Disclosure of maturity information in financial statements (RMG 122)

Audience

This Resource Management Guide (the Guide) applies to Commonwealth reporting entities responsible for preparing financial statements under the Public Governance, Performance and Accountability (Financial Reporting) Rule 2015 (FRR)

Key points

  • Commonwealth reporting entities are required to prepare their financial statements in accordance with the FRR and Australian Accounting Standards (AAS).
  • Entities preparing financial statements need to apply professional judgement to ensure financial statements present fairly the entity’s financial position, financial performance and cash flows.
  • All annual financial statements are subject to an independent auditor’s report by the Australian National Audit Office (ANAO). This includes an assessment of whether the financial statements of an entity have been prepared in accordance with the FRR and AAS.
  • This guidance provides advice to entities on the classification of assets and liabilities to assist them in:
    • complying with section 34B of the FRR when completing financial statements;
    • completing the Supplementary Reporting Pack (SRP) for Consolidated Financial Statements (CFS); and
    • making financial information available for a better understanding of financial sustainability as required by the Joint Committee of Public Accounts and Audit (JCPAA).

Resources

This guide is available on the Department of Finance website.

Relevant publications and accounting pronouncements include:

  • Public Governance, Performance and Accountability (Financial Reporting) Rule 2015; and Corporations Act 2001;
  • AASB 101 Presentation of Financial Statements;
  • AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors;
  • AASB 119 Employee Benefits;
  • AASB 124 Related Party Disclosures;
  • AASB 1053 Application of Tiers of Australian Accounting Standards; and
  • Resource Management Guide RMG-125 Commonwealth Entities Financial Statements Guide.

Part 1 – Definitions and abbreviations

CBMS

The Central Budget Management System (CBMS) manages the flow of financial information between Finance and Commonwealth Government entities to facilitate cash and appropriation management, preparation of budget documentation and financial reporting.

CFS

Consolidated Financial Statements for the Australian Government as required by section 48 of the Public Governance, Performance and Accountability Act 2013 (PGPA Act).

FRR

The Financial Reporting Rule (FRR) is a legislative instrument made under the PGPA Act that sets out the financial reporting requirements for all Commonwealth reporting entities in preparing annual financial statements. The requirements outlined in this RMG reflect the March 2019 update of the FRR.

Liquidity

In general accounting practice, liquidity is the ability of an entity to pay its liabilities in a timely manner, as they become due for payment under their original payment terms.

Operating cycle

The operating cycle of an entity is the time between the acquisition of assets for processing and their realisation in cash or cash equivalents. In the public sector, the operating cycle is based on receiving funds through the annual budget cycle and using those funds for outcomes. It is therefore generally a period of 12 months.

SRP 

The CFS Supplementary Reporting Pack (SRP) collects financial information from reporting entities that is required to prepare the whole-of-government financial statements.

Tiered reporting

Australian Accounting Standards (AASB 1053) consist of two tiers of reporting requirements for preparing general purpose financial statements:

 

 

 

 

  1. Tier 1: Australian Accounting Standards; and
  1. Tier 2: Australian Accounting Standards – Reduced Disclosure requirements.

Part 2 – Introduction

  1. In responding to recommendation 7 in the JCPAA report 463 Commonwealth Financial Statements, Finance advised it will continue to identify the most suitable financial metrics to help understand the financial sustainability of an entity. The disclosure requirement in section 34B of the FRR enables the collection of information for financial metrics calculations, which will assist with financial sustainability comparisons across entities.
  2. Section 34B of the FRR requires Commonwealth entities to disclose the following information in the financial statements for a reporting period:

(a) the total of:

  1. any amounts expected to be recovered from assets within 12 months after the end of the reporting period; and
  2. cash;

(b) the total of any other amounts recoverable from assets;

(c) the total of any amounts expected to be settled for liabilities within 12 months after the end of the reporting period; and

(d) the total of any amounts that are expected to be settled for liabilities more than 12 months after the end of the reporting period.

  1. The requirement in section 34B of the FRR is consistent with AASB 101, paragraph 61, which is a Tier 1 reporting requirement applicable to the Australian Government CFS.  AASB 101, paragraph 61, requires maturity disclosure based on management’s expectations and with reference to 12 months.  This may differ from the current / non-current distinction in AASB 101, paragraph 60.
  2. This RMG provides guidance to entities so that the methodology for breaking down total assets and liabilities for the maturity information disclosure can be consistently applied.

Part 3 – Maturity Information

General principles of disclosing maturity information

  1. Under AASB 101, paragraph 61, entities are required to disclose for each asset and liability line item the amount expected to be recovered or settled beyond 12 months when the maturity dates for the asset or liability span both of the following periods:
    1. within 12 months after the reporting period, and
    2. more than 12 months after the reporting period.
  1. The CFS is prepared in accordance with Tier 1 reporting requirements. As such, a maturity analysis for asset and liability line items is required:
  1. in Tier 1 entities’ financial statements; and
  2. in information provided by both Tier 1 and Tier 2 entities through CBMS and the SRP for CFS purposes.
  1. Tier 1 entities are required to disclose maturity information for each asset and liability line item that combines amounts expected to be recovered or settled within 12 months and more than 12 months after the reporting period in their financial statements.
    Tier 2 entities are not required to disclose such maturity information for individual line items in their entity financial statements. However, as this information is required to support CFS reporting (Tier 1) and monitoring the financial sustainability of entities both Tier 1 and Tier 2 entities are required, under FRR section 18A, to make this information available to the Department of Finance.
  2. Section 34B of the FRR requires the disclosure of maturity (i.e. ‘within 12 months’ or ‘more than 12 months’) at the total assets and liabilities level for both Tiers. Entities are to include this disclosure as a note in their financial statements.

Part 4 – Key concepts for maturity information disclosure

The information below provides examples of typical balance sheet items.

Loans

  1. A loan taken with a repayment term over a number of years would ordinarily be separated into amounts due within 12 months and more than 12 months based on contractual repayments of principal and interest.  
    1. A new loan with a five year term with equal yearly principal and interest repayments, would be treated as:
      1. one-fifth of the amount as expected to be settled within 12 months, and
      2. four-fifths treated as due in more than 12 months.

Employee provisions

  1. Maturity information for employee entitlements will need to be included in amounts presented in accordance with FRR section 34B. This may differ to the accounting treatment – for measurement purposes - under AASB 119 Employee Benefits. The table below demonstrates those differences:

Employee entitlements treatments

Item

FRR section 34B*

AASB 119 Employee Benefits

 

≤ 12 months

> 12 months

 

Annual Leave

100% (*)

0%

Short-term employee benefit

 Long Service Leave

 

 

 

Less than ten year’s service

0%

100%(*)

Long-term employee benefit

Greater than ten years’ service (vesting entitlement)

Minority of amount

Majority of amount

Long-term employee benefit

*The percentage split of amounts by maturity will depend on entity level analysis.

Annual leave

  1. For Annual Leave, the requirement is that entities will still calculate the portion of the provision not expected to be settled within 12 months. It would be reasonable to expect the majority of this provision to be settled within 12 months. Entities will need to review historical trends of its leave provision to determine the appropriate split of the total amount.

Long Service Leave (LSL)

  1. LSL is classified as ‘long-term employee benefit’ under AASB 119 for employee provisions and classified as ‘other long-term benefits’ under AASB 124 Related Party Disclosures for inclusion in the key management personnel (KMP) remuneration disclosure note. However, LSL will be broken down across ‘within 12 months’ or ‘more than 12 months’ for maturity information disclosure under FRR section 34B.
  2. For employees that have not met the 10 years’ service requirement, the LSL entitlement will be disclosed as ‘more than 12 months’ as those employee provisions will not be expected to be settled in 12 months.
  3. Finance is aware that in some circumstances, individuals can access LSL entitlements prior to reaching 10 years’ service. For practical purposes, entities would not be expected to adjust their calculations in respect to those amounts.
  4. For employees that have satisfied the 10 years’ service requirements, entities are required to use their judgement based on historical employee records or actuarial assessments to disaggregate the reported balance between ‘within 12 months’ or ‘more than 12 months’ for maturity information disclosure.
  5. The methodology used for the calculation must be subject to the same assurance processes as used for other information presented in entity financial statements and consistently applied from year to year. Any significant judgements made or estimate uncertainty may need to be disclosed in accordance with AASB 101, paragraph 122 and 101, paragraph 125.

Examples of likely maturity disclosures by item type

  1. The table below illustrates when certain asset and liability items are commonly expected to be recovered/settled. This is an indicative list only and entities need to consider their individual circumstances with reference to AASB 101 paragraphs 61 and 65 for restrictions and/or exceptions.
    1. Plant and equipment (PE) would reasonably be reported as an asset to be recovered in ‘more than 12 months’. In the case that a PE asset is expected to be sold or disposed of within 12 months (e.g. under AASB 5 Non-current Assets Held for Sale and Discontinued Operations), such an asset will be reported as ‘within 12 months’, with the remaining PE assets being reported as ‘more than 12 months’.
    2. Trade and other receivables are disclosed depending on the terms of the receivable. A receivable with 30 day trade terms would reasonably be expected to be settled ‘within 12 months’; a loan not requiring principal or interest repayment for two years would be disclosed as ‘more than 12 months’ (see Loans above for more details).
    3. Prepayments disclosure (either an asset or liability) is dependent on the terms of the obligation. Services expected to be provided within the next 12 months would be disclosed as ‘within 12 months’. A service to be provided across the next
    4. 24 months would likely be disclosed across ‘within 12 months’ and ‘more than 12 months’.
    5. Appropriations receivable would reasonably be reported as an asset expected to be recovered ‘within 12 months’ as the amount is generally immediately available to entities on an at-call basis.

Examples of maturity disclosures (illustrative only)

Item

≤ 12 months

> 12
months

ASSETS

 

 

Financial assets

 

 

Cash and cash equivalents

X

 

Trade and other receivables

X

X

Equity accounted investments

 

X

Other investments

X

X

Non-financial assets

 

 

Land

 

X

Buildings

 

X

Heritage and cultural

 

X

Plant and equipment

 

X

Computer software

 

X

Other intangibles

 

X

Investment property

 

X

Inventories

X

X

Tax assets

X

X

Assets held for sale

X

 

LIABILITIES

 

 

Payables

 

 

Suppliers

X

 

Subsidies

X

 

Personal benefits

X

 

Grants

X

X

Dividends

X

 

Interest bearing liabilities

 

 

Loans

X

X

Leases

X

X

Deposits

X

X

Other interest bearing liabilities

X

X

Provisions

 

 

Employee provisions

X

X

Competitive neutrality liabilities

X

X

Part 5 – Accounting policy and presentation of comparative information

  1. The requirements outlined in the FRR and this guide represent accounting policy decisions. If entities are required to change their accounting policy, they will be subject to the provisions of AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors. A voluntary change in the accounting policy shall be applied retrospectively as required (see AASB 108, paragraph 19(b)) except to the extent that it is impracticable to determine the effects (see AASB 108, paragraph 23).

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