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 responsibilities to their Minister and the Parliament. 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 both within the Commonwealth, between other levels of government or with the private sector and/or financial years.

2.1 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 Australian Government Finance Statistics (Australian GFS) reporting framework.

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.

The Australian GFS reporting framework is 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:

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. Budgeted 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.

2.2 Legislated requirements

Section 101 of the PGPA Act provides that the Finance Minister may make 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, whilst the latter sets out annual report requirements and reporting requirements where an entity ceases to exist or functions are transferred.

The PGPA Rule also 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.

Paragraphs 11 to 13 of AASB 1053 Application of Tiers of Australian Accounting Standards (AASB 1053) specify the types of entities that should prepare financial statements at Tier 1 (full disclosure) or Tier 2 (simplified disclosure). Section 18 of the FRR prescribes those Commonwealth entities that must apply Tier 1 level reporting as defined by AASB 101 Presentation of Financial Statements (AASB 101). All other Commonwealth entities are to apply Tier 2 level reporting as a minimum. AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 entities (AASB 1060) sets out the Tier 2 level reporting requirements.

The reporting requirements for Commonwealth companies are set out in Part 2M.3 of the Corporations Act.

2.3 Commonwealth Entities Financial Statements Guide

RMG-125 Commonwealth Entities Financial Statements Guide (RMG-125) assists Commonwealth 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 (for example, use of the valuation method for material property, plant and equipment (PPE) and administered disclosures).

2.4 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 (subsection 42(2))
  • 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.

2.4.1 Digital certification

If the accountable authority and/or CFO of a non-corporate Commonwealth entity (NCE) cannot meet to physically certify the financial statements, the certification may be signed using an electronic signature(s). Before applying electronic signatures the entity should document the:

  • accountable authority and/or CFO’s approval for the use of their electronic signature/(s)
  • ensure the certification and financial statements are appropriately locked to preclude subsequent changes to the financial statements.

For further information on the use of electronic signatures, refer to the Australian Government Solicitor Legal Briefing: Execution solutions for remote working arrangements.

If the accountable authority and/or CFO of a Commonwealth company cannot meet to certify the financial statements by physically signing the certification, electronic signatures can only be applied to the certification if the company’s constitution allows for virtual meetings or the use of technology. For more information, see RMG-125.

2.4.2 Additional resources

Resource nameResource description
Relevant legislation and standardsDetails 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 authorityProvides guidance on role and responsibilities of accountable authorities with links to related PGPA Act and PGPA Rule provisions.
PGPA legislation, associated instruments and policiesThis online resource provides links to the PGPA Act, related rule, instruments and guidance.
List of exemptions to the FRRA list of entities with approved exemptions from the requirements of the FRR.

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