This Resource Management Guide (RMG) applies to all relevant officials, particularly chief financial officers and finance teams, in Commonwealth entities involved in implementing machinery of government (MoG) changes.
For ease of reference, the RMG uses ‘entities’ to mean Commonwealth entities, as defined by the Public Governance, Performance and Accountability Act 2013 (PGPA Act).
This RMG outlines the accounting requirements for the implementation of MoG changes, particularly:
- assets, liabilities, revenues and expenses transferring between entities when control of these passes from one entity to the other
- entities’ agreement of annual appropriation transfer amounts, in accordance with section 75 of the PGPA Act.
The scope of this RMG is aligned with AASB 1004 Contributions (AASB 1004) paragraphs 54-59 ‘Restructure of administrative arrangements’. For the purposes of paragraphs 54–59 of AASB 1004, section 26(2)(a) of the Public Governance, Performance and Accountability (Financial Reporting) Rule 2015 (FRR) defines ‘government department’ as any government controlled entity.
This RMG excludes transfers of assets and liabilities that are not restructures of administrative arrangements. Appendix A in RMG-123 Designating transfers of assets and liabilities as ‘contributions by owners (RMG-123) outlines the steps involved in assessing whether any transfer of assets and liabilities between government entities should be accounted for as contributions by and distributions to owners, either as a restructure of administrative arrangements or otherwise.
Related resources including appendices, links to the PGPA Act and Rule and glossary terms are located in the right hand menu.
Appendix 1: Calculating annual appropriation transfer amounts
This appendix provides guidance on calculating annual appropriation transfer amounts and is available under Tools and templates.
Appendix 2: Abbreviations
This appendix provides a list of abbreviations used throughout this guidance and is available under Tools and templates.
A MoG change occurs when the government decides to change the way Commonwealth responsibilities are managed and may result from:
- a change to the Administrative Arrangements Orders (AAO), which set out the matters dealt with by entities and the legislation administered by ministers of state
- a decision of the government regarding the movement of responsibilities and functions between entities, where the change is not a revised AAO.
MoG changes can involve the movement of functions, appropriations, employees and other resources from one entity to another. The government expects MoG changes to be implemented as quickly as possible to achieve the best outcomes across the whole of government.
In implementing a MoG change, annual appropriation amounts may need to transfer. These need to:
- be agreed between the affected entities
- apply from the date specified in the section 75 determination.
Other assets and liabilities, revenue, expenses and appropriations should be accounted for by the entity that has responsibility for them. The timing for the change of control should align with the change of responsibility, based on legal requirements, and this may vary from item to item (see Table 1: Effective date of transfers).
For information and practical guidance on implementing MoG changes, see MoG changes: A guide for entities.
Part 1 – Background
MoG changes follow a government decision to abolish or create entities, move functions or responsibilities between entities or into or out of the Australian Public Service (APS). A MoG change can lead to the:
- creation of new government entities or a new portfolio
- movement of entities between portfolios
- change in an entity’s status (for example, from a department to an executive entity)
- abolition of an existing government entity
- movement of functions and responsibilities between entities, including from an APS entity to a non-APS entity or vice versa.
The Department of the Prime Minister and Cabinet is responsible for informing entities of government decisions resulting in MoG changes.
Part 2 – Accounting
Financial reporting requirements for implementing and reflecting MoG changes are set out in:
- paragraphs 54–59 of AASB 1004
- paragraphs 216-218 of AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities (Appendix C) (AASB 1060)
- section 26 of the FRR.
Classification as restructures of administrative arrangements
'Restructures of administrative arrangements’ are defined in AASB 1004 as:
“The reallocation or reorganisation of assets, liabilities, activities and responsibilities amongst the entities that the government controls that occurs as a consequence of a rearrangement in the way in which activities and responsibilities as prescribed under legislation or other authority are allocated between the government’s controlled entities.
The scope of the requirements relating to restructures of administrative arrangements is limited to the transfer of a business (as defined in AASB 3 Business Combinations). The requirements do not apply to, for example, a transfer of an individual asset or a group of assets that is not a business”.
'Business’ is defined in AASB 3 Business Combinations as:
“An integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing goods or services to customers, generating investment income (such as dividends or interest) or generating other income from ordinary activities”.
The transfer of an individual asset/liability or a group of standalone assets/liabilities is not considered a business transfer.
For the purposes of paragraphs 54–59 of AASB 1004, paragraphs 216-218 of AASB 1060 and this RMG:
- section 26(2)(a) of the FRR defines ‘government department’ as any government controlled entity (that is, all Commonwealth departments and other non corporate entities and Commonwealth corporate entities other than Commonwealth companies).
- section 26(2)(b) defines ‘legislation or other authority’ as any of the following:
- a decision of the Cabinet or Prime Minister;
- an Administrative Arrangements Order (AAO);
- an Act of Parliament or a Regulation under an Act; or
- a written agreement between the relevant portfolio minister(s) and the Finance Minister or the Prime Minister, as appropriate.
Therefore, for an asset and liability transfer to be considered a ‘restructure of administrative arrangements’:
- the activity transferred must meet the definition of a business and:
- have a clearly defined set of integrated activities and policy purpose or return on investment element
- include the normal elements that would be expected of any business (such as staff, systems, clients/customers, fixed assets and liabilities) and
- the transfer must represent a decision by government to reorganise its activities, supported by legislation or other appropriate authority.
Accounting for restructures of administrative arrangements
Paragraphs 54-56 of AASB 1004 require that restructures of administrative arrangements are accounted for as contributions by and distributions to owners by the transferee (receiving net assets) and transferor (transferring net assets) government entities respectively. Contributions by and distributions to owners should be recognised as direct adjustments to equity (AASB 1004 paragraphs 48-49).
For example, where non financial assets (NFA) have been transferred in a restructure:
Gaining entity (Transferee):
7128 Gross Value
7157 Accumulated Depreciation
Recognition of net assets received
Recognising contribution by owner through equity, equal to the value of net assets transferred
Transferring entity (Transferor):
Recognising distribution to owners through equity, equal to the value of net assets transferred
7134 Gross Value
7151 Accumulated Depreciation
De-recognition of the net assets transferred
All assets and liabilities transferred must be recognised at their net book value immediately prior to the transfer date in line with section 26(1)(b) of the FRR.
Disclosure requirements for MoG changes are set out in section 26 of the FRR (restructures of administrative arrangements) and AASB 1004 (tier 1 entities) and AASB 1060 (tier 2 entities). In particular:
- AASB 1004 (paragraph 57) and AASB 1060 (paragraph 216) requires that the transferee disclose income and expenses for the transferred activities for the whole reporting period, showing separately those amounts recognised by the transferor during the reporting period. If the transferee believes this is impractical, it should liaise with Finance.
- AASB 1004 (paragraph 58) and AASB 1060 (paragraph 217) requires that transferred assets and liabilities be disclosed by class with the counterparty identified.
Accounting for restructures of administrative arrangements is subject to any determinations by the Finance Minister under Division 4, Section 17 of the Public Governance, Performance and Accountability Rule 2014 (PGPA Rule). Entities may refer to RMG-119 Reporting requirements following machinery of government changes (RMG-119) and liaise with Finance on these requirements.
For more information on:
- financial reporting requirements for MoG changes, see:
- RMG-125 Commonwealth Entities Financial Statements Guide - Part 7 Administrative arrangements restructures
- section 8.3 of PRIMA example disclosures
- accounting for MoG changes, including CBMS account and movement codes, see CBMS Guide 10 How to: Program Restructures
- financial reporting responsibilities following MoG changes, including Division 4, Section 17 of the PGPA Rule, see RMG-119
- accounting for annual appropriation transfers, see RMG-116 Accounting for Annual Appropriations (RMG-116)
- email Accounting Policy.
Part 3 – Implementation
The effective date of a MoG change will be either the date:
- that the revised AAOs were issued
- specified in a government decision, or
- specified in legislation or a legislative instrument – see also Part 4 - PGPA section 75 determinations.
Under MoG arrangements, legal responsibility for functions transfers from the transferring entity to the receiving entity on the effective date of the MoG change. However, functional and administrative responsibilities for associated assets, liabilities, revenues and expenses may not transfer to the receiving entity until later.
In practice, it is often impossible to arrange for all the necessary transfers to occur on the date of the MoG change unless the impending change is known in advance. As a result, the date that the receiving entity becomes responsible for transferred assets, liabilities, revenues and expenses may vary.
The transferring and receiving entities often need to agree on:
- the amount of annual appropriations transferred and the transfer dates
- staff transferring to the receiving entity under section 72 of the Public Service Act 1999 (PS Act). Even those staff specifically allocated to a function being transferred will not transfer to the receiving entity until section 72 determinations are made by the Public Service Commissioner – similar arrangements may apply to entities that employ staff under Acts other than the PS Act
- any other assets, liabilities, revenues and expenses that remain in the control of the transferring entity until such time as there is agreement to transfer them. In some cases, this may require agreement by external parties.
Any proposed appropriations for the transferring function(s) which have been included in annual appropriation Bills before Parliament at the MoG change date should be reassigned to the receiving entity through a section 75 determination once the appropriation bills receive royal assent. The date of effect of the section 75 determination is independent of, but may be aligned with, other accounting for MoG changes, as shown at Table 1.
Table 1: Effective date of transfers
Items that transfer
Items that transfer
The transfer date for responsibilities for assets and liabilities and related revenue and expenses should align. For example, the transfer date for:
- employee expenses should align with the date for employee entitlements
- recognition of depreciation should align with the date for related assets
- appropriation revenue should align with the appropriation receivable transfer date.
Application to administered items
Administered items are managed by an entity on behalf of the government, and are not subject to the explicit control of a specified entity. The PGPA Act and AASB 1004 do not distinguish between administered and departmental items and place responsibility for all items with the relevant entity and accountable authority.
Reporting of administered items should be by the entity legally responsible for the function using the same accounting principles and treatment applied to departmental items. Entities should confirm with their legal teams which entity is legally responsible for administered activities and items following a MoG change, for example, by reviewing changes to the functions and legislation specified in the AAOs and determining what administered items are linked to those functions and legislation.
Implementation of the financial consequences of a MoG change not previously announced can be considerably simplified if the receiving and transferring entities:
- focus initially on the items that transfer immediately (for example, responsibility for payments from special appropriations)
- establish agreement on a future date at which all other items will be transferred and document that agreement in a memorandum of understanding (MoU)
- communicate relevant matters to Finance (such as changes in responsibility for special accounts, for access to appropriations through CBMS).
To continue operations after MoG changes occur, one option for the receiving entity is to request that the transferring entity continue to manage related receipts and payments on its behalf (on an interim or ongoing basis). In such cases, the receiving entity must provide the transferring entity with appropriate delegations and authorisations. Both entities will need to report on amounts paid and received under these delegations in their financial statements - see section 47 of the FRR.
Agreements between the entities on the transfer of revenues, expenses, assets and liabilities should be documented in a MoU. Documentation of agreements is important for clarifying accountability, preventing misinterpretations and as supporting evidence. A MoU may also deal with the transfer of other rights and responsibilities which are not recorded as assets and liabilities (for example, obligations under legal agreements or responsibility for intellectual property).
Part 4 – PGPA Act section 75 determinations
Section 75 of the PGPA Act applies if a function of a non-corporate Commonwealth entity (NCE) is transferred to another NCE, such as where the transferring entity is abolished. Finance makes determinations under section 75 of the PGPA Act under a delegation from the Finance Minister to transfer annual Appropriation Act amounts between NCEs.
A section 75(2) determination will detail amendments to the annual Appropriation Acts, effective from the later of the determination date or the commencement date.
For practical reasons, it may be administratively easier for reporting purposes if the effective date of a PGPA Act section 75 determination is from an agreed commencement date rather than the determination date (for example at the beginning or end of a month or 1 July). Entities should contact the Annual Appropriations Team where they wish to have an agreed date as the effective date.
Part 5 – Determining annual appropriation transfer amounts
Transfer of annual and special appropriations should follow the principle that ‘finances follow function’. Appropriations to be moved are done so on a prioritised basis. See the MoG changes - a guide for entities for more information.
Details of functions transferred as part of a MoG change are detailed either in correspondence from the Prime Minister or other Ministers or in an amendment to the AAO’s. To identify the annual appropriations to be transferred in a MoG change, and how related appropriations can be accessed, it is important to consider the:
- current year annual appropriations that may need to be transferred, including departmental and administered appropriations, appropriations for payments to states, territories and local government, new administered outcomes, equity injections and/or administered assets and liabilities
- prior year annual appropriations that may need to be transferred, including any amounts withheld under section 51 of the PGPA Act and/or administratively quarantined amounts.
Section 75(4) of the PGPA Act requires that appropriation transfers must not result in:
- a change in the total amount appropriated in the financial year in which the determination is made (section 75(4)(a)), or
- an increase in the total amount appropriated in relation to previous financial years (section 75(4)(b)).
The amount of annual appropriation retained by the transferring entity must NOT be less than the amount spent by that entity, to avoid an inadvertent breach of section 83 of the Commonwealth of Australia Constitution Act (the Constitution). Particular care should be taken, for example, where prepayments are significant.
Departmental appropriations comprise:
- ordinary operating costs (for example, salaries, supplier costs, accruing employee entitlements, and operational expenditure excluding depreciation)
- departmental capital budgets for the replacement of minor assets valued at $10 million (for further detail, see paragraph 7 of the Explanatory Memorandum to Appropriation Bill (No. 1) 2021-2022) or less, as well as costs eligible to be capitalised.
In determining the appropriation amounts to be transferred, entities should take account of current-year expenditure incurred by both entities, and any prior-year appropriations held by the transferring entity, to cover liabilities accrued and assets consumed in those years.
Care should be taken when determining the amount of appropriations to be transferred, particularly in relation to asset funding (such as for fit-outs, information and communications technology equipment, systems and software), employee entitlements and appropriations receivable. A ‘step-by-step’ guide for calculating transfer amounts under section 75 of the PGPA Act is included at Appendix 1. Entities should agree their own detailed calculation approach with each other and then agree work papers with their audit teams.
Other annual appropriations
For administered expenses and specific purpose payments to states and territories, the annual administered appropriations are provided for each entity outcome for a particular financial year. The transfer of unspent balances is subject to the level of appropriations available.
For equity injections and loans, the transfer amount for unspent appropriations should be determined with regard to the intended use of the appropriation for the transferred function(s), for example, to deliver a specific budget measure, purchase a specific asset or pay-out a specific liability.
Part 6 – Discontinued operations
Where a function is discontinued, the drawdown schedule of the responsible entity should be reduced accordingly. Finance will also put in place withholding/quarantine arrangements for the discontinued function, where appropriate.
If an entity has already drawn down moneys attributable to discontinued operations, a liability should be recognised and revenues from government should be reduced. The liability will be extinguished by making a cash transfer back to the Official Public Account. See the MoG changes - a guide for entities for more information on banking arrangements.