Reconciliation of GFS and AAS aggregates
There is a general consistency of treatment of the elements of financial statements between GFS and AAS. Both frameworks are based on the concept of economic events that give rise to stocks and flows. As a result, the definitions of stocks are broadly similar under the two frameworks and relate to the control of economic benefits, while flows are defined with reference to changes in stocks.
The GFS and AAS definitions of the scope of the public sector agree in almost all cases, with AAS 31 recommending the same segmentation of the public sector into general government, public non-financial corporations and public financial corporations sectors.
Transactions are generally treated in a similar manner by GFS and AAS; however, where GFS is a framework designed to facilitate macro-economic analysis, AAS is designed for general purpose financial reporting. The different objectives of the two systems lead to some variation in the treatment of certain items. This differing treatment relates predominantly to the definitions of revenues and expenses under the two frameworks.
In particular, revaluations of assets and liabilities are classified differently under the AAS and GFS standards. Major revaluations include write-downs of bad and doubtful debts (excluding those that are mutually agreed), changes in the valuation of superannuation liabilities, and gains and losses due to changes in foreign exchange rates and interest rates.
Under AAS reporting, valuation changes may affect income or expenses and therefore the operating result. However, under GFS reporting, revaluations are not considered to be transactions (that is, they are considered to be other economic flows) and accordingly do not form part of revenues or expenses. Therefore, most revaluations are not taken into account in the calculation of the GFS net operating balance or fiscal balance. However, revaluations still impact on GFS assets and liabilities, as can be seen in the statement of other economic flows.
Some of the major differences between the GFS and AAS treatments of transactions are outlined in Table E1. Further information on the differences between the two systems is provided in the ABS publication Australian System of Government Finance Statistics: Concepts, Sources and Methods, 2005 (Cat. No. 5514.0).
Table E1: Selected differences between AAS and GFS reporting standards
Issue
| AAS treatment
| GFS treatment
|
|---|---|---|
Asset write-downs |
Treated as part of operating expenses. |
Treated as revaluations (other
economic flows), except for mutually agreed write-downs, and therefore
not included in expenses. |
Gains and losses on assets |
Treated as part of operating income/expenses. |
Treated as revaluations (other
economic flows) and therefore not included in revenues/expenses. |
Provisions for bad and doubtful
debts |
Treated as part of operating expenses
and included in the balance sheet as an offset to assets. |
Act of creating provisions is not
considered an economic event and is therefore not considered an
expense or included in the balance sheet. The Australian Government
departs from this latter requirement (see Attachment A to Part
3). |
Interest flows related to swaps
and other financial derivatives |
Treated as operating income and
expenses. |
Treated as other economic flows
and so not included in revenues and expenses. |
Acquisition of defence weapons
platforms |
Treated as capital expenditure.
Defence weapons platforms appear as an asset on the balance sheet.
Depreciation expense on assets is recorded in the operating statement. |
Treated as an expense at the time
of acquisition. Defence weapons platforms do not appear as an
asset on the balance sheet and no depreciation is recorded in
the operating statement. |
Valuation of assets and liabilities |
Classes of assets and liabilities
are measured using a range of methods. The predominant methods
for valuing different asset classes include historic cost and
market value. |
Individual assets and liabilities
are measured at current market value based on current market prices
or a suitable proxy where market prices are not available. |
Finance leases |
Treats finance leases as if an
asset were purchased from borrowings. That is, the lease payment
is split into an interest component (which is shown as an operating
expense) and a principal component.The asset and the liability
are recorded on the balance sheet.This convention does not apply
to the cash flow statement, which does not record the acquisition
of the asset or the liability. |
As per the accounting standard,
except that the GFS cash flow statement includes the acquisition
of the asset as a supplementary item for the calculation of the
surplus/deficit and underlying cash balance. |
Following the broad strategic direction of the Financial Reporting Council, the Australian Accounting Standards Board is currently pursuing harmonisation of GFS and AAS. The Australian Accounting Standards Board released an exposure draft (ED 142 Financial Reporting of General Government Sectors by Governments) for comment.
Table E2 reconciles GFS revenue and expenses with their AAS counterparts.
Table E2: Reconciliation of GFS and AAS revenue and expenses
Table E3 reconciles the AAS operating result to the GFS net operating balance and the fiscal balance (GFS net lending).
The AAS operating result is equal to AAS income less expenses. Similarly, GFS revenues less expenses equal the GFS net operating balance. Consequently, the reconciliation between the AAS operating result before extraordinary items and the GFS net operating balance relates directly to differences in the definitions of revenues and expenses which are shown in Table E2.
The second part of the Table E3 reconciliation shows the adjustment for net capital investment required to derive the fiscal balance from the GFS net operating balance.
As discussed previously, the fiscal balance is calculated as the net operating balance less net capital investment. This is a useful economic indicator as it represents the gap between government saving (less capital transfers) and investment, and so is included at the end of the GFS operating statement. In AAS there is no equivalent measure to the fiscal balance. That is, the AAS income statement stops at the operating result and includes no information on net capital investment.
Table E3: Reconciliation of AAS net operating result and fiscal balance
- The fiscal balance estimates in Appendix B are higher than those presented in Part 3, as explained in the introduction to Appendix B.