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  • About the financial statements

    The ATO’s financial statements are general purpose financial statements and are required by section 42 of the Public Governance, Performance and Accountability Act 2013 (PGPA Act).

    The financial statements have been prepared in accordance with:

    • the Public Governance, Performance and Accountability (Financial Reporting) Rule 2015; and
    • Australian Accounting Standards and Interpretations Reduced Disclosure Requirements – issued by the Australian Accounting Standards Board (AASB) – that apply for the reporting period.

    The ATO’s financial statements have been prepared on an accrual basis and in accordance with the historical cost convention, except for certain assets and liabilities at fair value. Except where stated, no allowance is made for the effect of changing prices on the results or the financial position.

    These financial statements incorporate the financial transactions of the Tax Practitioners Board (TPB), the Australian Business Register (ABR), and the Australian Charities and Not-for-profits Commission (ACNC).

    Independent Auditor's Report

    To the Assistant Treasurer

    Opinion

    In my opinion, the financial statements of the Australian Taxation Office for the year ended 30 June 2018:

    1. comply with Australian Accounting Standards and the Public Governance, Performance and Accountability (Financial Reporting) Rule 2015; and
    2. present fairly the financial position of the Australian Taxation Office as at 30 June 2018 and its financial performance and cash flows for the year then ended.

    The financial statements of the Australian Taxation Office, which I have audited, comprise the following statements as at 30 June 2018 and for the year then ended:

    • Statement by the Commissioner of Taxation and Chief Finance 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 Australian Taxation Office 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 (the Code) to the extent that they are not in conflict with the Auditor-General Act 1997. 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.

    Accuracy of administered income and expenses

    Refer to Note 13 ‘Administered – Expenses’ and Note 14 ‘Administered – Income’

    I focused on the estimation and allocation processes adopted by the Australian Taxation Office (ATO) for financial reporting given the value of the transactions that are subject to estimation, the judgement involved in estimation processes and the complexity of the estimate calculations. Deficiencies in estimation processes elevates the risk of error or misstatement given estimation and allocation processes are pervasive to the ATO’s financial statements.

    As detailed in note 14, estimating some taxation revenues can be difficult to measure, due to impacts of economic conditions and timing of final taxable income. As a result the ATO utilises two bases of recognition, the Economic Transaction Method (ETM) and the Taxation Liability Method (TLM). Judgement is required to determine the basis of recognition for each taxation revenue item.

    As detailed in note 13, the estimation of administered expenses including subsidies, personal benefits and superannuation guarantee charge expenses rely on estimation techniques that have inherent risks of error. Key sources of estimation uncertainty for administered expenses include the application of judgement required in the identification and selection of key assumptions in the calculation of subsidies, personal benefits and superannuation guarantee charge expenses.

    Estimation techniques have inherent risks of error and rely on assumptions such as wage growth, gross domestic product and historical information. The impact of economic conditions and the timing of final taxable income and measurement of revenues and expenses can also be difficult to estimate.

    For the year ended 30 June 2018, the ATO reported total expenses of $18,935m and total revenue of $405,819m.

    How the audit addressed the matter

    To audit these estimation and allocation processes I examined the methodologies and factors used in the estimates. I assessed the completeness, relevance and accuracy of data used in developing these estimates, including gaining an understanding of how the ATO obtained its assurance in respect of this data.

    I assessed the interpretation and analysis of data used by the ATO for the various estimates and allocations and recalculated revenue and expense estimates for all material estimates at year-end.

    I evaluated the adequacy of documentation to support the ATO’s judgements made in relation to key estimates and allocations of revenue and expenses at year-end. This included assessing quality assurance over manual adjustments processed at 30 June 2018.

    I examined adjustments resulting from procedures performed to assess whether they were appropriately reflected in the ATO’s financial statements.

    Key audit matter: Completeness and accuracy of taxation revenue

    Refer to Note 14‘Administered - Income’

    I focused on this area given the significant value of revenue reported by the ATO and the importance which compliance risk management plays in reducing the likelihood of material misstatement of that revenue.

    The measurement and recognition of taxation revenue that is materially correct is dependent on information provided by taxpayers in a self-assessment and voluntary compliance taxation regime.

    Ineffective design and implementation of the compliance risk management regime elevates the risk that inappropriate taxation returns are not detected and corrected by the ATO and also make the deterrence of tax evasion less effective. For the year ended 30 June 2018, the ATO reported taxation revenue of $405,648m.

    How the audit addressed the matter

    I evaluated the ATO’s compliance risk management processes by benchmarking the ATO’s compliance framework against the Organisation for Economic Co-operation and Development (OECD)’s best practice principles of what constitutes an effective taxation compliance program.

    I assessed the ATO’s risk identification, risk assessment and risk prioritisation processes for a selection of risks including international and cross border revenue collection; deteriorating payment compliance; individuals incorrectly reporting and/or omitting income; domestic structuring; and self-managed super funds.

    In performing my procedures I also assessed risk treatment strategies and implementation and assessed the process of monitoring performance and evaluating compliance outcomes on a sample basis and at an enterprise level.

    Key audit matter: Valuation of taxation receivables

    Refer to Note 15 ‘Administered – Non-Financial Assets’ and Note 16 ‘Administered – Provisions

    I focused on the calculation of estimates of allowances for credit amendments and impairment losses relating to taxation receivables given the value of transactions involved, the need for judgement in the calculation of impairments and credit amendments, and the complexity of debt management.

    For the year ended 30 June 2018, the ATO reported:

    • allowance for credit amendments of $4,394m;
    • provision for refund of $2,501m; and
    • impairment allowance of $14,252m.

    How the audit addressed the matter

    To audit the allowance for credit amendments, provision for refunds and impairment allowance, I performed the following procedures:

    • assessed the methodology and approach developed by the ATO in consultation with its actuary for estimating the balances;
    • tested, on a sample basis, the estimation process for disputed debts and the accounting treatment on individual taxpayers accounts;
    • recalculated the margin estimated and applied to disputed debts in circumstances where an individual assessment was unable to be determined;
    • recalculated the impairment allowance at balance date and assessed whether it was appropriately reflected in the ATO’s financial statements; and
    • evaluated the adequacy of the ATO’s documentation and quality assurance processes to support judgements made in relation to disputed debts.

    Accountable Authority’s Responsibility for the Financial Statements

    As the Accountable Authority of the Australian Taxation Office the Commissioner of Taxation 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 – Reduced Disclosure Requirements and the rules made under that Act. The Commissioner is also responsible for such internal control as the Commissioner 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 Commissioner is responsible for assessing the Australian Taxation Office’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 Commissioner is also responsible for disclosing matters related to going concern as applicable and using the going concern basis of accounting unless the assessment indicated 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 skepticism 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;
    • 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

    Grant Hehir
    Auditor-General
    Canberra

    13 September 2018

    Independent Auditors Report (PDF, 401KB)This link will download a file

    Statement by the Commissioner of Taxation and Chief Finance Officer

    In our opinion, the attached financial statements for the year ended 30 June 2018 comply with subsection 42(2) of the Public Governance, Performance and Accountability Act 2013 (PGPA Act), and are based on properly maintained financial records as per subsection 41(2) of the PGPA Act.

    In our opinion, at the date of this statement, there are reasonable grounds to believe that the Australian Taxation Office will be able to pay its debts as and when they fall due.

    Chris Jordan

    Chris Jordan signature

    Commissioner of Taxation
    As the accountable authority
    Australian Taxation Office
    13 September 2018

    Frances Cawthra

    Frances Cawthra signature

    Chief Finance Officer
    Australian Taxation Office
    13 September 2018

      Last modified: 26 Oct 2018QC 57226