Strategic context

• Environmental scan - external analysis
• Stakeholder needs
• Our current ability to respond
• Key strategic issues we need to deal with

In this section we outline a high level summary of the key issues in our environment which we expect to have to deal with over the next five years.

These are in the following areas:

• The accounting and auditing profession
• Public entities’ legislative and operating environments
• Information and reporting requirements and methods

In addition, we outline what our stakeholders are telling us we are doing well, what they would like more of and where they see areas for us to improve.

Environmental scan - external analysis

KEY ISSUES IN OUR ENVIRONMENT

There is a very wide range of issues in our environment with audit implications. The key issues fall broadly into the significant and ongoing changes in:

• the accounting and auditing profession,
• public entities’ legislative and operating environments, and
• information and reporting requirements and methods

Accounting and auditing profession

• Credibility of the profession under pressure after major international corporate collapses
• “Back to basics” response from the accounting and auditing profession, e.g. increased emphasis on risk and quality, audit methodologies being reappraised, firms rationalising service lines, increased ratio of senior staff to junior staff, increased emphasis on core auditing and accounting skills, resultant increases in audit fees
• Implementation of International Financial Reporting Standards (IFRS) in the public sector by 2007

Public entities’ legislative and operating environments

• Considerable flow-on audit implications arising from ongoing legislative changes (e.g. Local Government Act 2002, Public Finance Act amendments, Crown Entity legislation, Land Transport Management Act 2003) and significant decisions (e.g. that New Zealand will adopt IFRS).
• Increased level of scrutiny on the activities of the NZ public sector, particularly in the areas of NGO contracting, governance and accountability
• New and different ways of doing business, e.g. e-government/business

Information and reporting requirements and methods

• Significant changes in reporting requirements and methods e.g. Long Term Council Community Plans, XBRL, Sustainable Development Reporting, Managing for Outcomes/Statements of Intent etc
• Information is becoming more complex, e.g. inter-generational equity, spending choice, capability, value for money
• Entities are being asked to enhance their reporting – particularly in non-financial areas, and they are looking for enhanced external reporting on probity and waste, capability and risk
• Our stakeholders are asking for more help in navigating their way through information, new legislative requirements and reporting
• They are also looking for us to leverage off our sector knowledge to provide best practice information, where appropriate

Stakeholder needs

Our key external stakeholders are Parliament, local constituencies and public entities within the Auditor-General’s mandate.

We have some well-established stakeholder validation and feedback mechanisms, including the Auditor-General’s meetings with Select Committee Chairpersons, Parliamentary Party Leaders and public entities; client satisfaction surveys undertaken by Audit New Zealand and other Audit Service Providers; and the Local Government Advisory Group. We also recently carried out a pilot focus group. In addition, we receive extensive feedback from our ongoing liaison with sectors and entities.

Our stakeholders are telling us that:

Each of these areas of stakeholder feedback is discussed further on the following pages.

WHAT OUR STAKEHOLDERS FEEL WE ARE DOING WELL AT

Preserving our independence and maintaining our credibility: Our independence is prized by our stakeholders and there is a high degree of confidence in the work of the Office – reflected by the fact we are looked to increasingly for advice and inquiries

Servicing Parliament’s assurance needs: Parliamentarians have expressed a high degree of satisfaction with the work of the Office. The Auditor-General’s authoritative views are highly valued

Maintaining strong sector relationships: Our coverage and depth of relationships in our key sectors are acknowledged

The depth in our relationships with public entities: Audit New Zealand and the other Audit Service Providers have strong relationships with public entities arising from the annual audit process

The robustness of our standards: The Office is acknowledged for its well-developed standards, policies and sector information

The knowledge and quality of our people: The expertise and knowledge of our people is highly valued, as is the quality of the work produced by the Office

OUR STAKEHOLDERS WOULD LIKE MORE:

Performance audits (value for money assurance): Parliamentarians have expressed a desire for us to do more in the area of performance audits (value for money)

Help to navigate through information & understand and apply legislative changes: With the complexity of information and reporting requirements increasing, our stakeholders are looking for more help in navigating their way. Historically, we have tended to be reactive in this area

Best practice information: Our stakeholders are looking for us to leverage off our strong sector knowledge and expertise to provide best practice information, where appropriate

OUR STAKEHOLDERS THINK WE COULD DO BETTER BY:

Improved timeliness, especially for inquiries and performance audits: Our stakeholders are looking for greater speed in how we deliver our work – particularly inquiries and performance audits

Greater responsiveness, and innovation: Our stakeholders want us to respond more quickly to changes in legislation, and reporting and information, with relevant, timely and innovative assurance activities

In the previous section we outlined the key issues in our environment and the key expectations of our stakeholders.

In the next section, we discuss how the Office is currently positioned to deal with these by looking at our Strengths, Weaknesses, Opportunities and Threats, and considering these alongside the internal objectives the Office has for its capability.

We then summarise the key issues in our environment, our stakeholder needs and our current capability to respond to what we see as the key strategic issues which will impact on us over the next five years.

Our current ability to respond

Our ability to currently deal with these changes in our environment and to respond to stakeholders’ needs can be characterised as follows:

In addition to the changes in our environment and our stakeholder needs, the Office itself desires to:

• Use the best people (internally and externally)
• Work collaboratively (OAG – Audit NZ – ASPs)
• Gain sector consistency
• Invest in our future
• Build depth
• Maintain ongoing efficiency
• Continue delivering to Parliament, local constituencies and public entities
• Manage through all the changes
• Become more innovative
• Restore and build capability
• Grow and develop our people

Already we have made some progress, e.g. the changes in the way we choose the auditors who carry out annual audits - moving from a pure market model to a planned approach (the audit resourcing model) - will enable us to do the first three bullet points better. But it only goes part of the way, and we need to make further changes and investments.

The SWOT analysis on the previous page is also telling us that the Office is under stress and we have some significant challenges to deal with. The indicators of this are:

• We are struggling to maintain our capability and market competitiveness (i.e. we have depleted capability in research and development; we have reduced the amount available to purchase expert advice on performance audits; we have deferred key appointments; and we have difficulties matching what other public sector employers can offer by way of employment benefits/remuneration)
• We are continually having to apply senior resources to deal with unplanned work, i.e. inquiries
• We have limited ability to invest in product development
• We have insufficient depth in our senior staff
• Our timeliness is variable, especially for inquiries and performance audits, and
• Our ability to invest in the capability development of our staff is limited.

Key strategic issues we need to deal with

We have summarised the key strategic issues the Office needs to deal with - arising from our environmental scanning, our assessment of stakeholder needs and our consideration of the Office’s current ability to respond - as: