to readers. It is important to remember that the goal of the financial statements is to provide relevant and readable information and this may sometimes require adding relevant information (such as providing more detail on particular material line items), rather than just removing information that detracts from readability. Once the entity has developed a format for the financial statements, there should be a review process in each subsequent year to assess whether adjustments were required (or are recommended for future years) due to:

  • changes in accounting standards
  • Finance’s requirements, or
  • the nature of the entity’s operations.

This process should be integrated with the entity’s normal process for considering the effect of such changes and should feed into planning for the following year’s financial statement preparation,

However, review of the format of the financial statements need not wait until year-end. Where resources permit, it should be undertaken in the middle of the financial year, allowing time to consider various options and seek feedback from the auditor, the audit committee and Finance with the aim of reaching consensus on the approach proposed.

Applying the above approaches will involve some time, effort and judgement. It should be noted that 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 (for Tier 1 reporting) or AASB1060 (for Tier 2 reporting) and at: 8. Structuring the financial statements.

4.7.3 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 financial statements 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.

4.7.4 Additional resources

Resource name Resource description

Example: Internal consistency checks

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

4.8 Planning for the use of information systems

4.8.1 The Financial Management Information System (FMIS)

A detailed 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 financial statements team understands the systems from which information is sourced.

At the planning stage, the project manager and other members of the financial statements team should obtain assurance that the FMIS is reliable, has appropriate cyber security risk mitigation strategies in place to ensure security of digital remote access where required and technical support is available to all financial statements team members, including team members using remote access. 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.

An assessment should be made as to whether the financial statements team and/or key staff in business areas have sufficient knowledge and experience in using the systems for their role in preparing the financial statements. Where necessary, financial statements team members and key business area staff should be provided with ICT systems training or coaching, for the processing of journals, running reports and transferring systems data into the financial statements model and/or working papers to ensure the completeness and accuracy of data.

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 ensuring there is an appropriate segregation of duties between the financial statement preparation and quality assurance process. Adherence to the arrangements and documentation requirements per the approved project plan is critical for the quality assurance process to be fully effective.

Officers with responsibility for this work should be experienced finance officers, internal audit and/or other experienced staff 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
  • possible mechanisms to measure assurance arrangements, in the interest of continuous improvement.

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