Universities: 2016 Audit Snapshot

Tabled: 7 June 2017

2 Results of audits

2.1 Financial report audit opinions

Independent audit opinions add credibility to financial reports by providing reasonable assurance that the information reported is reliable and accurate. A clear audit opinion confirms that the financial report presents fairly the transactions and balances for the reporting period, in keeping with the requirements of relevant accounting standards and applicable legislation. We carried out our financial audits of the university sector entities in accordance with the Australian Auditing Standards.

Figured 2A outlines the status of the sector's financial audits, and the types of opinions issued to each entity.

Figure 2A
Status of the sector's 2016 audit opinions as at 31 May 2017


Clear opinion

Modified opinion

In progress




Controlled entities




Source: VAGO.

We issued clear audit opinions for the financial year ended 31 December 2016 to six universities and 46 controlled entities.

The 2016 audit opinions of the following entities were modified (qualified) because in our opinion the recognition of grant revenue did not align with the requirements of the Australian Accounting Standards:

  • The University of Melbourne
  • Deakin University
  • Australian National Academy of Music (ANAM).

We also modified our audit opinion on the 31 December 2015 financial report of ANAM, which was issued after our report Universities: 2015 Audit Snapshot was tabled in Parliament.

The qualified financial reports of these entities treat grant income as a liability and they do not include it as revenue until they provide the services required by the grant.

Australian Accounting Standard AASB 1004 Contributions requires these grants to be recorded as revenue when they are received. The effect of this timing difference can be material to the revenue and net result in any given year, and a liability appears in the balance sheet when no obligation to pay that money exists.

These qualifications alert readers of the financial reports to be cautious when interpreting the financial results and financial positions in the qualified reports. The revenue, net result and liability amounts cannot be compared between universities because different recognition principles have been applied for revenue.

These qualified audit opinions are longstanding issues in the university sector.

2.2 Changes to revenue recognition

The accounting standards that set the recognition and measurement principles for revenue are about to change. This represents an opportunity for the university sector as a whole, particularly those entities whose financial reports have qualified audit opinions, to review and realign their policies on revenue recognition.

There are two new accounting standards on revenue:

  • AASB 15 Revenue from Contracts with Customers (AASB 15)
  • AASB 1058 Income of Not-for-profit Entities.

These standards will apply to the 2019 financial reports, and will supersede the revenue requirements for public sector entities that are currently in AASB 1004 Contributions.

Applying these new standards will require significant work by the universities and their controlled entities. They will need to assess how they recognise and measure all current types of revenue against the principles of the new standards.

To implement AASB 15, universities and their controlled entities will need to review all existing and potential contractual arrangements so that the contractual performance obligations that will drive revenue recognition are clearly defined. They will need to review existing systems to ensure they can capture the performance obligations and the evidence of when they have been satisfied to trigger recognition of revenue. System changes may be necessary and entities will need to allow adequate time for this to occur.

Given universities are large entities—many with devolved contract management responsibilities—the effort required for them to understand, capture and record the required information may be significant.

Staff in functional areas and faculties who will need to interpret and apply the principles in the new accounting standards may need training, and changes to policies and procedures may be required. The financial reporting team should monitor the changes to provide assurance that revenue is being recognised and measured correctly.

The new standards will apply from 2019, and comparative information will need to be disclosed. In effect, this means that all entities will need to recognise and measure revenue numbers against the new requirements for the 2018 financial year.

As a result of these changes, the university sector has only a short time frame to implement the necessary changes in policies, procedures and systems.

We see this as a good opportunity for the sector to work together, and with universities in other states, to share the challenge of implementing these standards, and develop a consistent approach to the treatment of common types of revenue.

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