All Commonwealth entities are required to prepare annual financial statements in accordance with the Public Governance, Performance and Accountability Act 2013 (PGPA Act) or other legislation that established particular entities. The financial reporting requirements for Commonwealth reporting entities are set out in the Public Governance, Performance and Accountability (Financial Reporting) Rule 2015 (FRR) and Australian Accounting Standards (AAS).
All Commonwealth reporting entities are required to prepare their annual financial statements in accordance with the PGPA Act, FRR, AAS and any other applicable entity-specific legislation.
Legislative authority – the Financial Reporting Rule
FRR section 3 – Authority
This section of the FRR sets out the authority for making the FRR.
The FRR is made under the PGPA Act, and sets out the common financial reporting requirements for Commonwealth entities to:
- promote consistency across entities in the preparation of financial statements
- facilitate comparisons between entities’ financial statements
- assist the financial statement preparation and auditing process
- enable preparation of the Australian Government consolidated financial statements (Australian Government CFS) under section 48 of the PGPA Act.
Officials who intend to establish a new Commonwealth entity under the PGPA Act should refer to Reporting Guidance for a New Entity. The guidance identifies the reporting requirements mandated under the PGPA Act for a new Commonwealth entity.
Financial reporting requirements
Australian Accounting Standards Board (AASB) 1053 Application of Tiers of Australian Accounting Standards (AASB 1053) applies tiers of AAS for entities’ general purpose financial statements:
- Tier 1 Australian Accounting Standards: Incorporates international financial reporting standards issued by the International Accounting Standards Board and includes requirements that are specific to Australian entities.
- Tier 2 Australian Accounting Standards - Simplified Disclosures: Comprises the recognition and measurement requirements of Tier 1 but with substantially reduced disclosure requirements.
The disclosures relevant to Tier 2 entities are set out in AASB 1060 General Purpose Financial Statements - Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities (AASB 1060), subject to any specific requirements under the FRR. Tier 2 entities complying with AASB 1060:
- are exempt from the disclosure requirements in specified paragraphs in other AAS
- are not required to comply with other AAS that deal only with presentation and disclosure (for example AASB 101 Presentation of Financial Statements (AASB 101) or AASB 107 Statement of Cash Flows)
- may refer to other AAS for guidance on the requirements in AASB 1060.
Tier 2 entities are not required to disclose, in their financial statements, the impact of any new AAS issued but not yet effective. However, information is required for Australian Government CFS purposes and is specified in the Supplementary Reporting Pack (SRP), issued annually to entities by Finance under section 18A of the FRR.
Entities are required to comply with end-of-year financial reporting requirements issued by Finance.
For further information on applying AAS tiers see Applying AAS tiers and other reporting requirements.
In preparing financial statements to present fairly the entity’s financial position, financial performance and cash flows, entities will need to refer to the items outlined below.
Items for consideration for the fair presentation of financial statements
The entity should develop and document a formal position on each issue, and where appropriate, inform their auditors as early as possible. For example, when considering whether the reclassification of a comparative amount is impracticable, or the appropriateness of data and assumptions used when estimating provisions.
Preparers of financial statements should consider matters listed in paragraph 120.5 A3 of the Accounting Professional & Ethics Standards (APES) 110 Code of Ethics for Professional Accountants when exercising professional judgement, such as:
- whether they have all the known facts and circumstances
- whether they have sufficient expertise and experience to reach a conclusion, or if they need to consult with others
- whether information obtained provides a reasonable basis on which to reach a conclusion
- whether other reasonable conclusions could also be reached.
The Financial Statements Better Practice Guide includes guidance on position papers and materiality.
Tier 1 reporting
- For example, paragraphs 41-42 of AASB 101 (when reclassification of comparative amounts is impractical)
Tier 2 reporting
- For example, paragraphs 18-19 of AASB 1060 (when reclassification of comparative amounts is impractical)
Each item in the financial statements should be cross-referenced with any related notes. Other cross referencing is to be included where it would provide useful additional information to the reader.
Tier 1 reporting
- Paragraph 113 of AASB 101
Tier 2 reporting
- Paragraph 92 of AASB 1060
Subsidiaries must be consolidated to present the financial performance and position of all controlled entities.
Tier 1 reporting
- AASB 10 and section 6 of the FRR
Tier 2 reporting
- AASB 10 and section 6 of the FRR
Comparatives should be disclosed for the previous reporting period unless they are not required elsewhere in the FRR or an applicable AAS. This includes:
- narrative information, if it is relevant to the understanding of the financial statements
- re-presented or reclassified comparatives where the presentation or classification of an item is amended (unless this is impracticable) – disclosing the nature, the amount of and reason for the re-presentation or reclassification
- administered comparatives for entities that have moved from non-corporate to corporate, which may be included in a separate and shaded column next to the departmental comparatives. Whilst reclassification of an existing item between administered and departmental is not a change in accounting policy, an explanation is required to be included in the relevant note regarding the change in reporting departmental and administered items from the prior year.
Tier 1 reporting
- AASB 101
- For example, comparative budgetary information is not required per paragraph 8 of AASB 1055 Budgetary Reporting
Tier 2 reporting
- AASB 1060
- For example, comparative budgetary information is not required per paragraph 224 of AASB 1060
To better reflect the operating environment and reporting format of not-for-profit (NFP) entities (where not restricted by the AAS) all references to the AASB's 'profit or loss' must be replaced with 'net cost of services' (or 'surplus or deficit') in line with Primary Reporting and Information Management Aid forms of financial statements (PRIMA forms). For-profit entities need to adjust the disclosure to reflect their circumstances.
Tier 1 reporting
- Not applicable
Tier 2 reporting
- Not applicable
Additional notes
Where an entity includes notes and disclosures in addition to those required under the FRR and the AAS then these must be consistent with FRR and AAS requirements, including measurement and recognition.
Principles required for financial reporting
Entities should consider and apply the following when preparing financial statements:
- AASB interpretations
- Conceptual Framework for Financial Reporting (AASB concepts document that applies to for-profit entities)
- Framework for the Preparation and Presentation of Financial Statements and Statement of Accounting Concepts SAC 1 "Definition of the Reporting Entity" (SAC 1) (AASB concepts documents that apply to NFP entities)
- other Finance guidance relevant to the preparation of financial statements.
The AASB concepts documents are sources of guidance, which entities may refer to if there is no AAS or interpretation that deals with an accounting treatment or disclosure issue (see AASB 1048 Interpretation of Standards (AASB 1048)).
The principles in these documents (while not explicitly stated in the FRR) are of such importance that they should be considered in the process of preparing financial statements. It is recommended that entities be able to evidence that the principles:
- were considered and applied with due weight, in determining the entity’s situation
- have supporting documentation that shows the reason for the extent of application by the entity.
Events after the reporting period
AASB 110 Events after the Reporting Period (AASB 110) prohibits the preparation of financial reports on a going concern basis if the going concern assumption is no longer appropriate.
If an event happens after balance date but before the entity’s financial statements are approved, it may require an adjustment or disclosure. Entities should refer to the relevant accounting standard for its tier.
- Tier 1 reporting: AASB 110 paragraphs 8, 19 and 20
- Tier 2 reporting: AASB 1060 paragraph 185
Entities are required to monitor all events occurring after the reporting period through to the signing date of the Australian Government CFS. Any such events must be promptly communicated to Finance.
