• Scope
• Section 1 - Policy
• Section 2 - Procedures
• Part A - Manual Journal Entry
• Part B - Balance Sheet Account Reconciliation
• Part C - Natural Account and Associated Reporting Hierarchy
• Part D - Inter-company
• Part E - Financial Materiality Guideline
• Concepts of materiality
• Materiality for completeness of entity level financial statements
• Materiality for re-allocation of transactions within an entity – for management reporting
• Summary – Financial materiality thresholds
• Risk Matrix as applied to concepts of financial materiality
• Section 3 - Guidelines
• Section 4 - Definitions

Purpose

(1) This Procedure supports the General Ledger Governance Policy by:

1. establishing requirements for the preparation, review and approval of Manual Journal entries – refer Part A;
2. establishing requirements for the reconciliation of Balance Sheet accounts – refer Part B;
3. establishing requirements for the creation and modification of Natural Accounts and the creation and modification to associated Natural Account Reporting Hierarchies – refer Part C;
4. establishing requirements for the recording of inter-company financial transactions and for the elimination of these transactions for Group reporting – refer Part D;
5. defining concepts of financial materiality and their application to the compilation of external financial statements – refer Part E; and
6. defining practical levels of accuracy required for individual financial transactions to enable the production of materially correct entity-level external financial statements and more granular financial statements for external funding providers e.g., research grant research acquittals – refer Part E.

Scope

(2) This Procedure applies to all trading entities in the Macquarie University Group, and to all staff involved in the:

1. creation, processing, approval, and recording of Manual Journals. Note this Procedure excludes Automated / System Generated Journals, which are exclusively posted by the IT Finance team;
2. creation, processing, approval, and recording of inter-company transactions;
3. creation and modification of Natural Accounts, and the associated Management Reporting (MR) and Financial Accounting (FA) Reporting Hierarchies used to report results to internal and external stakeholders; and
4. creation, processing, approval, and recording of inter-company transactions.

Section 1 - Policy

(3) Refer to the General Ledger Governance Policy.

Section 2 - Procedures

Contents

(4) This Procedure document has five parts:

1. Manual Journal Entry;
2. Balance Sheet Account Reconciliation;
3. Natural Account and Associated Reporting Heiracrhy;
4. Inter-company; and
5. Materiality.

Accountability for adherence to Procedure

(5) The Director, Financial Operations, Tax and Treasury has overall accountability for ensuring adherence to this Procedure for all entities in the Macquarie University Group.

Part A - Manual Journal Entry

Background

(6) Manual journals are used to adjust the financial results of an entity. Strong protocols around the use and quality of journals are a vital internal control which assists in ensuring accuracy and reliability of financial information.

Responsibilities and Required Actions

Journal Preparer Responsibilities

(7) The Journal Preparer is responsible for ensuring that the journals they create and upload:

1. are valid and necessary;
2. are compliant with this Procedure;
3. are complete;
4. are using the correct format for journal entry (e.g., accrual or GST templates);
5. are for the correct accounting period;
6. have the correct Chart of Account codes on each journal line;
7. have complete and self-explanatory Supporting Documentation (refer below for further guidance);
8. are submitted for approval in a timely manner and in accordance with the applicable timetables; and
9. comply with relevant clauses of the Accounting Policies Register.

Journal Approver Responsibilities

(8) The Journal Approver is accountable for ensuring the Journal Preparer has complied with the Procedure requirements listed above. The Journal Approver will only approve journals that comply with this Procedure.

Supporting Documentation

(9) All Manual Journal entries must have Supporting Documentation that substantiates the amount and purpose of the journal to a standard that enables the Approver or Reviewer to understand its purpose and validate its accuracy.

(10) All calculations must be clearly documented, with methodology and assumptions clearly defined. Information relied on from external sources (e.g., reports) must be documented in sufficient detail, including source and relevant parameters (e.g., dates and other filters) such that a report could be re-extracted or re-obtained, and any associated calculations could be reperformed.

(11) All Supporting Documentation must be uploaded into the General Ledger as an attachment to the Manual Journal.

(12) All foreseeable and repeated Manual Journals will be documented using a standard Manual Journal Template.  This Template will capture the purpose, requirements, key inputs, overview of calculations and expected frequency of the journal, and the location of any supporting material that details the step-by-step instructions for completion of the journal.

(13) The Manual Journal Templates must be approved by the Journal Approver and must be formally re-appraised and re-approved annually to ensure that they remain current. Evidence of approval must be retained on file.

Timetable for Submission and Approval of Manual Journals

(14) All Manual Journals must be prepared and approved in accordance with deadlines communicated each month by the Financial Operations team within Group Finance.

Use of Blackline™ as a repository and tracking tool for Manual Journals

(15) Each foreseeable Manual Journal will be listed as a separate task in Blackline™, with the expected frequency, due date, Journal Preparer and Journal approver identified.  Journals Preparers and Approvers will mark each journal task as complete as they progress through month-end activities in accordance with the published timetable.

(16) The relevant Manual Journal Template as well as the step-by-step instructions for completion of each Manual Journal will either be attached to the Blackline™ task, or the digital location of these documents will be included in the Blackline™ task.

Accrual Journals

(17) All Accrual journals must use a journal format which auto-reverses in the following period, such that the full accrual balance needs to be approved each month.

Prior Period Adjustments – between financial years

(18) The manual journal adjustment of prior year externally audited financial results is not permitted without the written authorisation of the Vice-President, Finance and Resources.

Prior Period Journals (months within the same financial year)

(19) The manual journal adjustment of a prior month’s results within the same financial year is not permitted without the written authorization of the Deputy Group Chief Financial Officer.

Rotational Quality Reviews of Manual Journals

(20) Rotational independent quality control reviews of Manual Journals and their associated written procedures as documented in the Manual Journal Template and step-by-step instructions will be performed by nominated Journal Reviewers who are neither the Preparer nor Approver of the Manual Journal under review.

(21) Reviews will focus on journals that are materially large and / or deemed to be high risk because of their inherent nature or complexity of calculation, as well as any other journals that are identified as a cause for concern during month-end Income Statement and Balance Sheet results reviews.

(22) A timetable for quality reviews will be prepared by the Director, Financial Operations, Tax and Treasury, for approval by the Deputy Group Chief Financial Officer. The timetable will detail the manual journals to review, due date for review, and nominated Journal Reviewer. Findings from the reviews, including any remediation actions and due dates for improving the quality of the journals or associated procedures, will be summarised by the Director, Financial Operations, Tax and Treasury and communicated to:

1. the relevant Journal Preparers and Approvers;
2. the Director, Financial Control and Treasury; and
3. the Deputy Group Chief Financial Officer. 

(23) The Director, Financial Operations, Tax and Treasury will ensure remediation activities are completed in line with the agreed due dates.

Part B - Balance Sheet Account Reconciliation

Background

(24) High quality and timely Balance Sheet account reconciliations are a vital internal control which assists in ensuring accuracy and reliability of financial information.

Responsibilities and Required Actions

Frequency of Reconciliations

(25) The following Balance Sheet Account types must be reconciled monthly:

1. accounts with sub-ledgers or with interfaces to systems performing similar functions (including bank, fixed assets, debtors, creditors);
2. account types other than those listed above with closing balances greater than $10m for the University, and 1% of full year expenditure for Controlled Entities; and
3. other high-risk accounts as identified by the Director, Financial Operations, Tax and Treasury or the Director, Financial Control and Treasury.

(26) All other Balance Sheet accounts must be reconciled at least quarterly. The quarterly cycle need not follow the default calendar quarter cycles, to enable the spread of the review over the twelve (12) periods.

(27) All Balance Sheet accounts must be reconciled for the December reporting period.

Due Dates

(28) Timelines for completion of Balance Sheet Account Reconciliations for all Group entities will be determined by the Director, Financial Operations, Tax and Treasury and formally communicated as part of month-end timetabling communications to all Balance Sheet Reconciliation Preparers, Approvers and Reviewers.

Content of Balance Sheet Account Reconciliations

(29) Regardless of the system used for storage, a Balance Sheet Account Reconciliation must include:

1. a statement of purpose for the account;
2. balance sheet account number and name;
3. the accounting period of the reconciliation;
4. general ledger balance as at close of the accounting period;
5. supporting documentation (see further information under the Supporting Documentation heading) to substantiate the entire closing balance (not just movement in the period);
6. a list of all Reconciling Items, with supporting documentation (see further below);
7. a list of Unreconciled Items, with explanatory notes and documented action plan for investigation, including the specific task(s) required to be completed, the resources required, and the timeframe for resolution;
8. electronic links (or location details) to any separate templated procedures relevant to the Balance Sheet Account Reconciliation;
9. the Balance Sheet Reconciliation Preparer’s and Approver’s names, and dates of preparation and approval;
10. if a zero balance, confirmation that the account is appropriate to be zero; and
11. confirmation that the closing balance has been calculated in accordance with the relevant identified sections of the Accounting Policies Register.

Supporting Documentation

(30) All Balance Sheet Account Reconciliations must include supporting documentation that explains the account, substantiates the closing balance and enables the Balance Sheet Reconciliation Approver to understand its purpose and validate its accuracy.

(31) Examples of supporting documentation include, but are not limited to:

1. bank or third-party statements;
2. reports from subledgers or other internal systems; and
3. calculation worksheets.

(32) For sensitive and confidential information, relevant Balance Sheet Reconciliation Approvers will document and implement protocols around document storage and retention in compliance with the Records and Information Management Policy.

Segregation of Duties

(33) Segregation of duties between Balance Sheet reconciliation Preparer and Balance Sheet reconciliation Approver is mandatory.

Responsibilities for Balance Sheet Reconciliations by role

Balance Sheet Reconciliation Preparer

(34) The Balance Sheet Reconciliation Preparer must ensure their allocated Balance Sheet Account Reconciliations are created in accordance with the communicated timelines and include all content required by this Procedure.

Balance Sheet Reconciliation Approver

(35) The Balance Sheet Reconciliation Approver is accountable for reviewing the reconciliations, including performing an assessment on the accuracy, completeness, and validity of the reconciliations according to the requirements of this Procedure.

(36) Reconciliations that do not meet the standards of this Procedure must not be approved. The Balance Sheet Reconciliation Approver will advise the Balance Sheet Reconciliation Preparer of remedies required to revise the reconciliation for compliance with this Procedure.

(37) The Balance Sheet Reconciliation Approver will oversee the action plan for the resolution of any identified Unreconciled Items.

Balance Sheet Reconciliation Reviewer

(38) All reconciliations will also be assigned a Balance Sheet Reconciliation Reviewer (usually the Finance Director of the Approver). Balance Sheet Reconciliation Reviewers will perform a second quality review of their assigned reconciliation with the following frequency:

System for Storing Reconciliations

(39) All entities will use Blackline (where this service is activated) to prepare and approve all Balance Sheet Account Reconciliations. Supporting documentation must be attached to the reconciliation within Blackline. For entities where Blackline is not activated, the Manager, Controlled Entities will manage an alternate digital storage solution, as approved by the Director, Financial Operations, Tax and Treasury.

Pre-set Expectations of Balances and Auto-certification against these Expectations

(40) Certain Balance Sheet Account Reconciliations have expected balances that can be predicted in advance due to their inherent nature. Blackline includes a feature to load expected balances and auto-certify accounts which are within a tolerance of this balance. Tolerance is set at $10,000 per Balance Sheet Account Reconciliation.

(41) A variety of other auto-certification and account grouping features exist within Blackline. Initial use of these features for each account requires approval by the Director, Financial Operations, Tax and Treasury for each impacted Balance Sheet Account. Approvers for impacted accounts are then required to attest to the Director, Financial Operations, Tax and Treasury, bi-annually, that the auto-certification rules applied to their account, including any preloaded expected balances, are still appropriate for the underlying nature of the account.

Tolerance Thresholds for Unreconciled Items

(42) Unreconciled Items are any component of an account balance that is incorrect, unexplained, has been confirmed as an error or requires further investigation

(43) The tolerance thresholds for temporary Unreconciled Items are set at $50,000 per Balance Sheet Account Reconciliation for the University, and 0.1% of full year expenditure for Controlled Entities. Unreconciled Items within this tolerance limit do not require a formal action plan for investigation unless they persist for more than three months.

Timeframe for Resolution of Unreconciled Items

(44) Unreconciled Items with a value above the tolerance thresholds noted above require an action plan for investigation and resolution, in accordance with the following timeframes:

Reporting

(45) The following information will be reported monthly by the Director, Financial Operations, Tax and Treasury to the Deputy Group Chief Financial Officer:

1. confirmation of completion status of reconciliations against the requirements of the published timetable, with an explanation and action plan for any reconciliations that are late;
2. listing of all Unreconciled Items across all Balance Sheet Account Reconciliations with the action plans that each relevant Balance Sheet Approver has endorsed for resolution; and
3. reports of any breaches of this Procedure.

(46) Issued monthly reports will be stored in Blackline, to evidence senior personnel quality review.

Part C - Natural Account and Associated Reporting Hierarchy

Background

(47) Natural Accounts are used in the General Ledger to group transactions by nature (e.g., wages, income, debtors). These Natural Accounts are then further grouped by hierarchies for internal and external reporting. Appropriate controls around the creation and modification to Natural Accounts and their hierarchies is essential to ensure that financial information is reported accurately and consistently for internal and external stakeholders.

(48) Within the University, two Natural Account hierarchies exist:

1. Management Reporting (MR) Hierarchy – grouping of natural accounts according to management preference, to best review the financial drivers of the organization; and
2. Financial Accounting (FA) Hierarchy – grouping of natural accounts to support external reporting in compliance  with the requirements of the Department of Education.

(49) Within the Controlled Entities, other hierarchies exist to cater for internal and external reporting.

Responsibilities and Required Actions

Types of Permitted Changes

(50) Requests for new Natural Accounts, modifications to existing Natural Accounts, as well as alterations to the description, purpose or MR and FA Reporting Hierarchies of Natural Accounts, must be made using the Natural Account and Reporting Hierarchy Request Form.

(51) Requests must be submitted for review to the Financial Operations team.

Requests for New Natural Accounts

(52) Requests for New Natural Accounts must specify:

1. description and operational purpose of proposed Natural Account;
2. why an existing Natural account cannot be used e.g. is the new Natural Account required to meet external reporting requirements, adhere to the Accounting Policies Register, or adhere to Part D - Inter-company;
3. expected dollar value to be processed through this account per annum (as a gauge for materiality). New Natural Accounts with an immaterial expected usage levels will generally not be approved unless they are required for a reason stated in point b above;
4. if the Natural Account is classified as an income account – submission of information for assessment of revenue recognition as required in the Revenue Recognition procedure;
5. details of how transactions will be posted to the Natural Account e.g., System Interface or Manual Journal. If Manual Journals will be used, submission of a Manual Journal Template to detail underlying procedure that will trigger the journals;
6. assessment of whether the new Natural Account request will impact any of the following financial processes in Finance One:
   1. Non-teaching revenue deferral;
   2. Interest allocation; and
   3. Indirect Costs.
7. the proposed MR and FA Hierarchy codes to which the Natural Account will map, and an assessment of whether these mappings will trigger a new reconciling item in the MR vs FA Hierarchy Reconciliation.
8. All other mandatory meta-data as detailed in the Natural Account and Reporting Hierarchy Request Form.

Requests for changes to existing Natural Accounts

(53) Requests for changes to existing Natural Accounts must specify:

1. Nature of requested change, e.g.:
2. name change to provide a more meaningful description, with no change to underlying business process; or
3. name change and business purpose change – all information noted above for new Natural Accounts must be provided.

Requests for changes to the MR or FA Hierarchical mapping of existing Natural Accounts

(54) Requests for changes to the MR or FA Hierarchical mapping of existing Natural Accounts must specify:

1. the rationale for the change of mapping is required.
2. whether the Natural Account was used in the previous reporting year. As there is only one live hierarchy, a re- mapping of such accounts will by default change prior year groupings of Natural Accounts. This may require a Caseware prior year journal to be posted to manually force externally reported results to match audited financial statements.

Requests for changes to the narrative description of MR or FA Hierarchical mapping code, with no change to the mapping of the underlying Natural Accounts to existing Hierarchies

(55) Requests for changes to the narrative description of MR or FA Hierarchical mapping code, with no change to the mapping of the underlying Natural Accounts of existing Natural Accounts must specify:

1. the rationale for the change of mapping is required.

Timetable for Review, Approval and Processing of Approved Changes

(56) The Financial Operations Team will issue a monthly timetable detailing:

1. the timeframe for acceptance and review of change requests; and
2. windows for approval and for updates to necessary systems; and
3. blackout windows for changes to reporting hierarchies (to provide certainty of reporting structures during month- end and year-end close plus results review); and
4. the nominated representative within the Financial Operations Team to whom request forms all associated information should be sent.

Approvals Process and Evidence of Approvals

(57) Approvals for changes are determined by the level of impact of the change, as detailed in clause 62 below.

(58) A nominated representative within the Financial Operations Team will receive and review all Change Requests and will ensure all necessary finance leadership approvals (as detailed in clause 62 below ) are secured before engaging with the teams responsible for updating the relevant finance systems.  Changes will not be made in any system until all necessary approvals are obtained.

(59) Once the changes are approved, updates to relevant systems will be processed by the following teams, using standard ticketing processes as relevant for each system:

(60) All documentation associated with the Change Request, including all relevant required information specified in this Procedure, plus evidence of required approvals, will be retained on file, noting:

1. changes to Natural Accounts will be attached within Finance One as part of the metadata of the Natural Account; and
2. changes to MR and FA Hierarchies will be retained by the Manager, Finance IT and tracked in a change log.

Reporting

(61) A report detailing all changes made each quarter to Natural Accounts and to the FA and MR Reporting Hierarchies will be provided at the end of each quarter by the Manager IT Finance to: the Director, Financial Operations, Tax and Treasury; the Director, Financial Control Tax and Treasury; the Head of Group Financial Planning and Analysis and the Head of Accounting Advisory and Controls.

Approvals for Changes to Natural Accounts or Associated Reporting Hierarchies – for all entities in the Group

(62) Use the table below to identify all impacts of the proposed change, and seek approval from all relevant approvers:

Part D - Inter-company

Background

(63) Provision of goods, services and other transactions are routinely made between entities within the Group. These transactions must be identified and eliminated upon consolidation of the Group financial statements, such that the Group financial results only reflect transactions with third parties to the Group.

(64) Efficient and accurate identification of inter-company transactions is critical to ensure the accurate elimination of these transactions to enable accurate Group reporting.

Responsibilities and Required Actions

Recording of Inter-Company Transactions - Permitted Natural Accounts

(65) All inter-company transactions must be recorded using designated inter-company Natural Account codes, which are used exclusively for this purpose.

(66) A master list of inter-company Natural Accounts across the Group will be maintained and regularly communicated to all relevant parties by the Financial Operations department.

(67) Exceptions to this requirement to use designated inter-company Natural Accounts for an inter-company transaction are limited to minor sundry transactions which are procured via a Point-of-Sale transaction (e.g., purchase of food at a retail outlet owned by a Controlled Entity). Any other exceptions require approval by the Director, Financial Operations, Tax and Treasury and must be communicated by the Director, Financial Operations, Tax and Treasury to the Head of Accounting Advisory and Controls.

Pass-through of Transactions from One Entity to Another

(68) In situations where one entity within the Group incurs a transaction with a third party (income or expense) and then ‘passes on’ the effect of that transaction to another entity within the Group, these two separate transactions must be recorded in separate Natural Accounts (not netted off within a single Natural Account), such that the second (inter-company) transaction can be isolated.

(69) Where such pass-through costs are material, the relevant third-party and associated inter-company Natural Accounts may generally be grouped together within the Management Reporting (MR) Reporting Hierarchy (subject to the requirements of the Part C – Natural Account and Associated Reporting Hierarchy) and Controlled Entity internal reporting hierarchies. These accounts will generally be grouped separately in the Financial Accounting (FA) Reporting Hierarchy and controlled entity statutory reporting hierarchies in Caseware.

Recording of Inter-company Transactions – Invoices

(70) Where feasible, inter-company transactions will be raised via standard Accounts Receivables invoicing procedures and settled via standard Accounts Payable processes, for ease of identification.

(71) Cut-offs for the raising of inter-company invoices will be communicated by the Financial Operations department as part of month-end timetable communications and must be adhered to by all entities.

Recording of Inter-company Transactions – Accruals

(72) Inter-company transactions that miss the cut-off for invoicing in a particular period may be accrued via Manual Journal, in accordance with Part A - Manual Journal Entry. Evidence of acceptance of the value of the accrual by the counterparty must be included by the Journal Preparer as part of the Supporting Documentation for the journal.

(73) Cut-offs for the inter-company accruals for all entities in the Group will be communicated by the Financial Operations department as part of the month-end timetable communications.

Elimination of Inter-Company Transactions for Group Reporting

(74) The Financial Operations team will ensure that closed trial balances, each month, for each entity within the Group, contain complete and reciprocal inter-company transactions.

(75) The Financial Operations team will oversee the identification and elimination of inter-company transactions to aid the production of Group financial reports that exclusively reflect third party transactions.

Dispute Resolution of Inter-Company Transactions

(76) Disputed inter-company transactions will be escalated by the Financial Operations team member(s) assigned to oversee inter-company transactions to the Director, Financial Operations, Tax and Treasury with an action plan for resolution, in accordance with the following timeframes:

Part E - Financial Materiality Guideline

Risk Matrix as applied to concepts of financial materiality

(98) Note that the table below is a guide, due to the qualitative assessments of materiality that will be made dependent on the nature of the error, as detailed in this chapter.