Acronyms

AAS—Australian Auditing Standard

AASB—Australian Accounting Standards Board

DELWP—Department of Environment, Land, Water & Planning

DTF—Department of Treasury & Finance

ESC—Essential Services Commission

FMA—Financial Management Act 1994

FRD—Financial Reporting Direction

MRD—Ministerial Reporting Direction

VAGO—Victorian Auditor-General's Office

VGV—Valuer-General Victoria

WIRO—Water Industry Regulatory Order

Figure E1 shows the key elements of an effective asset valuation framework. Part 4 discusses the results of the 2015–16 valuation exercise.

Figure E1

Key elements of an effective asset valuation framework

This Appendix sets out the definitions and criterion applied in this report from prior years that assist us in conducting our assessment of risks to financial sustainability across the water sector.

The financial sustainability indicators used in this report are indicative and highlight risks to ongoing financial sustainability at a sector and cohort level—metropolitan, regional urban and rural.

Figure C1 shows the risk ratings applied to management letter points raised during an audit.

Figure C1

Risk definitions applied to issues reported in audit management letters

Figure B1 lists the legal and trading names of the 20 entities including one controlled entity that form part of the Victorian water industry.

Figure B1

Water entities and controlled entity

We have consulted with all water entities, the Department of Environment, Land, Water & Planning, the Essential Services Commission and the Valuer-General Victoria throughout the course of the audit. As required by section 16(3) of the Audit Act 1994, we gave a draft copy of this report, or relevant extracts, to those agencies and asked for their submissions or comments.

Responsibility for the accuracy, fairness and balance of those comments rests solely with the agency head.

The state has invested significantly in water infrastructure assets to deliver essential water services to the community. In 2015–16, 19 water entities controlled more than $42.3 billion of the state's $226.6 billion in physical assets. These assets are measured at fair value in accordance with Australian Accounting Standards and government financial reporting directives.

In this Part, we provide an insight into the 19 water entities' financial sustainability using a suite of commonly used financial indicators.

To be financially sustainable, entities need to be able to fund their current and future spending. They also need to be able to absorb the financial effects of changes and financial risks, without significantly changing their revenue and expenditure policies.

In this Part we comment on the results of our financial and performance report audits of the state's 19 water entities and the financial outcomes for the sector for 2015–16.

We also comment on the internal control and/or financial reporting matters we found during 2015–16 and provide an update on matters raised in previous audits.