FinanceBrief 38
Reporting of pre-2009 loans to other government bodies
FinanceBriefs are issued by Accounting Policy Branch as guidance on specific accounting and reporting topics. FinanceBriefs do not take precedence over the financial reporting regulatory framework, which encompasses the Finance Minister's Orders, Australian Accounting Standards and AASB Interpretations.
The purpose of FinanceBrief 38 is to establish the policy that loans made from the Official Public Account directly to government agencies prior to 2009 should be reported in the administered reports of the responsible portfolio department.
Background
- Prior to 2009, loans were made as a means of funding some government bodies. A small number of such loans still exist.
- The 2009 date is significant. From that year onwards, loans have been specifically appropriated to the relevant portfolio department for passing on to the body (in all such cases since 2009 the bodies have been CAC bodies). Post 2009 loans do not result in any accounting issues and the loans are shown as an asset and liability in the administered books of the relevant portfolio department.
- Prior to 2009, the loans were made directly from the OPA to the relevant body, following government approval. This was consistent with the then approach to making appropriations to CAC bodies, which was via direct appropriation.
- Historically, the pre-2009 loans receivable have not been incorporated in the financial statements of any individual entity. They are not relevant to consolidated reporting as all such loans are to bodies in the General Government Sector and thus are eliminated on consolidation.
- The historical treatment has been accepted in the past as being consistent with the legal/institutional position on these loans.
- Omitting the loans from the administered financial statements of the relevant portfolio department is potentially undesirable for two reasons:
- It results in inconsistent treatment of “before” and “after” loans when the economic substance is essentially the same; and
- It is inconsistent with the recording of other financial assets such as the equity investments in such bodies, which are recorded in the administered financial statements of the relevant portfolio department.
Analysis
AASB 139 requires they should be recognised by the Australian Government, as it is a contractual party to the loans.
Based on the factors associated with the loans, they are administered activities rather than departmental activities. No departmental entity has complete control over the loans. Consequently, the loans should be fully recognised within the administered books of one Australian Government FMA Act entity.
The accounting standards do not specify which Australian Government entity should record the loans, and there are no general requirements in Division 15 of the FMOs that would presently prescribe which entity should record the loans.
There are arguments for recording the loans in either the portfolio department or the Department of Finance and Deregulation (Finance).
For recording in the portfolio department:
- It would be consistent with the reporting of post 2009 loans, meaning all the loans from the government to each entity would be reported in the same place.
- It would be consistent with the recording of other financial instruments of CAC bodies – equity investments are shown as administered assets of the relevant portfolio department
- This consistency would be an advantage to readers of agency financial statements
- It aligns with portfolio responsibilities
- While Finance might be more legally responsible for the loans, the whole reporting framework of the Commonwealth is built around recording transactions and balances in the relevant policy area (e.g. drawdowns undertaken using Finance drawing rights are not reported by Finance unless they directly relate to Finance activities)
For recording by Finance:
- As Finance is responsible for the OPA and the loans were made directly by the OPA, this is the place they should be recorded.
- Portfolio Departments have not had to record these loans historically as they have had nothing to do with the issue of the loans, and nothing has changed.
- The loan agreements were signed by the Minister for Finance (or a delegate), and contain provisions that allow the Minister for Finance to make alterations to the terms and conditions of the loans.
Taking all these arguments into account, it is concluded that it is more logical in terms of presentation to record the loans and associated transactions in the books of the portfolio department
Policy
Pre-2009 loans to Commonwealth bodies, and associated transactions should be recorded in the administered books of the respective portfolio departments.
Contacts
For further information, please email the APB at accountingpolicy@finance.gov.au.
Full Publication
FinanceBrief 38 - Reporting of pre-2009 loans to other government bodies [
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Contact for information on this page: accountingpolicy@finance.gov.au