EOFY is coming — Is your council ready for year-end reporting?

With the end of the financial year (EOFY) fast approaching, local governments across Western Australia and beyond will already be feeling the pressure of impending financial reporting. 

EOFY doesn’t have to be a mad rush though, and this time of year can actually provide a great opportunity to improve financial processes and avoid mistakes that typically come to light during an audit.  

Our business advisory and audit teams have highlighted the most common EOFY challenges they see in local government – from small shires to towns and city councils.

1. Revaluation of property, plant and equipment (PPE) and infrastructure assets

Local governments are required to revalue certain PPE and all infrastructure assets at least once every 5 years and typically engage external valuers for this. 

But just getting the external valuer’s report isn’t enough. From an audit perspective, if observation and results from the revaluation are not appropriately addressed, it can lead to significant discrepancies in financial reporting. This challenge was also highlighted in the Office of the Auditor General’s 2023-24 Financial Audit Results. 

Because asset valuations can have a significant impact on the reported results, don’t let valuation reports go unchecked. When you receive your report, be sure to:

• Review the report and all details associated with the asset. Typically, the infrastructure or asset division will be involved in the process to ensure completeness and reasonableness of the valuation.
• Sense-check the numbers. Investigate movements that appear unusual or not aligned to expectations.
• Update accounts properly to reflect new values (as well as adjusting any related figures). Remember if any asset is held for sale, the accounting treatment may differ.

2. Accounting for contributed assets

Assets that are given to local governments such as fire trucks, buildings transferred for community use or infrastructure items by developers, often don’t get captured properly in accounts.

Because there’s no cash involved, ownership changeovers – be it the first changeover or a periodic changeover – are easily overlooked. However, it’s important to account for these to comply with relevant standards.

To ensure nothing is missed:

1. Create an EOFY checklist that includes contributed assets.
2. Review funding agreements for any asset-related obligations.
3. Invest in training for finance staff who may not know how to record irregular non-cash transactions.

This accounting guideline from the WA Department of Local Government, Sport and Cultural Industries is a useful reference.

3. Provisions for site rehabilitation

Many local governments in regional areas run landfill or depot sites, and these often have contamination risks. 

The obligation to rehabilitate such sites may be an actual or ‘contingent liability’ – a possible future financial obligation. As a start, review the licence conditions to assess the nature of the obligation.  

Where a provision is required, it may be necessary to engage an expert to assess the cost estimate.  Similar to valuations of fixed assets, it is necessary to ensure that the estimate remains relevant by reference to the external estimate on a regular basis. 

In accounting for the rehabilitation provision, particular care needs to be exercised in whether the movements should be reflected in the statement of comprehensive income or to the landfill asset.

4. Recognition of grant revenue

Depending on the funding terms, revenue could be recognised on receipt of funds or deferred until specifically enforceable performance obligations are met. 

A common observation is that entities don’t undertake the revenue recognition as and when grants are received and leave it to year end leading to audit adjustments.  It would serve local governments well to maintain a detailed grants register to record the grants as and when they are received. The register should, amongst other things, include what the grant is for and how it should be treated from an accounting perspective.

5. Plan ahead for systems changes 

Many local governments are transitioning from on-premise systems to cloud based ERPs. 

Systems implementation involves activities like migrating large volumes of data to the new system. Legacy information can often result in surprises such as missing, duplicated, or corrupted data resulting in adjustments and/or restatements.

If you’ve recently transitioned systems or will do soon, it’s important to:

• have a clear process in place
• identify data issues early
• understand the impact on your financial statements

By doing this in advance of EOFY reporting, you can help mitigate the risk of delays in the finalisation of the accounts.  

6. Leave time for quality review

A final check of your financials – ideally by someone who hasn’t been buried in them – helps catch issues early. 

Take the time to complete a thorough internal review before the accounts are finalised, and complete any relevant EOFY checklists that may be on hand to support the process. 

The Office of the Auditor General’s audit readiness toolkit is a helpful reference for finance teams preparing for year-end.

If you need help

When you’re preparing for EOFY and challenges arise, don’t be afraid to reach out to your accountant or auditor. 

At RSM, we make ourselves available to our audit clients with:

• ongoing support
• reporting advice
• free tools and checklists

It’s much easier to resolve an issue upfront than to avoid communicating and have to face a prolonged audit process. 
 

To speak with an experienced business advisor or auditor, please contact our specialist Local Government Services team.