Australian Government financial statements
Notes to the general government sector financial statements
Note 1: External reporting standards and accounting policies
The Charter of Budget Honesty Act 1998 (the Charter) requires that the final budget outcome be based on external reporting standards and that departures from applicable external reporting standards be identified.
The major external standards used for final budget outcome reporting purposes are:
- the Australian Bureau of Statistics' (ABS) accrual Government Finance Statistics (GFS) publication, Australian System of Government Finance Statistics: Concepts, Sources and Methods, 2005 (cat. no. 5514.0), which in turn is based on the International Monetary Fund (IMF) accrual GFS framework; and
- Australian Accounting Standards (AAS), being AASB 1049 Whole of Government and General Government Sector Financial Reporting (AASB 1049) and other applicable Australian Equivalents to International Financial Reporting Standards (AEIFRS).
As required by the Charter, the financial statements have been prepared on an accrual basis that complies with both ABS GFS and AAS except for departures disclosed at Note 2.
A more detailed description of the AAS and ABS GFS frameworks, in addition to definitions of key terms used in these frameworks, can be found in Attachment A. Table 22 in Attachment A explains the major differences between the two frameworks. Detailed accounting policies, as required by AAS, are disclosed in the annual consolidated financial statements.
Budget reporting focuses on the general government sector (GGS). The GGS provides public services that are mainly non‑market in nature and for the collective consumption of the community, or involve the transfer or redistribution of income. These services are largely financed through taxes and other compulsory levies, user charging and external funding. This sector comprises all government departments, offices and some other bodies. In preparing financial statements for the GGS, all material transactions and balances between entities within the GGS have been eliminated. A list of entities within the GGS, as well as entities within and a description of the public non‑financial corporations (PNFC) sector and public financial corporations (PFC) sectors, are disclosed in Table 21 in Attachment A. The statements for the GGS are derived from audit‑cleared financial statements for the material agencies, with the exception of the Department of Defence and the Department of Education, Employment and Workplace Relations.
The Government's key fiscal aggregates are based on ABS GFS concepts and definitions, including the ABS GFS cash surplus/deficit and the derivation of the underlying cash balance and net financial worth. AASB 1049 requires the disclosure of other ABS GFS fiscal aggregates, including net operating balance, net lending/borrowing (fiscal balance), and net worth. In addition to the ABS GFS aggregates, the Uniform Presentation Framework (UPF) requires net debt and net financial liabilities.
Note 2: Departures from external reporting standards
The Charter requires that departures from applicable external reporting standards be identified. The final budget outcome financial statements depart from the external reporting standards as follows.
General government sector
Departures from ABS GFS
ABS GFS requires that provisions for bad and doubtful debts be excluded from the balance sheet. This treatment has not been adopted in the financial statements or in any reconciliation notes because excluding such provisions would overstate the value of Australian Government assets in the balance sheet. The financial statements currently adopt the AAS treatment for provisions for bad and doubtful debts.
ABS GFS treats coins on issue as a liability and no revenue is recognised. The ABS GFS treatment of circulating coins as a liability has not been adopted in the financial statements or in any reconciliation notes. Instead, the financial statements adopt the AAS treatment for circulating coins. Under this treatment seigniorage revenue is recognised upon the issue of coins and no liability is recorded.
Under ABS GFS, prepayments are classified as financial assets. In accordance with AAS, prepayments have been classified as non‑financial assets in the financial statements. This is a classification difference that impacts on net financial worth.
ABS GFS currently requires Special Drawing Rights (SDRs) liabilities to be recorded as a contingent liability. However, the ABS has reviewed this treatment and will be adopting the treatment of recording SDRs as a liability from 2009. The treatment of SDRs as a contingent liability has not been adopted in the financial statements or any reconciliation notes. The financial statements currently record SDRs as a liability. This is consistent with AAS, and also represents an early adoption of the ABS' proposed revisions to GFS from 2009 in line with revised international standards (refer ABS cat. no. 5310.0.55.001 Information Paper: Introduction of revised international standards in ABS economic statistics in 2009).
Currently, ABS GFS requires defence weapons platforms to be expensed. The financial statements currently record defence weapons platforms as a capital investment. This is consistent with AAS, and also represents an early adoption of the ABS' proposed revisions to GFS from 2009 in line with revised international standards (refer ABS cat. no. 5310.0.55.001 Information Paper: Introduction of revised international standards in ABS economic statistics in 2009).
Under ABS GFS, concessional loans are recognised at their nominal value, that is, they are not discounted to fair (market) value as there is not considered to be a secondary market. The ABS GFS treatment of loans has not been adopted for the final budget outcome financial statements. Consistent with AAS, loans issued at below market interest rates or long repayment periods are recorded at fair value (by discounting them by market interest rates). The difference between the nominal value and the fair value of the loan is recorded as an expense. Over the life of the loan the interest earned is recognised at market rates. This represents a change in accounting policy since the 2008‑09 Budget.
Departures from AASB 1049
AASB 1049 is mandatory for reporting periods beginning on or after 1 July 2008. The final budget outcome financial statements have been presented on a basis consistent with the 2008‑09 Budget. The following departures were made in the 2008‑09 Budget and are required to be disclosed under the Charter.
AAS requires the advances paid to the International Development Association (IDA) and Asian Development Fund (ADF) to be recognised at fair value. Under ABS GFS these advances are recorded at nominal value. The ABS GFS treatment is adopted in the financial statements.
AASB 1049 requires the disclosure of the operating result and its derivation on the face of the operating statement. However, as this aggregate is not used by the Australian Government (and is not required by the UPF), it has been disclosed in Note 13 rather than on the face of the operating statement.
AASB 1049 requires disaggregated information, by ABS GFS function, for expenses and total assets to be disclosed where they are reliably attributable. The Government is currently reviewing the practicalities and usefulness of attributing total assets to function. The ABS GFS does not require such information. In accordance with ABS GFS, disaggregated information for expenses and net acquisition of non‑financial assets is disclosed in Part 1. In accordance with the UPF, purchases of non‑financial assets by function are also disclosed.
AASB 1049 requires AAS measurement of items to be disclosed on the face of the financial statements with reconciliation to the ABS GFS measurement of items, where different, in notes to the financial statements. Reconciliation notes have not been included as they effectively create two measures of the same aggregate.
AASB 1049 requires major variances between original budget estimates and outcomes to be explained. The original budget estimates have not been restated in accordance with the new accounting framework. Explanations of variances for the 2007-08 year from the 2007‑08 Budget to the Mid‑Year Economic and Fiscal Outlook (MYEFO) are disclosed in Part 4 of the Mid‑Year Economic and Fiscal Outlook 2007‑08. Explanations of variances for the 2007-08 year from MYEFO to revised budget are disclosed in Statement 3 of 2008‑09 Budget Paper No. 1, Budget Strategy and Outlook. Explanations of variances from the 2008‑09 Budget to the Final Budget Outcome 2007‑08 are disclosed in Part 1.
All decisions taken between the original budget and MYEFO are disclosed in Appendix A of the Mid‑Year Economic and Fiscal Outlook 2007‑08. Decisions taken from MYEFO to the 2008‑09 Budget are disclosed in 2008‑09 Budget Paper No. 2, Budget Measures. In addition, 2008‑09 Budget Paper No. 1, Budget Strategy and Outlook contains detailed discussion on the estimates of revenue (Statement 5), expenses (Statement 6) and assets and liabilities (Statement 7).
AASB 1049 also requires the Final Budget Outcome (FBO) and consolidated financial statements (CFS) to be released at the same time. The Charter requires the FBO to be released before the end of three months after the end of the financial year, whereas the CFS is not released until it is audit‑cleared, generally around November each year.
Changes in accounting policy
The 2008‑09 Budget highlighted that the Australian Government was reviewing the differing treatment of concessional loans to determine the conceptually superior treatment. Under ABS GFS concessional loans are recognised at their nominal value. This treatment has been adopted in past documents. AAS requires concessional loans to be recognised at their fair value. The review concluded that AAS provides a better conceptual treatment and has been adopted for the final budget outcome financial statements. This change does not impact on the underlying cash balance.
Public non‑financial corporations (PNFC), public financial corporations (PFC) and total non‑financial public sectors (NFPS)
AASB 1049 defines net worth for the PNFC, PFC and NFPS sectors as total assets less total liabilities; however ABS GFS defines net worth as total assets less total liabilities less shares and contributed capital (which is equal to zero for the PNFC and PFC sectors). The net financial worth of these sectors will also be different under AASB 1049 to ABS GFS, where it equals financial assets less total liabilities less shares and contributed capital. The AASB 1049 treatment has been adopted in the PNFC, PFC and NFPS sector financial statements.
The financial statements for the PNFC, PFC and NFPS sectors comply with the UPF but do not include all the line item disclosures required by AASB 1049. Disaggregated outcome notes for the PFC and PNFC sectors will be disclosed in the consolidated financial statements.
Note 3: Taxation revenue by type
- Includes Medicare levy revenue of $8,094 million.
- Other excisable beverages are those not exceeding 10 per cent by volume of alcohol.
Note 3(a): Taxation revenue by source
Note 4: Sales of goods and services revenue
Note 5: Interest and dividend revenue
Note 6: Other sources of non‑taxation revenue
Note 7: Employee and superannuation expenses
Note 8: Depreciation and amortisation expenses
Note 9: Payment for supply of goods and services
Note 10: Interest expense
Note 11: Current and capital grants expense
Note 12: Personal benefits payments
Note 13: Operating result and comprehensive result (total change in net worth)
- Change in net worth mainly arising from the recognition of GST as a Australian Government tax and a change in accounting policy for defence weapons, superannuation, concessional loans and education grants.
- Operating result under AEIFRS accounting standards.
- Other economic flows not included in the AEIFRS accounting standards operating result.
Note 14: Advances paid and receivables
Note 15: Investments, loans and placements
- Reflects the reclassification of Future Fund investments from deposits to other investments.
Note 16: Total non‑financial assets
Note 17: Loans
Note 18: Employee and superannuation liabilities
- Reduction reflects the difference in the estimated and actual discount rate at 30 June.
Note 19: Provisions and payables
Note 20: Reconciliation of cash
Note 20(a): Consolidated Revenue Fund
The cash balances reflected in the balance sheet for the Australian Government GGS (Table 9) include 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 GGS 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 above.