Note 1: External reporting standards and accounting policies
The Charter of Budget Honesty Act 1998 (the Charter) requires that the budget be based on external reporting standards and that departures from applicable external reporting standards be identified.
The major external standards used for budget 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, cat no. 5514.0, which in turn is based on the International Monetary Fund (IMF) accrual GFS framework; and
- Australian Accounting Standards (AAS), being 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 budget 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 GFS frameworks, in addition to definitions of key terms used in these frameworks can be found in Appendix A. Table 2 in Appendix A explains the key 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 and public financial sectors, are disclosed in Table A1 in Appendix A.
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 these ABS GFS aggregates the Uniform Presentation Framework requires net debt, net financial worth and net financial liabilities.
For budget reporting purposes the superannuation liability has been discounted using a discount rate of 6 per cent (in accordance with the Long Term Cost Report). For outcomes AASB 119 Employee Benefits requires the government bond rate at balance date to be referenced when valuing the superannuation liability, with the relevant bond yield to match the term of the liability.
Explanations of variations in fiscal balance, revenue, expenses, net capital investment, cash flows, net debt and net worth since the Pre‑Election Economic and Fiscal Outlook 2007 are disclosed in Statement 3.
Details of the Australian Government's GGS contingent liabilities are disclosed in Statement 8.
Note 2: Departures from external reporting standards and changes in accounting policy
The Charter requires that departures from applicable external reporting standards be identified. The budget financial statements depart from the external reporting standards as follows.
General government sector
ABS GFS requires that provisions for bad and doubtful debts be excluded from the balance sheet. This treatment has not been adopted in the budget financial statements or in any reconciliation notes because excluding such provisions would overstate the value of Australian Government assets in the balance sheet. The budget 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 budget financial statements or in any reconciliation notes. Instead, the budget 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 budget 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 budget financial statements or any reconciliation notes. The budget financial statements currently record SDRs as a liability. This is consistent with AAS, and also represents an early adoption of the ABS's 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).
Departures from AASB 1049
In accordance with ABS GFS requirements, the budget financial statements do not recognise concessionality and the associated discounting of concessional loans. AAS requires concessional loans to be discounted by a market interest rate. The Government is currently reviewing the treatment of concessional loans to determine the conceptually best treatment, having regard to the impact on the Australian Government's Consolidated 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 11 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 Statement 6. In accordance with the UPF, purchases of non‑financial assets by function is also disclosed in Statement 6.
AASB 1049 requires AAS measurement of items to be disclosed on the face of the financial statements with reconciliation to 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.
Changes in accounting policy
The budget financial statements recognise the goods and services tax as an Australian Government tax and the corresponding payment to the States as a grant. This change in accounting policy improves fiscal balance. Refer to Box 5 in Statement 5 for further details.
Defence weapons platforms have been treated as capital investment rather than expenses. This is consistent with AAS, and also represents an early adoption of the ABS's 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). This change in accounting policy has improved net worth by $35.6 billion with no impact on fiscal balance and the underlying cash balance. This change has been back‑cast to 1999‑2000, and is consistent with net worth in earlier years.
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 and NFPS sector financial statements.
The financial statements for the PNFC and NFPS sectors comply with the Uniform Presentation Framework but do not include all the line item disclosures required by AASB 1049. Disaggregated outcome notes for the PNFC sectors will be disclosed in the consolidated financial statements.
Note 3: Taxation revenue by type
Note 3(a): Taxation revenue by source
Note 4: Sales of goods and services revenue
Note 5: Interest and dividend income
Note 6: Other sources of non‑taxation revenue
Note 7: Employee and superannuation expense
Note 8: Depreciation and amortisation expense
Note 9: Payment for supply of goods and services
Note 10: Interest expense
Note 11: Current and capital grants expense
Note 12: Personal benefit 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 an Australian Government tax and a change in accounting policy for defence weapons 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
Note 16: Total non‑financial assets
Note 17: Loans
Note 18: Employee and superannuation liabilities
Note 19: Provisions and payables
Note 20: Reconciliation of cash
Note 20(a): Consolidated Revenue Fund
The estimated and projected cash balances reflected in the balance sheet for the Australian Government GGS (Table 2) 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 below.
Further information on the Consolidated Revenue Fund is included in Budget Paper No. 4, Agency Resourcing 2008‑09.
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