Statement of cash flows
Public Governance, Performance and Accountability (Financial Reporting) Rule 2015 (FRR) section 3 – Authority and section 13 – Statements of cash flows
This section of the FRR sets out requirements for the preparation of the cash flow statement.
Entities are required to prepare a statement of cash flows in accordance with section 13 of the FRR and:
- Tier 1 reporting: Australian Accounting Standards Board (AASB) 107 Statement of Cash Flows (AASB 107)
- Tier 2 reporting: AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities (AASB 1060).
Under paragraph 10 of AASB Interpretation 1031 Accounting for the Goods and Services Tax (GST) cash flows should be disclosed on a gross basis. Under paragraph 11 the GST component of cash flows arising from investing and financing activities which can be claimed back from or paid to the tax office, shall be classified as operating cash flows.
Entities should also refer to relevant legislation governing their receipts and payments to assess whether this may impact on cash flow disclosures.
OPA transfers
Transfers of the Public Governance, Performance and Accountability Act 2013 (PGPA Act) section 74 (s74) receipts to the OPA are reported as operating cash flows.
When s74 receipts are transferred to the OPA, and subsequently redrawn the transfers are reported separately as operating cash outflows and inflows (not netted off). This is the same treatment required for amounts credited and debited to a special account.
Notional transfers within the OPA recorded in CBMS do not impact the cash flow as there is no actual cash transferred. There will be an impact on the cash flow when there is an actual transfer of cash.
Cash flow reconciliation – disclosure
Details of transactions that do not result in cash flows but affect assets and liabilities, must be disclosed, such as:
- conversions of liabilities to equity
- acquisitions of entities by an equity issue
- acquisitions of assets by assuming directly related liabilities (such as the purchase of a building by incurring a mortgage to the seller)
- acquisitions of assets by entering into finance leases
- exchanges of non-cash assets or liabilities for other non-cash assets or liabilities
- asset transfers because of restructuring.
Where the related item in the statement of financial position is cash, and its amount equals the amount in the statement of cash flows in both the current and immediately preceding reporting periods, no reconciliation is required.
Disclosure of additional information to aid users’ understanding of an entity’s financial position and liquidity, with a management commentary, is encouraged and may include:
- the amount of undrawn borrowing facilities that may be available for future operating activities and to settle capital commitments, indicating any restrictions on the use of these facilities.
- the aggregate amount of cash flows that represent increases in operating capacity separate to those cash flows required to maintain operating capacity.
Contingencies
FRR section 29 – Contingencies
This section of the FRR sets out additional reporting requirements for contingent assets and liabilities, unquantifiable contingent assets and liabilities, and financial guarantees.
The term ‘contingent’ means liabilities or assets that are not recorded because they depend on future events that are uncertain and beyond the entity’s control.
The Statement of Risks (SoR) in Budget Paper No. 1 should be reviewed to consider all relevant contingencies for disclosure. As SoR requirements may differ from financial statement materiality thresholds, entities should explain any differences in supporting work papers.
According to FRR section 29(3), financial guarantees must be disclosed in the contingency note, with details also cross-referenced to other relevant notes within the financial statements.
Paragraph 25 of AASB 137 Provisions, Contingent Liabilities and Contingent Assets (AASB 137) notes that there are only extremely rare cases where a reliable estimate of a provision cannot be made. Where there are a range of outcomes, an estimate is made, with uncertainties on the estimate and the assumptions used documented in the disclosure notes.
In extremely rare cases where an entity is in a dispute with other parties; and where full disclosure is likely to seriously prejudice the entity, reduced disclosures are allowed under AAS (Tier 1 reporting: paragraph 92 of AASB 137, Tier 2 reporting: paragraph 156 of AASB 1060). In such cases, ‘entity’ must be read to mean ‘entity, another Commonwealth entity or the Australian Government as a whole’.
