Part 3: Australian Accounting Standards Financial Statements

This part presents financial statements prepared in accordance with applicable Australian Accounting Standards (AAS), including AAS No. 31 Financial Reporting by Governments, except where departures from the standard are identified in Note 1. This part also provides notes showing disaggregated information and month of June figures.

A reconciliation between the Australian Government’s general government AAS 31 and Government Finance Statistics (GFS) revenue, expenses and operating result is provided in Appendix A.

Table 28: Statement of financial performance for the Australian Government general government sector

1. The month of June is derived by deducting May year-to-date published data from the annual outcome. Statistically, June movements in some series relate to earlier published months that are not reissued.

Table 29: Statement of financial position for the Australian Government general government sector

Table 30: Statement of cash flows for the Australian Government general government sector

1. The month of June is derived by deducting May year-to-date published data from the annual outcome. Statistically, June movements in some series relate to earlier published months that are not reissued.

 

Notes to the financial statements

Note 1: External reporting standards and accounting policies

The Charter of Budget Honesty Act 1998 requires that the final budget outcome be based on external reporting standards and that departures from applicable external reporting standards be identified.

The financial statements included in this section of the Final Budget Outcome have been prepared on an accrual basis in accordance with applicable Australian Accounting Standards (AAS), including AAS 31 Financial Reporting by Governments (AAS 31).

AAS requires governments to prepare accrual-based general purpose financial reports. This means that assets, liabilities, revenues and expenses are recorded in financial statements when transactions have an economic impact on the government, rather than when the cash flow associated with these transactions occurs. Consistent with AAS, a statement of financial performance, a statement of financial position and a statement of cash flows have been prepared for the year ended 30 June 2005.

The accounting policies in this part are generally consistent with the requirements of AAS. While the scope for financial reporting recommended in AAS 31 is the whole of government (that is, the Australian Government public sector), in accordance with the Charter of Budget Honesty Act 1998, the presentation of financial outcomes in Part 3 covers the general government sector only.

AAS would suggest the gross amount of goods and services tax (GST) be included in the Australian Government’s financial statements. However, under the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations, GST is collected by the Australian Taxation Office as an agent for the States and Territories (the States), and appropriated to the States. Therefore, accrued GST revenues and associated payments to the States are not recorded in the financial statements.

Note 2: Adoption of Australian Equivalents to International Financial Reporting Standards to apply from the first reporting period beginning on or after 1 January 2005

Under the Financial Management and Accountability Act 1997 and the Commonwealth Authorities and Companies Act 1997, each wholly-owned entity is responsible for ensuring their financial reports comply with Finance Minister's Orders (FMOs), which also require compliance with Australian Accounting Standards. To this end, each entity has undertaken steps to prepare for the adoption of Australian Equivalents to International Financial Reporting Standards (AEIFRS) as applicable to that entity. The transition plan adopted by each entity was disclosed in their 2003-04 and 2004-05 financial reports.

At a whole of government level, the Australian Government (through the Department of Finance and Administration) has provided resources to assess the impacts of AEIFRS, and provided advice to Australian Government entities and the Australian Government on transitional planning issues, the impacts of AEIFRS and policy guidance. This has included:

• the release of a number of FinanceBriefs relating to the adoption of international financial reporting standards to assist controlled entities in the implementation of AEIFRS;
• Finance providing regular updates to keep Chief Financial Officers (CFOs) of Australian Government entities informed on progress and issues relating to international adoption. Finance also set up a consultative group of a cross-section of CFOs to discuss practical implementation issues and areas of concern regarding interpretation between the entities and auditors; and
• the preparation of revised accounting policies to take effect from 1 July 2005, with retrospective restatement of comparative information, included as guidance in the 2004-05 FMOs. The accounting policies of controlled entities of the Australian Government have been reviewed, taking into account AEIFRSs and relevant FinanceBriefs issued by Finance.

Expected key differences in accounting policies

The Australian Government is required to prepare the first financial report under AEIFRS at 30 June 2006, on the basis that the Australian Government will be a first time adopter under AASB 1, First time Adoption of Australian Equivalents to International Financial Reporting Standards.

Changes in accounting policies under AEIFRS are applied retrospectively as if the new policy had always applied, except in relation to the exemptions available and prohibitions under AASB 1. This means that an AEIFRS compliant balance sheet will be prepared as at 1 July 2004. This will enable the 2005-06 financial statements to report comparatives under AEIFRS. Final decisions on the accounting policies to be applied will be made by the Minister for Finance in the preparation of the FMOs for 2005-06.

The quantitative impacts of AEIFRS represent Australian Government entities’ best estimates of the impacts of the changes as at reporting date. The actual effects of the impacts of AEIFRS may differ from these estimates due to:

• continuing review of the impacts of AEIFRS on Australian Government entities’ operations;
• ongoing amendments to the AEIFRS and AEIFRS Interpretations;
• the issuing of new Standards and Interpretations; and
• emerging interpretation as to the accepted practice in the application of AEIFRS and the AEIFRS Interpretations.

The anticipated impacts are largely the result of applying AASB 5 Assets Held for Sale and Discontinued Operations, AASB 102 Inventories, AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors, AASB 116 Property, Plant and Equipment, AASB 119 Employee Benefits, AASB 138 Intangible Assets, AASB 139 Financial Instruments: Recognition and Measurement, and AASB 140 Investment Properties.

The following represents the material estimated impacts and movements in these financial statements as if prepared under AEIFRS. It should not be taken as an exhaustive list of all the differences between current AAS and the AEIFRS, but it does represent the major expected changes.¹

Property, plant and equipment

The expected impact of applying AASB 116 Property, Plant and Equipment is an increase in the operating result of $6 million. The expected impact on land and buildings, infrastructure, plant and equipment is $49 million, and provisions is $43 million.

The expected impact of applying the AASB 116 requirement for property, plant and equipment assets to be measured at fair value at 1 July 2004 is an increase in the asset revaluation reserve of $14 million and an increase in land and buildings, infrastructure, plant and equipment of $14 million.

Employee benefits

The expected impacts of applying AASB 119 Employee Benefits to superannuation cannot be reliably determined at this point in time due to differences in interpretation in respect to the methodology used to calculate the discount rate.

The expected impact on employee provisions of applying AASB 119 to non-current annual leave is a decrease of $14 million. The expected impact on the operating result is immaterial.

Inventory

The expected impact of adopting AASB 102 Inventories is a reduction in inventories of $5 million.

Change in accounting policy

The impact of applying AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors is an increase in the operating result of $1,792 million.

Intangible assets

The expected impact of applying AASB 138 Intangible Assets is an increase in the operating result of $15 million, and a reduction in intangible assets of $60 million and a reduction in the asset revaluation reserve of $20 million.

Financial instruments

AEIFRS include an option for entities not to restate comparative information in respect of financial instruments in the first AEIFRS report. It is expected that the Australian Government will use this option. Therefore the amounts for financial instruments presented in the 2004-05 Final Budget Outcome are not expected to change as a result of the adoption of AASB 139 Financial Instruments: Recognition and Measurement.

Investment property

The expected impact of applying AASB 140 Investment Property is an increase in the operating result of $2 million. The impact on assets is to reduce land and buildings by $21 million and recognise investment properties of $21 million. The asset revaluation reserve is expected to decrease by $2 million.

Assets held for sale

The expected impact of applying AASB 5 Non-Current Assets Held for Sale and Discontinued Operations is to reduce land and buildings, infrastructure, plant and equipment by $82 million and recognise assets held for sale of $82 million.

The following table provides a reconciliation between the current Australian Accounting Standards and the expected impact of adopting AEIFRS.

Note 3: Reconciliation of cash

Note 3(a): Consolidated Revenue Fund

The cash balance reflected in the statement of financial position for the Australian Government general government sector (Table 29) includes the reported cash balances controlled and administered by Australian Government agencies subject to the Financial Management and Accountability Act 1997 and the reported cash balances controlled and administered by entities, subject to the Commonwealth Authorities and Companies Act 1997 (CAC Act), that implement public policy through the provision of primarily non-market services.

Revenues or monies raised by the Executive Government automatically form part of the Consolidated Revenue Fund by force of section 81 of the Australian Constitution. For practical purposes, total Australian Government general government sector cash, less cash controlled and administered by CAC Act entities, plus special public monies, represents the Consolidated Revenue Fund referred to in section 81 of the Australian Constitution. On this basis, the balance of the Consolidated Revenue Fund is shown below.

Note 4: Income taxation revenue

Note 5: Indirect taxation revenue

Note 6: Interest and dividend revenue

Note 7: Other sources of non-taxation revenue

Note 8: Employees expenses

1. Salaries and wages do not include superannuation.

Note 9: Suppliers expenses

Note 10: Depreciation and amortisation expenses

Note 11: Other goods and services expenses

Note 12: Grants expenses

Note 13: Receivables

Note 14: Total non-financial assets

Note 15: Employee and superannuation liabilities

Note 16: Grants payable

Note 17: Net asset movements

Note 18: Taxation receipts — cash

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¹ These impacts do not include those relating to the Department of Defence, as reliable estimates were not available for the preparation of the Final Budget Outcome for 2004-05.