By GARRY CARNEGIE and JAMES GUTHRIE
The last 2019 annual report from an Australian public sector university was published on October 13 2020. Finally, the Australian National University has released its accountability obligations to report its annual financial results.
The university’s reporting lag is over ten months. Note that its 2018 Annual Report was not tabled in parliament until 18 September 2019. The 2017 Annual Report was published on 28 June 2018 but was still almost six months following the year-end date.
The university’s 2019 Annual Report comprises 186 pages (2018: 212 pages), including the audited financial statements, and features several glossy photographs. Compared with the 2018 Annual Report, no expense was spared in production.
This comes at a time when ANU is announcing many employees are expected to lose their work, courses are to be culled and operational efficiencies must be found. ANU states that for the next three years that revenue is not likely to grow substantially above the level achieved in 2020. To place ANU on a more sustainable expenditure footing reduction of approximately $103.5 million is required in 2021. (CMM October 13).
Highlights of the ANU consolidated financial results for the year ending 31 December 2019 include:
* total revenue and income from continuing operations of $1.53bn (2018: $1.38b)
* net surplus after income tax of $300m (2018: $225m)
* total assets of $4.17bn (2018: $3.9bn)
* investments of $1.5bn (2018: $1.6b)
* proportion of income from fee-paying on-shore overseas students to total revenue and income from continuing operations is 21.3 per cent (2018: 23.1 per cent)
* proportion of total income from fee-paying on-shore and off-shore overseas students to total revenue and income from continuing operations is 21.5 per cent (2018: 23.3 per cent).
Despite these results, the financial impact of COVID-19 is not reflected in the published financial statements. Indeed, the 2019 Annual Report provided very little information about the social risks of COVID-19 and the financial risks associated with reliance on tuition fees earned from both on-shore and off-shore international students constituting almost 22 per cent of ANU’s total income.
Notwithstanding the remarkably long reporting lag, ANU’s disclosures of “Events after the reporting periods”, as required by accounting standards, discloses the impacts of COVID-19 as if they have only just occurred before the recent time of publication.
The note states: “As at the time of completion of the 2019 Financial Statements, the university cannot reliably estimate the severity of the impact. There are a number of elements that contribute to this across the Income Statement and the Statement of Financial Position as follows …” (p 105, our emphasis).
With just 2.5 months remaining until December 31 2020, ANU is now more completely informed regarding the pandemic’s impact on the institution’s 2020 results than all the other Australian universities which reported their 2019 results earlier in the season.
For example, one of the five elements reported in the subsequent events note relating to the income statement is stated as: students currently have until May 8 2020 to withdraw from their currently enrolled 2020 subjects. There remains uncertainty as to how many students will choose to do so, given the move to online delivery and the broader environmental context.” Yet now in October, this university has much more information about this situation.
Furthermore, the following statement was made in respect to financial position: “the significant widespread financial impacts of COVID-19 are creating uncertainty in determining the duration and magnitude of market volatility, particularly as it relates to the performance of the university’s investment portfolio, demand for higher education, the capacity to fund studies and the capacity of employers and governments to sponsor students. Other assets, including property plant and equipment, may also be subject to impairment”.
How can audited external financial reporting be improved to avoid such scenarios arising and, in the process, improve financial accountability in the sector? Examples such as the ANU point to the rather perfunctory role played by the annual reports, more as a marketing document rather than providing critical information.
In the meantime, many public universities have announced a variety of strategies for operating within reduced financial means from January 1 2020 due to the impacts of the pandemic, including staff redundancy programs and reductions in casual positions.
Two key points arise in our view. First, one of the largest universities in Australia in terms of total income from continuing operations was unable to release its 2019 annual report and financial results until the fourth quarter of this year. Such a delay needs a practical solution.
Second, ANU has a tradition of slow (2017) or very slow (2018 and 2019) financial reporting in the context of publishing its annual reports during the past three years.
In the absence of interim (six-monthly) financial reports from our public universities, as we have previously argued (CMM, August 30 and September 15), we all remain somewhat “in the dark” on their individual and collective financial conditions.
We contend that this begs the question: “Does the sudden financial downturn due to lower enrolments of international students, support or justify Australian universities’ decisions to quickly and, in many cases, dramatically downsize the staffing and related unique skill sets”?
Emeritus Professor Garry Carnegie, FCPA, RMIT University and Distinguished Professor James Guthrie AM, FCPA, Macquarie University.