Chapter 4: Sustainable Government Finances

Financial Reporting

Improving Budgetary and Financial Information

In contributing to sustainable government finances, Finance is responsible for consolidating budget updates, contributing to the preparation of the budget statements and preparing the Australian Government's monthly and annual consolidated financial statements.

The development of the Central Budget Management System (CBMS) to improve government budget processes and financial reporting was substantially progressed during 2005-06. The CBMS is designed to manage the flow of financial information between Finance and Australian Government agencies, facilitate the preparation of budget documentation and allow better monitoring of government expenditure.

Elements of the CBMS have been implemented progressively since July 2005. The Appropriations and Cash Management module was implemented in September 2005 following three months of parallel processing. This module supports appropriation and cash management processes and delivers improved visibility and control of spending against appropriations and online management reporting via a single reporting framework. During 2005-06 the CBMS was also used to support the Senior Ministers Review process and the reporting of budget pressures. The final components of the system for monthly and annual budget estimates and financial performance reporting are expected to be fully operational in 2006-07 following successful completion of the current trial operations.

Throughout 2005-06 Finance increased its engagement with agencies and its monitoring of budget estimates at the programme level as part of continuing efforts to seek to improve the accuracy of budget expenditure and non-taxation revenue estimates. In the second half of 2005, the Secretary of Finance met with all portfolio secretaries to discuss strategies to improve the accuracy of the estimates, and the importance of ensuring programme managers also pay close attention to their financial estimates. In addition, Finance made presentations to agencies on the importance of accurate estimates and strategies for improving the estimates.

As a result of these and other initiatives, there was an improvement in the accuracy of the cash payments estimates, with the variation between revised estimated payments at budget time and final outcome falling from 1.7 per cent in 2004-05 to 0.8 per cent in 2005-06.

Harmonisation of Generally Accepted Accounting Principles and Government Finance Statistics

During 2005-06 Finance, through its membership of the Australian Accounting Standards Board's (AASB) Project Advisory Panel, continued to contribute to the AASB's project on the possible harmonisation of generally accepted accounting principles and government finance statistics (GAAP/GFS harmonisation). The intent of this project is to improve the quality and transparency of the Australian Government's financial reports.

The AASB has progressed the initial phase of the harmonisation project through the development of an exposure draft of a standard for Financial Reporting of General Government Sectors by Governments (ED142) which was released for comment on 21 July 2005. Following the release of ED142, Finance, as chair of the Heads of Treasuries Reporting and Advisory Committee's Working Group on GAAP/GFS harmonisation, coordinated a detailed response to the AASB. The response expressed concern that the draft standard had not as yet harmonised GFS and GAAP conceptually and technically, but rather, had created the reporting of reconciliation between the two accounting frameworks. Subsequent to forwarding its response, the Heads of Treasuries met with the AASB in March 2006 to outline and discuss the response.

Following consideration of all responses to ED142, the AASB amended aspects of its requirements and issued a revised exposure draft of the standard on 29 May 2006. Representatives of the Heads of Treasuries met with the AASB again to discuss the revised exposure draft on 12 and 13 July 2006.

Finance strongly supports the strategic objective to achieve harmonisation and thereby provide more useful information to the decision makers and to this end continues to work closely with the states and territories to assist the AASB in this important project.

Defence Financial Statements Project Board

During 2005-06 the department continued to provide specific support for improved financial reporting outcomes to agencies in the Defence portfolio. This support included Finance participation on the Defence Financial Statement Project Board, which was established in 2003-04 to drive the financial remediation process. Finance also held regular meetings with the finance teams of both the Department of Defence and the Defence Materiel Organisation to discuss accounting technical and process issues, reviewed Defence position papers and replies to formal requests for advice and facilitated the relationship with the AASB on Defence issues.

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