1. Introduction

1.1 Audience

The Financial Statements Better Practice Guide (BPG) will assist individuals involved in the preparation of financial statements, including Chief Financial Officers (CFOs) and audit committees, of Commonwealth entities and Commonwealth companies to efficiently prepare high-quality financial statements that are supported by better practice processes and documentation.

1.2 Key Points

The Public Governance, Performance and Accountability (Financial Reporting) Rule 2015 (FRR) mandates the minimum financial statements’ reporting requirements for all Commonwealth entities. The FRR ensures comparability between Commonwealth entities’ financial statements and facilitates the preparation of the whole-of-government Consolidated Financial Statements (CFS). It prescribes the requirements for the presentation, disclosure and certification of Commonwealth entities’ financial statements and is principally based on requirements of the Australian Accounting Standards (AAS) and other pronouncements by the Australian Accounting Standards Board (AASB).

Section 42(2) of the Public Governance, Performance and Accountability Act 2013 (PGPA Act) requires the accountable authority of a Commonwealth entity to prepare annual financial statements that:

  • comply with the accounting standards and any other requirements prescribed by the FRR
  • present fairly the entity’s financial position, financial performance and cash flows.

Section 42(1)(b) of the PGPA Act also requires the accountable authority of a Commonwealth entity to provide the annual financial statements to the Auditor‑General as soon as practicable after they are prepared.

Sections 43(4) and 46 of the PGPA Act and sections 17AB-17AJ and 28A-28F plus Schedule 2 of the Public Governance, Performance and Accountability Rule 2014 (PGPA Rule) require entities to prepare and present an annual report that includes the audited financial statements to the responsible Minister.

The reporting requirements for Commonwealth companies are set out in Part 2M.3 of the Corporations Act 2001 (Corporations Act) which includes, amongst other matters, the requirement to comply with the AAS. 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).

This guide provides better practice principles and processes for the preparation of clear, succinct and timely financial statements that comply with the AAS and FRR, are readily auditable, and meet the needs of users. It is provided for guidance purposes rather than as a mandatory requirement and complements the following documents, which by contrast focus on accounting treatments and disclosures:

1.3 Financial statement better practice indicators

The following are indicators of an entity that applies financial statements better practice:

  • The accountable authority, CFO and senior management demonstrate their commitment to and actively promote financial management policies, principles and practices.
  • Effective financial governance arrangements are in place across the entity, with:
    • clearly defined financial management roles and responsibilities
    • consistently applied financial management/reporting practices
    • internal control frameworks, including information and communications technology (ICT) and security controls, that are regularly reviewed to ensure they remain strong and effective
    • rigorous and independent assurance processes, particularly for reviewing information from an expert or third party
    • regular review of the maturity of the entity’s financial statements processes, taking into account the entity’s risk management framework.
  • Significant changes to the entity or its environment that impact on the financial statements are identified, communicated and addressed in a timely manner.
  • The team responsible for the preparation of the financial statements (financial statements team) collectively has the appropriate accounting and ICT skills and knowledge to deliver its role and responsibilities, with opportunities for continuous learning and/or professional development, and other teams (including internal audit) and/or staff are engaged to fill skill or resource gaps within the team.
  • Sound professional judgement is exercised and documented in the preparation of financial statements, such as in the application of materiality.
  • Good project management skills, processes and practices are applied to support the timely preparation of financial statements, including undertaking a hard or soft close and bringing forward activities wherever possible, such as valuations, shell statements and accounting position papers.
  • Financial statement processes are documented, repeatable and include:
    • audit committee approved/endorsed materiality policy for consideration of relative risk of material misstatement, for assessment of both the risk of material misstatement by individual line item and any proposed adjustments to the financial statements
    • a financial statement risk assessment and mitigation strategy by individual line item
    • documentation supporting representations made in the Management Representation Letter.
  • The CFO and financial statements team are proactive and maintain constructive, genuine and effective relationships with relevant business areas, the audit committee (and the financial statements sub-committee where applicable), other entities, and shared services providers and any Commonwealth entities that collect and/or expend money on the entity’s behalf.
  • Adherence to a well-documented financial statements preparation timetable, which includes regular briefings of the audit committee on progress against the timetable, any accounting policy changes, audit issues and audit adjustments, plus the annual report preparation and tabling deadlines.
  • Minimal adjustments required to the financial statements throughout both the financial statement and audit process.
  • An effective and efficient external audit process, with key elements of the working arrangements between the entity and the auditor agreed and documented throughout the audit and few audit findings given the scale and complexities of the entity’s operations. As year-end financial statements are completed, a rigorous review is conducted of both the financial statements and their preparation process, to identify those practices or processes that should be replicated and areas for improvement in the subsequent year.

1.4 Structure of this guide

The BPG is structured to include both better practice principles and practical resources. For ease of navigation:

  • topics are divided into sub-topics
  • links to resources are located at the end of the relevant topic.

Where applicable, the guide includes a number of hyperlinks to relevant supplementary information.

A number of acronyms and abbreviations are used in this Guide. A full list of acronyms and abbreviations is provided under 14. Appendices.

The majority of resources referenced in the BPG are available in Microsoft Word or Excel format, to enable them to be readily customised by entities.

1.4.1 Additional resources

Resource nameResource description
Audit insightsAustralian National Audit Office (ANAO) publication that provides discussions on recurring issues, shortcomings and good practice examples, identified through financial statement and performance audit work.
PGPA legislation, associated instruments and policiesThis online resource provides links to the PGPA Act, related rule, instruments and guidance.
BPG resources mapThis diagram sets out a suggested order and timing for the use of BPG resources. Available in the Appendices to this Guide.

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