by GARRY CARNEGIE and JAMES GUTHRIE

The finances of Australia’s public universities are in turmoil over the COVID-19 crisis, which has caused a downturn of enrolments of international students, especially from China.  While the crisis will pass, its effects are impacting Australian public universities now.

This is the third piece in a series examining the 2019 annual reports just released to the public investigating the latest annual reports of six of Australia’s largest universities. Three are in Sydney and three in Melbourne. This follows stories by the writers on financial reporting and financial risks of Western Australian universities and Queensland universities in Campus Morning News last month.

The New South Wales universities are: the universities of Sydney and NSW)and Macquarie University (Macquarie). The Victorians are Uni Melbourne, Monash U and RMIT.

UNSW makes the magnitude of this crisis poignantly clear.  In its 2019 Annual Report, the “year in review” joint statement of the chancellor, and vice chancellor, states “at the time of publishing Australia and the world face the gravest threat since World War II given the impact of COVID-19. The situation is, without doubt, the biggest challenge in the history of UNSW”.

Of course, this global crisis was unexpected, with evidence of what became known as COVID-19 arising late in the 2019 calendar year, with the World Health Organisation declaring a global pandemic on 30 January 2020. Therefore, the 2019 financial results were primarily completed by 31 December 2019, but not the complete annual reports.

All six universities reported on COVID-19 in notes to the financial statements entitled “events occurring after reporting date” (or similar).  In terms of the impacts of declines in international student numbers on income for the year ended 31 December 2020, all institutions stated that it had not been possible to quantify the financial impacts of the unfolding crisis. COVID-19 is expected by the institutions to have a potentially significant impact on financial performance and liquidity of the universities in 2020.

Macquarie states, for example, “as at the date of the authorisation of the 2019 financial statements there is uncertainly surrounding the impact of the COVID-19 outbreak on the University’s results for 2020”. Uni Sydney, for instance, states “the university is not yet in a position to fully assess the severity of the impact”. RMIT acknowledges that “there continues to be significant uncertainty surrounding the potential impact of this event”.

Of the six universities, two expressly referred to the potential impacts of COVID-19 on their investment income and the values of their investments due to a decline in equity markets.  The Uni Melbourne, for instance, quantified this loss, stating “for the three months to March 31 2020, the unrealised loss through the income statement was $189.030 million, predominantly due to share market movements during the three months”.

Also, UNSW did not provide quantification in this form, but indicated the potential material impact of COVID-19 on the 2020 financial results, “the pandemic has resulted in an unrealised loss due to the decline in value of the university’s non-current assets estimated at 12 per cent-15 per cent since balance date”. The university further states that “asset mark conditions are expected to remain extremely volatile for the foreseeable future.”

Monash U indicates that “due to significant uncertainty … it is not possible to estimate the full impact [of COVID-19] on the university’s operations, financial position and cash flow at this point”.  Consequently, “we do not consider it practicable to provide a quantitative or qualitative estimate of the potential impact of this outbreak on the group at this time”.

The university also referred to “a further consequence of COVID-19 has been a severe downturn in investment markets impacting the group’s investment portfolio …”.

RMIT, “also notes the significant volatility in financial markets as a result of the COVID-19 outbreak … and has exposure to financial market risks”.

Uni Sydney states explicitly in the 2019 annual report: “the global coronavirus (COVID-19) crisis emerged as a significant issue for the University of Sydney in early 2020.  The university will report on its response to that crisis, and the impact of it, in the 2020 Annual Report”.  Macquarie, also referred to the uncertainty surrounding the potential impact of the crisis on the 2020 financial results.

As indicated, this commentary shows the variability in the approach to disclosing the potential financial risks of COVID-19 of these significant universities in the two largest populated states in the country.

Notwithstanding the disclosures made, there remains a present threat to employees in the Australian public university sector.

University councils, executive management, and many others in, or associated with universities, appear not to have perceived these circumstances arising; it is, therefore, a “hard lesson” on financial risk management. However, this experience should contribute to Australian universities, as public institutions, adopting new approaches to assessing and managing the financial risks associated with strategies on international student fees income streams and investments in the share market.

We all live and learn!

Emeritus Professor Garry Carnegie, FCPA, RMIT University and distinguished professor

James Guthrie, FCPA, Macquarie University