Accounting for annual appropriations (RMG 116)

Audience

This guide is relevant to officials, including chief financial officers in non-corporate Commonwealth entities (NCEs), with responsibility for the preparation of financial statements.

Key points

This guide:

Resources

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Appendix 1: Illustrative examples for Departmental appropriations (D)

Appendix 2: Illustrative examples for Administered appropriations (A)

Introduction

  1. Annual appropriations are provisions within annual appropriation Acts or supply Acts, that provide annual funding for:

to undertake Australian Government activities and programs.

  1. Relevant Acts provide the amount of annual appropriations and the authoritative source for the recognition category for accounting purposes.
  2. All entities must account for and disclose appropriations in accordance with the FRR, regardless of whether amounts are considered material – appropriations are deemed material by nature.
  3. Departmental annual appropriations provide money for the annual operating costs of entities – entities have control over these items. These are recognised in an entity’s annual financial statements:
  • when the entity gains control of the appropriation
  • as income, equity or a liability – in accordance with the characteristics of the appropriation.
  1. Administered annual appropriations provide money to carry out the objectives of the Australian Government. Entities do not have control over these items. These are recognised in the administered schedules of an entity’s annual financial statements as equity.

Legislative authority

  1. Under section 81 of the Commonwealth of Australia Constitution Act (the Constitution), all revenues or moneys raised or received by the executive government of the Commonwealth shall form one Consolidated Revenue Fund (CRF), to be appropriated for the purposes of the Commonwealth, in the manner prescribed by the Constitution.
  2. Under section 83 of the Constitution, no money can be drawn from the Treasury of the Commonwealth, except under an appropriation made by law. Additionally, all spending from the CRF needs to be in accordance with an authority given by Parliament. For expenditure to be valid, there must be a:
  • legally valid appropriation
  • legislated purpose (e.g. legislation supporting a program), supported by a head of Commonwealth power or elsewhere in the Constitution.
  1. In Parliament, a Bill is a proposal for an Act or a change to an existing Act, including:
  • appropriation Bills – these are proposed Acts for appropriations from the CRF, for expenditure of Commonwealth funds by entities
  • supply Bills – these are appropriation Bills that propose appropriations for interim funding, usually where the main Budget Bills are unlikely to be passed in time for the new financial year (e.g. if an election would interrupt the normal Budget process).

Part 1 – Departmental appropriations

  1. Departmental appropriations are appropriations that the accountable authority of the reporting entity has control over to spend for the ordinary operating costs of the entity. They typically include:
  • salaries
  • accruing employee entitlements
  • operational expenditure (e.g. for the purchase of goods and services).
  1. Variations in the nature of appropriations or entity circumstances (or both), can result in variations for the recognition of appropriations across different jurisdictions in Australia or for different types of appropriations within a particular jurisdiction.
  2. Over time, there may also be changes to the:
  • nature and content of appropriation legislation
  • way an entity’s activities are funded
  • mechanisms for ensuring public funds are appropriately used, consistent with Australian Government priorities, as sanctioned by the Parliament.
     

Initial recognition - timing

FRR extract:

38 Departmental appropriations
  1. Reporting entities must recognise all departmental appropriations (including departmental special appropriations) for which they are responsible.
  2. The earliest point of recognition for accounting purposes is when the entity gains control of the appropriation, which is:
    1. for loans specified in the Appropriation Acts - when drawn down from the Official Public Account (OPA) for the amount to be received;
    2. for departmental special appropriations (except for special accounts) - when the obligation for which the special appropriation exists is incurred (up to the amount of the obligation);
    3. for special accounts – when the entity receives cash from an external partner or transfers amounts from a departmental appropriation (but should not be recognised twice);
    4. for Advance to the Finance Minister (AFM) or, for Parliamentary Departments, Advance to the responsible Presiding Officer - the commencement date of the determination;
    5. for departmental supplementation - the date of the approval; and
    6. for all other departmental appropriations specified in the Appropriation Acts - at the later of:
      1. the commencement date of the Appropriation Act; and
      2. the commencement of the financial period the appropriation relates to (i.e., when the appropriation is effective).
  1. Under AASB 1058 Income of Not-for-Profit Entities (AASB 1058), the extent to which appropriated amounts are recognised as income of a particular reporting period, is determined by the:
  • characteristics of the appropriation
  • circumstances in which the entity recognises the appropriated amounts.
  1. This varies according to the type of appropriation, as shown in Table 1.

Table 1: Timing for the initial recognition of departmental appropriations

Appropriation Timing
Loans (appropriation Acts) When the amount to be received is drawn from the Official Public Account (OPA)
Advance to the Finance Minister (AFM), or Advance to the responsible Presiding Officer (APO) Determination commencement date
Departmental supplementation Approval date
All other departmental appropriations (appropriation Acts)

The later of the:

  • appropriation Act commencement date
  • commencement date of the financial period the appropriation relates to – i.e. when the appropriation is effective.

 

Initial recognition - categories

FRR extract:

38 Departmental appropriations

3. Departmental appropriations (except for special appropriations) must be recognised at the amounts specified in the Appropriation Acts in the year of appropriation, adjusted, where applicable, for formal additions and reductions. For departmental appropriations:

  1.  amounts designated as contribution by owners must be recognised as equity;
  2. loan appropriations must be recognised as increases in borrowings (they are not revenue); and
  3. all other amounts must be recognised as revenue.
  1. For departmental appropriations:
  • amounts designated as contributions by owners are recognised as equity – this includes:
  • loan appropriations are recognised as increases in borrowings
  • all other amounts are recognised as revenue.
  1. A transfer, or class of transfers, must be formally designated as forming part of the transferee’s contributed equity either before or at the time of the transfer, in accordance with paragraph 8(c) of AASB Interpretation 1038.
  2. A structured approach for determining the correct accounting treatment for different classifications of appropriations is provided in AASB 1058 Income of Not-for-Profit Entities (AASB 1058), including at:
  • paragraph 6 – entities must faithfully represent the economic substance by applying AASB 1058 to each in-scope transaction, including appropriations, based on the substance of the transaction (i.e. not its legal form or description)
  • paragraph 9 – on initial recognition of an asset (i.e. appropriations receivable), entities are to recognise any related amounts, measured in accordance with the applicable Australian Accounting Standards (AASB 1058.3), including for:
    • contributions by owners
    • contract liabilities
    • financial liabilities
    • lease liabilities
    • other liabilities and revenue
  • paragraph 10 – any income is recognised immediately in the statement of comprehensive income
  • paragraph 12 – income is determined as the difference between the consideration for an asset and the asset’s fair value, after recognising any other related amounts
  • paragraphs 15-17 – the circumstances where an exception applies.
  1. For example, AASB 1058 applies to:
  • appropriations related to an amount that meets the definition of contributions by owners over which an entity has obtained control – these are recognised as a direct adjustment to equity, under section 32 of AASB 1004 Contributions
  • departmental annual appropriations where consideration to acquire an asset (appropriations receivable) is significantly less than fair value – these are principally to enable a not-for-profit NCE to further its objectives.
Examples:

If an NCE is appropriated $5.5M departmental equity injections:

  • Income ($0) = Appropriations receivable ($5.5M) – Consideration ($0) – Related amounts (Contributions by owners $5.5M)
  • Journal entry:

Dr Appropriations receivable – CE $5.5M

Cr Contributed equity $5.5M
 

If an NCE is appropriated $22M departmental operating:

  • Income ($22M) = Appropriations receivable ($22M) – Consideration ($0) – Related amounts ($0)
  • Journal entry:

Dr Appropriations receivable $22M

Cr Appropriation revenue $22M

  1. Certain appropriations, such as departmental operating supplementation, are recognised as receivable from government (as distinct from appropriation receivable) until the amount approved is legally appropriated – at which time receivable from government is reduced and the appropriation receivable is increased.
  2. For more information on identifying when transfers are classified as contributions by owners and the accounting treatment, see RMG 123.
     

Formal additions and reductions

FRR extract:

40 Formal additions and reductions
  1. Formal additions or reductions necessitate adjustments to the recognition and disclosure of appropriations to the extent they have not already resulted in adjustments in previous years.
  2. To be a formal addition or reduction, the gain or loss of control event, as outlined below, must be evidenced in writing from the appropriate authority. Formal additions and reductions are as follows:

(a) transfers of current year appropriation under section 75 of the PGPA Act;

(b) departmental supplementation;

(c) adjustments as stipulated by any agreement that provides for additional funding for over-delivery or a reduction of funding for under-delivery (such as purchasing, workload or other agreements), as well as funding arrangements that are specifically designed to not financially advantage or disadvantage an entity (appropriation on a no-win/no-loss basis). The agreements, at a minimum, must:

(i) set out one or more quantifiable deliverable(s) and/or a specific amount of appropriation relating to each; and

(ii) be approved by, or arise from, Ministerial or Cabinet decisions prior to the funding being given;

(d) amounts determined by the Finance Minister under any legislation that allows for additions or reductions to appropriations;

(e) an Advance to the Finance Minister or Advance to the responsible Presiding Officer as per the Appropriation Acts;

(f) amounts withheld under section 51 of the PGPA Act; and

(g) all other adjustments made as a consequence of a decision of the Cabinet or the Prime  Minister about the amount of appropriation or other funding available to a reporting entity.

  1. Unless there is a Government approved legal instrument that formally reduces or increases the appropriation for one of the gain or loss of control events in subsection (2), then the reporting entity must still include the amount of formal reduction or exclude the amount of formal addition in their appropriation disclosure note as a legally available appropriation.
  2. For the purposes of this section, ‘Government approved legal instrument’ means any of the following:
    1.  an Advance to the Finance Minister under an annual Appropriation Act;
    2.  an Advance to the responsible Presiding Officer under an annual Appropriation Act;
    3.  a determination under section 75 of the PGPA Act.
  1. The timing for formal additions or reductions to be recognised in the statement of comprehensive income (i.e. gain or loss of accounting control) may differ to the reporting period in which they are disclosed in the appropriation note (i.e. appropriation legally available).
  2. To be a formal addition or reduction, the gain or loss event must be:
  • one of the event categories listed at subsection 40(2) of the FRR
  • evidenced in writing:
    • on or before 30 June of the relevant financial year
    • by the appropriate authority – see the list of appropriate authorities at Table 2.
  1. Publication of a budget measure in Portfolio Budget Statements (PB Statements), or entry in CBMS, by itself is not sufficient authority to support an adjustment to appropriation revenue.
  2. Formal additions or reductions impact on the recognition or disclosure (or both) of an appropriation. If the gain or loss event is evidenced in writing but there is no government-approved legal instrument, NCEs must adopt the following approach for:
  • formal additions – exclude the amount from the appropriation note (as it is not legally available appropriation)
  • formal reductions – include the amount as legally available appropriation in the appropriation note.
  1. Formal additions must be included in an NCE’s appropriation note as legally available appropriation where the written evidence is a qualifying government-approved legal instrument – which is limited by subsection 40.4 of the FRR to determinations made under section 75 of the PGPA Act and an AFM or APO. See the list of government-approved legal instruments at Table 2.

Table 2: Appropriate authorities and government-approved legal instruments for formal additions or reductions

Formal addition or reduction

Appropriate authority

Government-approved legal instrument?

PGPA Act section 75 transfers

PGPA Act section 75 determination

Yes

Departmental supplementation

Decision of Cabinet or the Prime Minister (e.g. Cabinet minute, letter from Prime Minister)

No

Adjustments for workload agreements and no-win,  no-loss funding

Decision of Cabinet or the Prime Minister (e.g. Cabinet minute, letter from Prime Minister)

(With written advice from Finance confirming the amount of the adjustment/funding.)

No

AFM (or APO)

AFM (or APO) determination

Yes

PGPA Act section 51 withholdings

PGPA Act section 51 direction (not a legal instrument)

No

All other adjustments (decision of Cabinet or the Prime Minister)

Decision of Cabinet or the Prime Minister (e.g. Cabinet minute, letter from Prime Minister)

No

  1. All other categories of formal additions/reductions only require footnote disclosure.
     

Current-year appropriation transfers

  1. PGPA Act section 75 determinations (or amendment determinations) have three distinct dates. These are the:
  • determination date – the date the determination is signed
  • registration date – the date the determination is registered on the Federal Register of Legislation
  • commencement date – the date specified in the commencement clause of the determination.
  1. For PGPA Act section 75 transfers, the control of an appropriation is lost or gained at the later of the determination date or the commencement date. In determining the date that control is lost or gained, NCEs must refer to the PGPA Act section 75 determination (or amendment determination) – not the relevant compilation (where applicable).
  2. Subsection 75(8) of the PGPA Act allows the transfer to take effect before, or after, the day it is registered – although PGPA Act section 75 transfers generally take effect after the registration date.
  3. For information on the:
  • calculation of the departmental transfer amount, see RMG 118
  • accounting treatment and appropriation note for NCEs, see Table 3.

Table 3: Current year appropriation transfers – accounting treatment and appropriation note

Entity

Accounting treatment

Appropriation note

Losing NCE

Reduction in:

  • appropriation revenue*, or
  • contributed equity** and appropriations receivable.

The legally available appropriation
is reduced in the appropriation note.

Gaining NCE

Increase in:

  • appropriation revenue*, or
  • contributed equity** and appropriations receivable.

The legally available appropriation
is increased in the appropriation note.

* Departmental operating in the current year
** Amounts designated as contributions by owners.
 

Departmental supplementation

  1. An NCE gains control of departmental supplementation on the date of approval – see subsection 38(2)(e) of the FRR.
  2. Adjustments must be supported by a Cabinet minute or letter from the Prime Minister that includes specific wording on both the timing and amount of the adjustment.
     

COVID-19 activities

  1. NCEs that were required to undertake COVID-19 tasks in 2019-20, but would not receive the appropriation until 2020-21, should accrue the appropriation as revenue from government under strict conditions. The requirement and the delay of the appropriation must have been:
  • documented in writing
  • explicitly approved at the whole-of-government level, either by Cabinet or the Prime Minister (without exception)
  • evidenced by way of an approval document, dated on or before 30 June 2020.
     

Departmental appropriation used for urgent administered payments

  1. As a result of a government decision, an NCE may be required to commence or continue administered activity for which no administered appropriation has yet been provided. In this situation, the:
  • NCE is expected to use available departmental operating appropriation (from the prior or current year, or both) to meet the expenditure – this will be reported in departmental financial statements
  • funding in excess of actual requirements may:
    • subsequently be replenished through additional departmental funding in the next Appropriation Bill (entities should consider whether the funding meets the criteria for a formal addition), and/or
    • need to be withheld under section 51 of the PGPA Act, until the relevant appropriation lapses (applicable where additional administered appropriation is already included in the next set of Bills before the Parliament).
  1. Depending on the timing of the expenditure and supplementation, this may give rise to a technical operating loss. Where this occurs, NCEs are to:
  • comply with the operating loss framework
  • contact the relevant Finance Agency Advice Unit (AAU) for further advice.
  1. If payments occur in one financial year but additional departmental funding will not be provided until the next financial year, revenue from government can only be accrued where the NCE has a specifically worded Cabinet minute or letter from the Prime Minister that details the timing and amount of departmental funding.

Accounting treatment for supplementation:

Accounting treatment for:

  • supplementation approved – an increase in revenue from government (departmental operating) or contributed equity (amounts designated as contributions by owners) and receivable from government (approval date).
  • Supplementation subsequently appropriated in the same or next financial year – decrease in receivable from government (supplementation amount), increase in appropriation revenue or contributed equity (to the extent not already recognised – i.e. total amount of departmental appropriated less the supplementation amount) and appropriations receivable (total amount of departmental appropriated).
  • For CBMS purposes, there is a requirement to recognise the total increase in departmental appropriation revenue (including supplementation) against CBMS Account No. 1280004. This enables NCEs to be appropriated and drawdown funds. See illustrative examples D4.2–D4.4 for further information.

Appropriation note for:

  • supplementation appropriated in the same financial year – funding for supplementation included as legally available appropriation.
  • supplementation appropriated the next financial year – supplementation excluded in year approved, as it is not yet legally available appropriation (then included in year appropriated).

 

Departmental advances to the Finance Minister or responsible presiding officer

  1. Departmental AFMs and APOs (for parliamentary NCEs) are not common. For AFMs and APOs:
  • NCEs gain control of an amount appropriated by an AFM or an APO on the commencement date of the determination – see subsection 38(2) of the FRR
  • any unspent amounts at the end of the financial year are withheld under section 51 of the PGPA Act, with the effective date of the PGPA Act section 51 direction being 30 June, until such a time as the relevant appropriation Act automatically lapses.
  1. Significantly-larger AFM thresholds were established for 2019-20 and 2020-21 in response to COVID-19.

Accounting treatment for an AFM or APO:

Accounting treatment for:

  • commencement date of determination – an increase in appropriation revenue and appropriations receivable.
  • 30 June (year appropriated) – for treatment of any unspent amount, see Departmental appropriation withheld.

Appropriation note for 30 June (year appropriated) – AFM and APO amounts included as legally available appropriation (including amounts withheld under
PGPA Act section 51).

  1. For more information, see RMG 100.
     

Agreements and no-win, no-loss

  1. An NCE gains or loses control of appropriation as a result of any agreement
    (i.e. purchasing, workload or other agreements) that provides for:
  • additional funding for over-delivery or a reduction of funding for under-delivery
  • funding arrangements that are specifically designed to not financially advantage or disadvantage an NCE (i.e. supplementation on the basis of no-win, no-loss arrangements agreed to by Cabinet).
  1. For funding provided on a no-win, no-loss basis – the amount of additional funding to be provided or the amount of surplus funding to be recovered/refunded may be recognised in the current reporting period (i.e. the same reporting period as the win or loss, when it can be reliably measured). The amount to be reported should be agreed in writing with Finance.
  2. Under subsection 40(2)(c) of the FRR, such agreements must as a minimum:
  • set out one or more quantifiable deliverable(s) or a specific amount of appropriation relating to each
  • be approved by, or arise from, ministerial or Cabinet decisions prior to the funding being given.

Accounting treatment for additional funding provided in a subsequent period:

Accounting treatment for over-delivery under agreement or over-spend for no-win, no-loss:

  • financial year work performed – an increase in revenue from government (departmental operating) or contributed equity (amounts designated as contributions by owners) and receivable from government (noting that for no-win, no-loss the amount depends on the arrangement rather than the over-spend).
  • financial year amount appropriated – decrease in receivable from government (amount previously recognised as per arrangement), increase in appropriation revenue (for departmental operating) or contributed equity, to the extent not already recognised and appropriations receivable (total amount of departmental appropriated).

Appropriation note for over-delivery under agreement or over-spend for no-win, no-loss:

  • financial year work performed – these amounts excluded, as they are not yet legally available appropriation.
  • financial year amount appropriated – these amounts included as legally available appropriation.

Accounting treatment for funding excess to requirements:

Accounting treatment for under-delivery, under agreement or under-spend for no-win, no-loss – funding is excess to requirements in current year, for:

  • amounts withheld, see Departmental appropriation withheld.
  • any amounts that are administratively quarantined, see Quarantines.
  • other amounts, there are no accounting entries, as future appropriations that may be adjusted are not assets. Any unspent amounts are included in the appropriation note as legally available appropriation.

 

Departmental appropriation withheld

FRR extract:

36 Withholding and quarantining of appropriations
  1. Amounts withheld under section 51 of the PGPA Act represent a loss of control event by the entity (as outlined in subsection 40(2) of this rule) and should be adjusted against the appropriation receivable balance.
  1. Amounts withheld under section 51 of the PGPA Act represent a loss of control event and should be adjusted against the appropriations receivable balance.
    For gain or loss of control events, see subsection 40(2) of the FRR.
  2. Any adjustments under section 51 of the PGPA Act are not valid until the direction is signed. NCEs cannot adjust appropriations on the basis of a request being submitted to Finance.
  3. Under section 51 of the PGPA Act, the Finance Minister may withhold an amount of appropriation, for example, where there is:
  • a movement of funds between years resulting in a reappropriation in a later year
  • a reallocation or reclassification resulting in reappropriations
  • a savings decision
  • unspent and unrequired administered appropriations
  • a foreign exchange gain under the ‘no win, no loss’ arrangements, or
  • a ‘net-negative’ appropriation (where the overall reduction in appropriation estimates is greater than the overall increase in appropriation estimates).

Accounting treatment for departmental appropriation withheld:

Accounting treatment:

On the signature date of the PGPA Act section 51 direction, (with the entry being reversed if a new direction subsequently reverses it). Reduction in:

  • appropriation revenue (current year departmental operating)
  • contributed equity as a return of equity (prior year operating), or
  • contribution equity (amounts designated as contributions by owners) and appropriations receivable.

Appropriation note:

PGPA Act section 51 withheld amounts included as legally available appropriation.

  1. For more information on the withholding process, email annual.appropriations@finance.gov.au.
     

Decision of the Cabinet or Prime Minister

  1. Adjustments to appropriation that result from a decision of Cabinet or the Prime Minister:
  • constitute a gain or loss of control event
  • must be evidenced in writing by the appropriate authority with a specifically worded Cabinet minute or letter from the Prime Minister.
  1. To be reflected in the appropriation note, formal adjustments to appropriation require a government-approved legal instrument (i.e. in addition to the written evidence) – see subsections 40(3) and 40(4) of the FRR.
  2. In the absence of a legal instrument, there is a timing difference between the gain or loss of control of appropriation (for accounting purposes) and the appropriation being legally adjusted (as disclosed in the appropriation note). Refer to the formal additions and reductions for further detail.
  3. A Cabinet minute or letter from the Prime Minister does not constitute a government-approved legal instrument – see Formal additions and reductions.

Accounting treatment for a decision of the Cabinet or Prime Minister

Accounting treatment for:

  • a funding increase – see Departmental supplementation.
  • a funding decrease – for amounts that are withheld, see Departmental appropriation withheld.
  • quarantines – for amounts that are administratively quarantined, see Quarantines.
  • other amounts – there are no accounting entries because future appropriations that may be adjusted are not assets and any unspent amounts are included in the appropriation note as legally available appropriation.

 

Adjustments to appropriations

FRR extract:

37 Adjustments to appropriations

The following are adjustments to appropriation receivable under the PGPA Act and must not be recognised as appropriation revenue:

  1. PGPA Act section 74 (receipts of amounts by non-corporate Commonwealth entities);
  2. PGPA Act section 75 (transfer of functions between non-corporate Commonwealth entities) prior year appropriation only; and
  3. PGPA Act section 74A (recoverable GST for non-corporate Commonwealth entities).

 

Retainable receipts

  1. Under section 74 of the PGPA Act, retainable receipts:
  • are monies that can be retained by an NCE if part or all of the amount received is consistent with section 74 of the PGPA Act and section 27 of the Public Governance, Performance and Accountability Rule 2014 (PGPA Rule)
  • increase an NCE’s most recent departmental appropriation when the NCE records the amounts in its internal accounts and records – see subsection 74(2) of the PGPA Act.
  1. For an NCE to retain and spend receipts, the NCE requires both:
  • legislative authority in an Act, rule, instrument or other subordinate law
  • policy authority from Cabinet or the Prime Minister.
  1. If an NCE retains input tax credits relating to the Good and Services Tax (GST) in reliance on section 74 of the PGPA Act (and subsection 27(2A) of the PGPA Rule), they cannot also credit their appropriation in reliance on section 74A of the PGPA Act. For more information, see subsection 27(8) of the PGPA Rule.

Accounting treatment for retainable receipts:

Accounting treatment:

  • receipt – an increase in revenue and increase in cash (entity’s bank account).
  • on sweep to OPA – an increase in appropriations receivable and decrease in cash when transferred to the OPA.

Appropriation note for receipts – included as an increase to legally available appropriation.

  1. For more information, including a list of receipts that are retainable and those that are not, see RMG 307.
     

Recoverable GST

  1. Section 74A of PGPA Act is usually used for administered GST payments. Under section 74 of the PGPA Act, amounts that are administered in nature are generally not retainable (with the exception of repayments) therefore, section 74A provides a mechanism to facilitate GST inclusive payments as well as amounts to be remitted to the ATO as net GST collected.
  2. Section 74A of the PGPA Act:
  • authorises a limited by amount appropriation to be increased by a GST qualifying amount – as defined at subsection 74A(3) of the PGPA Act – to facilitate payments that are inclusive of GST
  • is typically used for GST payments related to administered activities.
  1. A GST qualifying amount only arises if an NCE is receiving a taxable supply as detailed in Divisions 9 and 19 of the A New Tax System (Goods and Services Tax) Act 1999.
  2. Under section 27 of the PGPA Rule, two types of GST-related receipts qualify as retainable receipts, and may increase certain appropriations, for the purposes of section 74 of the PGPA Act – these are:
  • amounts collected when selling goods and services (in order to pay net GST owed to the Australian Tax Office (ATO)
  • GST refunds from the ATO to the extent that section 74A of the PGPA Act was not used to increase an appropriation to pay the related GST qualifying amount – see subsection 27(8) of the PGPA Rule.

Accounting treatment for recoverable GST for PGPA Act section 74A used (Administered) – limited by amount of appropriation increased for GST:

Accounting treatment:

  • invoice – increase in expense (GST exclusive amount), increase in GST receivable (GST) and increase in liability (payables – GST inclusive amount)
  • drawdown of cash – increase in accumulated results (GST inclusive amount) and increase in cash at bank
  • payment of invoice – decrease in cash at bank and decrease in liability (payables)
  • receipt of refund from ATO– decrease in accumulated results (cash to the OPA) and asset (receivable).

Appropriation note for PGPA Act section 74A used – excluded as note is prepared on a recoverable GST exclusive basis.

Accounting treatment for PGPA Act section 74A not used (Departmental) – input tax credit retained under PGPA Act section 74:

Accounting treatment:

  • invoice – increase in expense (GST exclusive amount), increase in asset (GST receivable - GST amount) and increase in liability (payables – GST inclusive amount)
  • drawdown of cash – decrease in appropriation receivable (GST inclusive amount) and increase in cash at bank
  • payment of invoice – decrease in cash at bank (GST inclusive amount) and liability (payables).
  • receipt of refund from ATO – increase in cash at bank (GST amount) and decrease in asset (GST receivable)
  • sweep amount to OPA – decrease in cash at bank and increase in appropriation receivable.

Appropriation note for PGPA Act section 74A not used – PGPA Act section 74 receipts included as increase in legally available appropriation.


 
  1. PGPA Act section 75 transfers of appropriations, representing prior years’ unspent appropriations, are accounted for against equity in the same way as other assets that are transferred as part of the restructure of administrative arrangements.
  2. Transferred assets are treated as contribution by owners when, and only when, they satisfy the definition of contributions by owners in AASB Interpretation 1038.

Accounting treatment for prior year appropriation transfers:

Accounting treatment for:

  • losing NCE – reduction in contributed equity (departmental operating – prior year or equity – prior year) and appropriations receivable
  • gaining NCE – increase in contributed equity (departmental operating – prior year or equity – prior year) and appropriations receivable.

Appropriation note for:

  • losing NCE – legally available appropriation is reduced in the appropriation note.
  • gaining NCE – legally available appropriation is increased in the appropriation note.
  1. For more information on:
  • the calculation of the departmental transfer amount see, Appendix 1 of RMG 118
  • identifying when transfers are classified as contributions by owners and the accounting treatment, see RMG 123.
     

Quarantines

FRR extract:

36 Withholding and quarantining of appropriations

2. Amounts quarantined by the Department of Finance are administrative in nature and do not result in the loss of control of the appropriation by the entity. Consequently, there is no impact on recognition or disclosure of the appropriation for financial reporting purposes.

  1. Funds subject to movement of funds requests are typically quarantined on a temporary basis by AAUs to prevent entities inadvertently drawing down against the relevant appropriation.

Accounting treatment for quarantines:

Accounting treatment – no accounting adjustments (e.g. no impact on appropriation revenue/contributed equity or appropriations receivable for departmental).

Appropriation note – quarantined amounts are included as legally available appropriation with a footnote disclosing the rationale and amount.

  1. For information on the quarantining process, email annual.appropriations@finance.gov.au.
     

Reappropriation of operating or departmental capital budget

  1. Under paragraph 8(c) of AASB Interpretation 1038, DCBs are designated as contributions by owners (i.e. equity).
  2. AASB Interpretation 1038.12 expressly prohibits NCEs from reclassifying appropriations between operating and equity or vice versa. Instead:
  • NCEs must seek approval, typically from the Finance Minister, to enable the amount to be reappropriated at Additional Estimates
  • the original amount appropriated is to be withheld through a PGPA Act section 51 direction, until such a time as the relevant appropriation Act automatically lapses.

Accounting treatment for departmental operating reappropriated as equity:

Accounting treatment for:

  • original amount appropriated as departmental operating (Appropriation Act No. 1) – an increase in appropriation revenue and appropriations receivable.
  • approval (typically Finance Minister) and reappropriation of equity (Appropriation Act No. 3) – an increase in contributed equity and appropriations receivable.
  • original amount withheld by PGPA Act section 51 direction – for accounting treatment and impact on appropriation note, see Departmental appropriation withheld.

Appropriation note – the original amount and reappropriated amount are both included as legally available appropriation, despite the original amount being subject to a PGPA Act section 51 withholding.

 

Lapsing appropriations

FRR extract:

39 Equity returns and adjustments
  1. Departmental equity returns must be recognised as a return of capital by adjusting contributed equity (not as a reduction in, or refund of, revenue).
  2. Departmental equity returns:
    1. occur where an entity:
      1. relinquishes control of funds which had been appropriation revenue or contributed equity in a previous reporting period; or
      2. makes a non-reciprocal transfer to the OPA other than as a dividend referred to in section 23 (liabilities relating to dividends); and
    2. are recognised in the financial statements at the earliest of:
      1. the date the appropriation amount is reduced as a consequence of Government policy;
      2. the date of effect of a Ministerial direction; and
      3. where (i) and (ii) are not applicable, the date of the transfer to the OPA.
  1. Annual appropriation Acts contain an automatic repeal date – often 1 July, three years after the amounts were first appropriated.
  2. Lapsing appropriations are accounted for as departmental equity returns in accordance with subsection 39(1) of the FRR.

Accounting treatment for lapsing appropriations:

The following treatment assumes a 1 July repeal date:

  • accounting treatment – appropriations receivable is reduced against contributed equity on 30 June
  • appropriation note – lapsing amounts included as legally available appropriation (as they are still legally available as at 30 June), with a footnote to disclose that the amounts will lapse on 1 July.

Part 2 – Administered appropriations

  1. Administered annual appropriations provide money to carry out the objectives of the Australian Government. Administered appropriations provided to NCEs:
  • provide the NCE with funding for its administration of government activities
  • are not controlled by the NCE
  • are not revenues of the individual NCE that oversees distribution or expenditure of the funds as directed.
  1. Amounts to be paid from the OPA for administered items do not give rise to administered appropriations receivable.
  2. Entities need to pass refunds of administered input tax credits received from the ATO back to the OPA. The payments of administered input tax credits received to the OPA are not payments by entities for appropriation purposes, as referred to in appropriation Acts.
     

Recognition of administered appropriations

FRR extract:

41 Administered appropriations
  1. Reporting entities must recognise in their administered reconciliation schedule all administered appropriations (including administered special appropriations) for which they are the responsible entity.
  2. The earliest point of recognition for accounting purposes is:
    1. the date the amounts are drawn down to the entity’s bank account for payment against the appropriation for:
      1. administered annual appropriations; and
      2. administered special appropriations; and
    2. the date stated in the determination (if not stated, then the date of the determination) for other administered amounts determined by:
      1. the Finance Minister (or delegate);  or
      2. the reporting entity’s Minister.
  3. Administered appropriations are not to be recognised as revenue in the administered schedule of comprehensive income.
  1. NCEs must recognise all administered annual appropriations for which they are responsible in their administered reconciliation schedule. The earliest point of recognition for administered annual appropriations is the date:
  • amounts are drawn down to the NCE’s bank account for payment, or
  • stated in the determination for other administered amounts determined by the Finance Minister (or delegate) or the NCE’s minister – if no date is stated, then the date of the determination applies.
  1. The Finance Minister has the authority to increase annual administered appropriations through an AFM or APO.
  2. Annual appropriation Acts may contain amounts against state, territory and local government items. Ministers holding the authority to determine the terms and conditions applying to these payments through determinations in writing, are specified in Schedule 1 of the relevant appropriation Act.
     

Adjustments

  1. Administered appropriations can be adjusted in accordance with:
  • PGPA Act section 74 Retainable receipts (re-crediting of repayments)
  • PGPA Act section 74A Recoverable GST
  • PGPA Act section 75 Transfers of functions
  • AFM (or APO).

Accounting treatment for adjustments:

Accounting treatment:

  • PGPA Act section 74 (repayments only) – decrease in accumulated results and expenses (suppliers) for repayment
  • PGPA Act section 74A – increase in accumulated results and asset (cash) on drawdown
  • PGPA Act section 75 – for a losing or gaining NCE there are no accounting entries (i.e. no requirement to draw down cash for payment as appropriation is transferred via PGPA Act section 75 determination).

Appropriation note:

  • PGPA Act section 74 (repayments only) – included as legally available appropriation against the original appropriation from which the payment was made, (unless the original appropriation no longer exists). If the appropriation no longer exists (e.g. if automatically repealed), the amount is returned to the OPA as an administered receipt.
  • PGPA Act section 74A – not included in appropriation note, as it is prepared on a recoverable GST exclusive basis.
  • PGPA Act section 75 – included in appropriation note as reduction (losing NCE) and increase (gaining NCE) in legally available appropriation.

Administered advances to the Finance Minister or responsible presiding officer

  1. For NCE accounting purposes, the earliest point of recognition of an administered amount appropriated by an AFM or an APO is the commencement date of the determination – see subsection 41(2b) of the FRR.
  2. Any unspent amounts at the end of the financial year are withheld under section 51 of the PGPA Act, with an effective date of 30 June, until such a time as the relevant appropriation Act automatically lapses. For the treatment of any unspent amount, see Administered appropriation withheld.
  3. Significantly larger AFM thresholds were established in 2019-20 and 2020-21 for the response to COVID-19.

Accounting treatment for an AFM or APO:

Accounting treatment – increase in accumulated results and asset (cash) on drawdown.

Appropriation note – AFM (and APO) amounts included as legally available appropriation (including any unspent amounts withheld under PGPA Act section 51).

  1. For more information, see RMG 100.
     

Administered appropriation withheld

  1. Amounts withheld by an NCE under section 51 of the PGPA Act represent a loss of control event – see subsection 40(2) of the FRR.

Accounting treatment for administered appropriation withheld:

Accounting treatment – no accounting entry (as administered appropriations are recognised when drawn down for payment, so there is no equivalent to departmental appropriation revenue/appropriations receivable to be adjusted).

Appropriation note – PGPA Act section 51 withheld amounts included as legally available appropriation.

 

Payments to corporate Commonwealth entities

FRR extract:

42 Payments to corporate Commonwealth entities
  1. An amount appropriated to a non-corporate Commonwealth entity for payment to a corporate Commonwealth entity (either through annual or special appropriations) is an administered appropriation to the non-corporate Commonwealth entity and is recognised and disclosed accordingly.
  2. Payments from a non-corporate Commonwealth entity to a corporate Commonwealth entity in the nature of:
    1. equity injections are an increase to the carrying amount of the administered investment of the non-corporate Commonwealth entity;
    2. loans to corporate Commonwealth entities must be accounted for as loans receivable by the relevant non-corporate Commonwealth entity regardless of whether the loan is made directly by the OPA or through the non‑corporate Commonwealth entity;
    3. interest repayments must be recorded as revenue in the non-corporate Commonwealth entity’s administered accounts, regardless of whether the interest is paid directly to the OPA or through the non-corporate Commonwealth entity; and
    4. other payments (i.e., not in the nature of equity injections or loans) are recorded as expenses by the non-corporate Commonwealth entity.
  1. An amount appropriated to an NCE for payment to a corporate Commonwealth entity (CCE) is an administered appropriation to the NCE and is recognised and disclosed in accordance with subsection 42(1) of the FRR.

Accounting treatment for payments to and repayments by CCEs:

Accounting treatment for:

  • equity injections – an increase in contributed equity and administered investment in corporate Commonwealth entities.
  • loans (directly by OPA or through NCE) – an increase in accumulated results and loans receivable.
  • interest repayment (paid direct to OPA or through NCE) – an increase in administered revenue and decrease in accumulated results.
  • other payments – an increase in accumulated results and expense (payments to corporate Commonwealth entities).

Appropriation note – these amounts are included in the appropriation note (with the exception of interest repayments).

Part 3 – Appropriation disclosures

General requirements for appropriation disclosures

FRR extract:

35 General requirements
  1. Reporting entities must account for and disclose appropriations (including special appropriations) in accordance with this rule, regardless of whether the relevant amounts are considered to be material, as appropriations are deemed material by nature.
  2. Appropriations disclosures must be prepared on a recoverable GST exclusive basis and a cash basis.
  1. Where an NCE is concerned that appropriation may be or has been spent in breach of section 83 of the Constitution:
  • an appropriate risk assessment must be conducted
  • where appropriate, advice from the Australian Government Solicitor or the
    Attorney-General’s Department may need to be sought to identify whether a possible breach has occurred.
  1. A section 83 disclosure is generally required where an entity considers that there is a risk that a breach occurred, or an actual breach has occurred, in the reporting period.
  2. Payments from the CRF that are not authorised by appropriation are always ‘material in nature’ and an explanation is required irrespective of the amount.
  3. The appropriation note is prepared on a recoverable GST exclusive basis and does not include:
  • GST on payments that is recoverable from the ATO
  • GST received on taxable suppliers that is payable to the ATO
  • payments to or refunds from the ATO of GST amounts.
     

Specific requirements for appropriation disclosures

FRR extract:

43 Annual appropriations
  1. The amounts shown for Annual Appropriations must be the same as those set out in the relevant Appropriation Acts.
  2. The amounts disclosed must include the total of adjustments under the relevant legislative provisions:
    1. AFM – appropriated in the current reporting period;
    2. PGPA Act section 74 – receipts that have been recorded in the accounts and records of the responsible entity during the reporting period; and
    3. PGPA Act section 75 – only current year appropriation increased or decreased by section 75 determinations.
  3. Appropriation applied must include:
    1. cash payments made from appropriations; and
    2. appropriations credited to special accounts for the reporting period.

This is to include amounts from both current and prior year appropriations.

  1. The following information must be disclosed as footnotes:
    1. an explanation for all appropriations that have been:
      1. withheld under section 51 of the PGPA Act; and
      2. quarantined for administrative reasons;
    2. an explanation of all material variances between
      1. he appropriation applied in the reporting period; and
      2. the amount appropriated (or otherwise authorised) for the current period; and
    3. any entities that spent money from the CRF on behalf of the reporting entity.
  2. All reporting entities that receive a Departmental Capital Budget and/or an Administered Capital Budget must disclose separately the total of these amounts as shown in the Portfolio Budget Statements and Portfolio Additional Estimates Statements.
  1. For a template of annual appropriation disclosures, see PRIMA forms of financial statements.
     

Unspent appropriations

FRR extract:

45 Unspent annual appropriations

Reporting entities must disclose the following:

  1. all unspent departmental and administered annual appropriations by Appropriation Act (including current and prior years appropriations); and
  2. total unspent departmental annual appropriations and total unspent administered annual appropriations.
  1. Unspent balances incorporate adjustments to appropriations under appropriation Acts and the PGPA Act (e.g. PGPA Act section 75 transfers).
  2. Amounts subject to quarantines or withheld under a PGPA Act section 51 direction are included in unspent balances, with footnote disclosure.
  3. Appropriation drawn down from the CRF via CBMS and/or PGPA Act section 74 receipts that remain in a NCE’s bank account (i.e. not transferred to OPA), should be reflected in the unspent appropriations note as at 30 June.
  4. These unspent appropriation amounts (i.e. cash or cash equivalents) can be disclosed either as a separate line item or included with the relevant appropriation Act(s).
  5. For a template of unspent annual appropriation disclosures, see PRIMA forms of financial statements.

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