2. Framework for preparing financial statements

Financial statements are a means by which a Commonwealth entity’s accountable authority and CFO discharge their financial accountability. Financial statements are used by a broad audience for making financial decisions, including about the provision of resources to that entity.

The framework for preparing Commonwealth entity financial statements includes standards and requirements that support the integrity and consistency of financial information, and enable comparison of financial results across like-entities and/or financial years.

2.1 Background: Whole of Government standards and reporting requirements

All financial statements prepared by the Government, including those for the Australian Government budget (the Budget), are required to comply with Australian Accounting Standards ( AAS ) and in some instances the Government Finance Statistics ( Australian GFS ) standards.

The AAS are set by the Australian Accounting Standards Board (AASB), based on the standards set by the International Accounting Standards Board. The AAS include amendments that reflect Australian requirements, including Australian legislation and
not-for-profit accounting issues and reduced disclosure requirements.

Australian GFS standards are set by the Australian Bureau of Statistics (ABS), based on the international system of Government Finance Statistics, set by the International Monetary Fund.

The two sets of relevant accounting standards are prescribed in legislation and are set independently of the Government:

  • AAS —are mandated for financial statements by the PGPA Act and the Corporations Act 2001 ( Corporations Act ), and

  • Australian GFS and AAS —are mandated for budget reports by the Charter of Budget Honesty Act 2013 ( Charter of Budget Honesty ).

    AASB 1049 – Whole of Government and General Government Sector Financial Reporting ( AASB 1049 )is a government specific AAS which harmonises and aligns the AAS and Australian GFS. While this does not mean that the two are exactly the same, they are highly similar and most frequently result in the same accounting requirements applying under both sets of standards. Budget financial statements specify that where there are material differences between the two sets of standards, the differences are to be separately reported.

    In addition to these external standards, the Australian, state and territory governments have an agreed framework – the Uniform Presentation Framework ( UPF ) – for the presentation of government budget financial information on a basis broadly consistent with AASB 1049.

2.1.1 Requirement to prepare annual financial statements

Section 101 of the PGPA Act provides that the Finance Minister may make rules ( Rules ) by legislative instrument to prescribe matters giving effect to the Act. These Rules include the FRR and Public Governance, Performance and Accountability Rule 2014 (PGPA Rule) , the former sets the financial reporting requirements for Commonwealth entities.

The PGPA Rule contains provisions that predominantly relate to the framework that supports transactions of the Commonwealth and Commonwealth entities, in relation to accountability and control mechanisms.

Subsection 42(2) of the PGPA Act requires the annual financial statements of Commonwealth entities to comply with the AAS and any other requirements prescribed by the rules, and present fairly the entity’s financial position, financial performance and cash flows.

Section 42 of the PGPA Act also requires the accountable authority of a Commonwealth entity to prepare annual financial statements as soon as practicable after the end of each reporting period. With only a few exceptions, entities are required to report on a financial-year basis.

AAS permits Commonwealth entities to prepare financial statements at either Tier 1 (full disclosure) or Tier 2 (simplified disclosure). This is subject to the approval of the Minister for Finance. Section 18 of the FRR prescribes those entities that must apply Tier 1 level reporting as defined by AASB 101 Presentation of Financial Statements (AASB 101). All other entities are to apply Tier 2 level reporting as a minimum.

2.1.2 The Commonwealth Entities Financial Statements Guide

Commonwealth Entities Financial Statements Guide—Resource Management Guide No. 125 ( RMG 125 ), is updated by Finance annually. RMG 125 is relevant to all Commonwealth reporting entities responsible for preparing financial statements under the FRR (for information on approved FRR exemptions, see the list of exemptions to the FRR).

RMG 125 assists reporting entities to comply with AAS and the FRR and, for consistency, explains accounting treatment mandated by the FRR where the AAS allows a choice (e.g. use of the valuation method for material property, plant and equipment (PPE) and administered disclosures).

2.1.3 Requirements for Commonwealth companies

The Corporations Act regulates Commonwealth companies that are established under that Act. Section 97 of the PGPA Act requires the directors of a Commonwealth company to give the responsible Minister a copy of the company’s financial report, directors’ report and auditor’s report (as would be required if the Commonwealth company were a public company).

The reporting requirements for companies are set out in Part 2M.3 of the Corporations Act which includes, among other things, requirements to comply with the AAS.

2.1.4 Certification requirements for financial statements

Section 42 of the PGPA Act requires the accountable authority of the Commonwealth entity to state whether, in the accountable authority’s opinion:

  • the annual financial statements comply with the AAS and any other requirements prescribed by the rules (s.42(2)), and

  • present fairly the entity’s financial position, financial performance and cash flows.

The accountable authority must also state whether, in the accountable authority’s opinion, there are reasonable grounds to believe that the entity will be able to pay its debts as and when they fall due.

For Commonwealth companies, similar requirements for declarations by directors are outlined in Part 2M.3 of the Corporations Act.

2.1.5 Requirement to publish financial statements in annual reports

All entities are required to prepare and present an annual report to the responsible Minister in accordance with the PGPA Act and Rules, and any other specific legislative requirements.

The primary purpose of annual reports is accountability, in particular to the Parliament. Annual reports address a broad range of information about the entity’s governance arrangements and performance, and must include the entity’s audited financial statements. Once the annual report is tabled in the Parliament, it must then be made available online as soon as possible. In doing so, the annual report and the entity’s financial statements are released to the public.

2.1.6 Resources

Resource name

Resource description

Relevant legislation and standards

Details the main legislation, policies and guidelines relevant to the preparation of financial statements by public sector entities and a brief summary of each of these elements.

Accountable authority

Provides guidance on role and responsibilities of accountable authorities with links to related PGPA Act and PGPA Rule provisions.


An AASB site which lists the latest version (by operative date) of each Accounting Standard.

Australian GFS

An ABS site that provides the Australian System of Government Finance Statistics: Concepts, Sources and Methods, 2015. This document provides a comprehensive account of the government finance statistics concepts to be applied in the Australian context. Its main purpose is to serve as a reference manual for users of the statistics who require a detailed understanding and to assist data providers and compilers of GFS.


A list of PGPA associated instruments and policies maintained by Finance


A compilation of the FRR that shows the text of the law as amended and in force on the compilation date.


This online resource links sections of the PGPA Act to related rules and guidance.

Corporations Act

Federal Register of Legislation site for the Corporations Act.

Charter of Budget Honesty

Federal Register of Legislation site for the Charter of Budget Honesty.

AASB 101

The AASB standard that prescribes the basis for presentation of general purpose financial statements including guidelines for their structure and minimum requirements for their content.


The UPF provides a uniform approach to the presentation of financial data in Australian governments’ budget papers.

AASB 1049

A government specific AAS which harmonises and aligns the AAS and Australian GFS.


The Federal Register of Legislation site for the PGPA Rule.

RMG 125

Provides extracts of relevant legislative requirements from the FRR; and additional ‘guidance’ paragraphs to assist in applying the FRR and supporting policies.

List of exemptions to the FRR

A list of entities with approved exemptions from the requirements of the FRR.


Did you find this content useful?