This resource management guide (RMG) is for use by all Commonwealth entities (entities) as defined by the Public Governance, Performance and Accountability Act 2013 (PGPA Act). It provides guidance to entity officials with responsibility for preparing entity financial statements in compliance with the:
- Public Governance, Performance and Accountability (Financial Reporting) Rule 2015 (FRR)
- Australian Accounting Standards (AAS)
This RMG is intended for use by officials with existing knowledge of FRR and AAS requirements – it is not a training tool and does not give ‘step-by-step’ guidance for preparing financial statements.
- provides general information to support the preparation of annual financial statements (e.g. definitions, rounding and materiality policies) and explains accounting treatments required by the FRR, including where the AAS allows choice of accounting treatments
- provides relevant extracts of the FRR that should be read as supporting guidance
- aligns with the Department of Finance (Finance) Primary Reporting and Information Management Aid forms of financial statements (PRIMA forms), which assist entities in preparing financial statements.
Entities need to apply professional judgement in preparing annual financial statements, to:
- ensure the FRR and AAS are correctly applied for their entity’s classification and circumstances
- present fairly the entity’s financial position, financial performance and cash flows.
This guide replaces Commonwealth entities financial statement guide – 2019-20 (RMG 125), dated March 2020.
Related resources including appendices, glossary terms and relevant sections of the PGPA Act and Rule are located in the right hand menu bar. Appendices are available under Tools and templates.
Part 1. Foundations for financial statements
- All Commonwealth entities are required to prepare annual financial statements in accordance with the PGPA Act or other legislation that established particular entities. The financial reporting requirements for Commonwealth reporting entities are set out in the FRR.
- All Commonwealth reporting entities are required to prepare their annual general‑purpose financial statements in accordance with the PGPA Act, FRR, AAS and/or other entity-specific legislation
- Entities are responsible for presenting information in their financial statements that present fairly the entity’s financial position, financial performance and cash flows, in accordance with paragraph 15 of Australian Accounting Standards Board (AASB) 101 Presentation of Financial Statements (AASB 101).
1.1 Legislative authority - the Financial reporting Rule
4. The FRR 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 preparation and auditing process
- enable preparation of the Australian Government consolidated financial statements (Australian Government CFS).
1.2 Financial reporting requirements
- 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 – Reduced Disclosure Requirements – comprises the recognition and measurement requirements of Tier 1 but with substantially reduced disclosure requirements.
- While Tier 2 entities are not required to disclose, in their financial statements, the impact of any new AASB accounting standard that is issued but not yet effective, such impact is required for Australian Government CFS purposes. Information required for the Australian Government CFS is specified in the Supplementary Reporting Pack (SRP), issued annually to entities by Finance.
- Entities are required to comply with end-of-year financial reporting requirements issued by Finance.
- In preparing financial statements to present fairly the entity’s financial position, financial performance and cash flows, entities will need to:
- apply professional judgement – the entity is encouraged to develop a formal position on issue/s, and inform their auditors as early as possible (e.g. if the reclassification of a comparative amount is impracticable under AASB 101)
- cross-reference disclosures – each required disclosure must be cross-referenced with relevant notes and/or schedules in accordance with AAS requirements
- (e.g. paragraph 113 of AASB 101). Other cross‑referencing is to be included where it would provide useful additional information
- consolidate accounts – subsidiaries of the entity must be consolidated to present the financial performance and position of the consolidated entity. Therefore, the financial report of an entity must encompass all the entities it controls, accounted for in accordance with the consolidation standard AASB 10 Consolidated Financial Statements (AASB 10)
- disclose comparatives – comparatives must be disclosed for the reporting period unless they are specified elsewhere in the FRR or an applicable AAS, such as AASB 1055 Budgetary Reporting (AASB 1055). 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 switched from non-corporate to corporate, which may be included in a separate and shaded column next to the departmental comparatives. Additionally, 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
- ‘net cost of services’ vs ‘profit or loss’ – 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' are to be replaced with 'net cost of services' (or 'surplus or deficit') in line with PRIMA forms. For-profit entities need to adjust the disclosure to reflect their circumstances.
- Where an entity includes notes and disclosures in addition to those required under the FRR and the AAS then these should be consistent with FRR and AAS requirements, including measurement and recognition.
1.3 Principles required for financial reporting
- The financial statements of each entity are required to consider and apply:
- Statement of Accounting Concepts (SAC) 1 Definition of the Reporting Entity (SAC 1)
- interpretations issued by the AASB
- Framework for the Preparation and Presentation of Financial Statements (AASB Framework)
- other Finance guidance relevant to the preparation of financial statements.
- SAC 1 and the AASB Framework 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)). By themselves, these are not mandatory in the preparation or presentation of a reporting entity’s financial statement.
- However, the principles in these documents (while not explicitly stated in the FRR) are of such importance that they must be considered in the process of preparing financial reports. If required, entities must be able to demonstrate 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, for discussion with auditors.
1.4 Assurance and certification
- To provide assurance on the completeness and accuracy of an entity’s financial statements:
- the chief financial officer (CFO) of the entity must certify that information is based on properly maintained financial records, under subsection 41(2) of the PGPA Act
- an independent auditor’s report, issued by the Australian National Audit Office (ANAO), provides the auditor’s opinion on whether the entity’s financial statements:
- have been prepared in accordance with the FRR and AAS
- present fairly the entity’s financial position, financial performance and cash flows.
1.5 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 event type indicates that the going concern assumption is no longer appropriate. If an entity receives information after the reporting date about conditions that existed at the reporting date, the disclosures that relate to those conditions are to be updated to reflect the new information.
- If non-adjusting events after the reporting date are material, non-disclosure could reasonably be expected to influence the economic decisions of users based on the financial statements. Accordingly, an entity is to disclose the following for each material category of non‑adjusting events after the reporting date:
- the nature of the event
- an estimate of the event’s financial effect or a statement that such an estimate cannot be made.
Part 2. Application and presentation
2.1 Applicable entities
6 Applicable entities
For profit or not-for-profit
- Under paragraph 8 of AASB 1054 Australian Additional Disclosures (AASB 1054), an entity is required to disclose whether it is a for-profit or NFP entity. The distinction between for-profit and NFP entities is significant and has implications for the accounting policies that an entity can adopt. Entities are, by default, considered to be NFP – the onus is with an entity to make a case for being classified as for-profit.
- A NFP’s principle objective is not the generation of profit (AASB 102 Inventories) – see the statement on the entity’s objectives. A NFP entity can be a single entity or a group of entities comprising the parent entity and each of the entities that it controls.
- If legislation, regulations or the constitution of an entity explicitly states that its ‘principal’, ‘main’ or ‘sole’ objective is other than the generation of a profit, then it is presumed that the entity is NFP. If an entity’s principal objective is not explicitly stated, the secondary criteria for classifying an entity as for-profit or NFP is:
- the nature of funding
- if financial targets reflect profit concepts or an objective for commercial success
- whether the entity has an obligation to pay income tax or income tax equivalents
- whether the entity intends to distribute a surplus, and/or
- classification for Government Finance Statistics.
2.2 Authoritative requirements and materiality
7 Authoritative requirements and materiality
- As per section 41 of the PGPA Act, reporting entities must maintain proper accounting records to support all disclosures required by the prescribed rules such as the FRR, including the preparation of annual financial statements under sections 42 and 48 of the PGPA Act.
- Proper accounting records of all transactions must be maintained in accordance with section 41 of the PGPA Act and other applicable legal requirements including:
- Unless otherwise stated in the FRR or applicable AAS, all disclosures are subject to materiality (in addition to information required by appropriations and other disclosures). The FRR requirements apply where information resulting from their application is material.
- Appropriations (including special appropriations) are deemed material by nature. Therefore, entities must account for and disclose appropriations. For more information, see Part 8. Appropriations and Part 9.1 Special accounts.
- Materiality assessments are to be performed at the level of the entity preparing the financial statements (i.e. not at the general government sector (GGS) level or whole-of-government level). Professional judgement is critical in the assessment process.
- Unless an item is material by nature or deemed to be material, transactions and items generally need to be considered in the context of an appropriate measurement base (e.g. all items in financial statements, relative items, or classes of items), such as:
- statement of financial position items could be assessed relative to the appropriate asset or liability base
- cash flow items could be assessed against the net cash flow for operating, investing or financing activities
- statement of comprehensive income items could be assessed against total own‑source revenue and total expense figures.
2.3 Reporting of departmental and administered items
8 Departmental and administered: classification and reporting
Note: Corporate Commonwealth entities are legally separate from the Commonwealth whereas non-corporate Commonwealth entities are part of the Commonwealth.
- Items reported in financial statements must be classified as either:
- Departmental items – involve costs over which a non-corporate Commonwealth entity (NCE) has control. Departmental appropriations can be used to make any payment related to the functions of the NCE for purposes covered by other items whether or not they are in the Appropriation Act for an entity. Expenditure typically covered by departmental items includes:
- employee expenses, suppliers and other operational expenses (e.g. interest and finance expenses)
- the acquisition and capitalised maintenance of departmental assets valued at $10 million or less.
- Administered items – are those administered by an NCE on behalf of the government (e.g. certain grants, benefits and transfer payments). These payments are usually made pursuant to eligibility rules and conditions established by the government or the parliament. Specifically, administered items are tied to outcomes (departmental items are not).
- Entities must record transactions as either departmental or administered expenses, in accordance with the classification of the appropriation from which the activity is funded.
- Corporate Commonwealth entities (CCEs) undertake departmental reporting only as they have control over all their assets and liabilities, income received and expenses incurred.
- Reclassification of existing departmental and administered expenses, assets, revenue and/or liabilities must:
- meet specified criteria – in the first instance, contact the relevant Finance Agency Advice Unit (AAU)
- obtain written approval from the Minister for Finance (Finance Minister).
- Once an entity has approval to redesignate a departmental appropriation, it must seek a new appropriation for the redesignation. Without a new appropriation being made, entities are prohibited from redesignating their departmental appropriation provided under Appropriation Act 1 between operating and capital, even following a government decision to do so. Failing to report appropriations as per the original designation in their financial statement will result in non-compliance with AAS.
- Where the transfer of assets and/or liabilities under machinery of government (MoG) changes requires a reclassification between departmental and administered items:
- the receiving entity must notify the transferring entity of the need to reclassify and the transferring entity must reclassify the item/s prior to transfer
- transactions must be disclosed as ‘related party transactions’ for consolidation purposes.
2.4 Exemptions from the FFR
11 Exemptions from requirements in this rule
- The Finance Minister may grant an exemption from specific FRR requirements. A granted exemption may be subject to conditions, including a requirement for alternative forms of disclosure.
- An exemption would not be granted, if it may lead to a potential breach of the FRR or PGPA Act, or non‑compliance with an AAS. Entities must be aware that material non‑compliance with the AAS would also breach the PGPA Act.
- Approved exemptions from the FRR requirements are listed in the List of exemptions. Approvals remain effective until they are rescinded in writing or when the FRR is repealed, whichever occurs first. An exemption that has been:
- applied should be disclosed, in accordance with subsection 10(e) of the FRR
- granted but not applied by the entity does not have to be disclosed.
How to apply for an exemption from the FRR
- Entities seeking an exemption from specific FRR requirements are to submit a written request to email@example.com. The request must:
- demonstrate that the entity has a genuine need for an exemption, with consideration to:
- the impact on potential users of financial statements (e.g. parliament)
- alternative approaches to meeting the FRR requirements
- include the relevant section(s) of the FRR
- indicate the time period for which the exemption is required (e.g. current reporting period only or ongoing)
- be approved by the entity’s CFO, or another senior executive responsible for the preparation of financial statements.
- Finance will review the request and if appropriate, seek approval on behalf of an entity from the Finance Minister.
2.5 Applying AAS tiers and other reporting requirements
18 Application of tiers of Australian Accounting Standards
(1A) Reporting entities are subject to subsection (1) to (3) when applying AASB 1053 Application of Tiers of Australian Accounting Standards.
18A Other information required for the Australian Government consolidated financial statements
Note: Subsections 18(2) and 18(3) of the FRR are included at Appendix B.
- All entities must comply with the reporting requirements specified in the SRP.
- AAS tiers apply to most reporting entities in preparing their financial statements. Subsection 18(1) of the FRR enables Tier 2 entities (i.e. those entities not listed in subsections 18(2) and 18(3)), to prepare financial statement disclosures that meet minimum disclosure requirements under relevant accounting standards. Entities that must apply Tier 1 reporting requirements, in the preparation of their financial statements, are listed at Appendix B.
- While primary financial statements and supporting notes must still be prepared and audited, Tier 2 entities can reduce the disclosure of certain information, to shorten their financial statements and enhance readability. All Tier 2 entities must:
- prepare the minimum set of disclosures
- ensure their financial statements disclose all relevant material information (see paragraph 16 of AASB 1053).
- Some Tier 2 entities are also required to include information for specific notes or full disclosure, as specified in section 18 of the FRR.
- Under paragraph 18 of AASB 1053, Tier 2 entities may elect to apply Tier 1 reporting requirements, or include additional disclosures using Tier 1 reporting requirements if, in their judgement, the additional disclosures are consistent with the objective of general purpose financial statements.
- Under the reduced disclosure requirements (RDR) of AASB 1054, RDR 7.1 advises that Tier 2 entities (including those listed in the FRR to prepare disclosure notes above the minimum required) should make a statement in their notes regarding their compliance with Australian Accounting Standards - Reduced Disclosure Requirements.
Accounting policy changes and accounting estimates
- All accounting policy changes must be separately disclosed in entity’s financial statements.
- The process for making accounting estimates requires sound professional judgement based on the latest available information. Inherent business uncertainties and other activities mean that many items cannot be measured precisely – these items must be estimated. Entities are encouraged to document the basis for any accounting estimates, such as:
- judgements, assumptions, data sources and sensitivity analysis
- fair value (where relevant)
- the application of AAS methodologies.
Other information for the Australian Government CFS
- Under section 18A of the FRR, entities must make available to Finance any information not reported in their financial statements that is required for the Australian Government CFS. Information provided to Finance must have been quality assured by the entity, with governance processes similar to those used in preparing the entity’s financial statements.
2.6 Early adoption of accounting pronouncements
19 Early adoption of accounting pronouncements
- Due to potential impacts for preparing the Australian Government CFS, entities must seek approval from the accountable authority of Finance for early adoption of new AAS or AASB interpretations.
2.7 Improving the presentation of financial statements
- Reporting entities are encouraged to use professional judgement to improve the presentation of their financial statements for users, such as:
- reviewing the overview (previously called the ‘summary of significant accounting policies’) to ensure it:
- explains how FRR and AAS requirements relate to the entity
- does not simply repeat standard accounting information
- does not contain unnecessary information
- using primary statements rather than the notes (an entity may not wish to include information in a note if it only restates information from primary statements)
- reconsidering the format of note disclosures, particularly the format of tables, to make information easier to read and understand
- removing information that is not material
- providing information/disclosures to support the Australian Government CFS, at the time and in the format requested by Finance.
- Prompts to a user-focused presentation are included at Appendix C.
2.8 PRIMA forms
- PRIMA forms assist entities in preparing financial statements. PRIMA forms:
- detail common disclosures and related notes for financial statements required by the FRR and AAS, but do not cover disclosures for all AAS and AASB interpretations
- incorporate other reporting obligations (e.g. Corporations Act 2001).
- The use of PRIMA forms is not mandatory, however, entities are encouraged to follow the overall format and structure. Where required, Tier 2 entities may use professional judgement to modify PRIMA forms disclosures to reflect the entity’s circumstances or user’s needs. For example, an entity may:
- include further disclosures to reflect their business operations or meet stakeholders’ information needs – additional information or disclosures must not contravene AAS
- exclude components of the PRIMA forms that are not relevant to their operations or where no activity has taken place in either the current or previous financial reporting period, unless inclusion is mandatory under the FRR and/or AAS
- alter or amend the numbering of notes to financial statements as set out in PRIMA forms, to better support the contextual and logical flow of information for users
- alter the format (e.g. change the font, use of italics or orientation of a table), or use graphs and tables to communicate key results, movements or variances
- aggregate line items that are not material
- amend disclosures to reflect the nature of the entity or its activities, financial results and position at the reporting date.
- PRIMA forms demonstrate either Tier 1 or Tier 2 disclosures. Entities required to prepare Tier 1 disclosures, in accordance with subsection 18(3) of the FRR, may need to modify their disclosures accordingly.
2.9 Non-corporate entities and payment of debts
- Under section 15 of the PGPA Act, the accountable authority of an entity is responsible for the entity’s overall financial management and proper use and management of public resources in a way that promotes the financial sustainability of the entity, such as managing risks, obligations and opportunities of the entity.
- It is not necessary for an NCE to continue in its current form for a statement to be made about payment of debts. If an NCE is abolished, or substantially restructured, the Commonwealth remains responsible for the debt.
2.10 Rounding off
- Financial statements may be rounded-off, as shown in Table 2.10
Table 2.10: General rounding rules
The following thresholds are subject to
General rounding – rounding is to the nearest dollar.
Entities with assets, liabilities, expenses, income, commitments or contingencies in excess of $10 million – rounding is:
Entities with assets, liabilities, expenses, income, commitments or contingencies in excess of $1 billion – rounding is to the nearest $1 million, unless the amount is less than $500,000, in which case the amount needs to be rounded to zero.
For these thresholds, rounding-off:
When presenting amounts in financial statements, use:
Appropriations, special accounts and reporting of outcomes – rounded to the nearest $1 million.
To be consistently applied to departmental and administered reporting. If application results in different levels of rounding to departmental and administered reporting, the lower level of rounding is applied.
2.11 Appropriation receivable
- Appropriations receivable are to be measured at nominal amounts. Being non-contractual, they are not financial instruments under AASB 9 and, therefore, the fair value measurement and disclosure requirements in AASB 13 Fair Value Measurement (AASB 13) do not apply to appropriations receivable.
- Appropriations receivable are to be assessed for impairment in accordance with AASB 136 Impairment of Assets (AASB 136). However, impairment expenses are unlikely to occur as amounts not expected to be available are normally addressed by applying section 40 of the FRR.
2.12 Certificates and assurance
10 Certificates and assurance
Each reporting entity must present a statement signed by the accountable authority of the entity or a member of the accountable authority of the entity (if the accountable authority is not an individual) and the CFO of the entity, stating:
(a) whether the financial statements, in their opinion, comply with subsection 42(2) of the PGPA Act;
(b) whether the financial statements, in their opinion, have been prepared based on properly maintained financial records as per subsection 41(2) of the PGPA Act;
(c) for reporting entities other than the Reserve Bank of Australia, whether, in their opinion, there are, when the statement is made, reasonable grounds to believe that the entity will be able to pay its debts as and when they fall due;
(d) when additional information is included in the notes to comply with subsection 42(2) of the PGPA Act, the reasons for including this additional information and the location of the additional notes in the financial statements;
(e) the particulars of any exemptions of this rule applied by the reporting entity;
(f) for corporate Commonwealth entities, that the statement has been made in accordance with a resolution of the members of the accountable authority; and
(g) the date on which the statement is made.
- Entities must include a statement with their financial statements in accordance with section 10 of the FRR, signed by the entity’s accountable authority or a member of the accountable authority (if the accountable authority is not an individual) and the CFO. For CCEs, the certification must state that the statement is made in accordance with a resolution of the members of the accountable authority.
- An entity is required to disclose additional information as necessary to present fairly the entity’s financial position, financial performance and cash flows, under section 10 of the FRR and under subsection 42(2) of the PGPA Act.
Part 3. Statement of comprehensive income
- This Part excludes information on appropriations – see Part 8: Appropriations.
12 Presentation of financial statements
When applying AASB 101 Presentation of Financial Statements in preparation of financial statements, reporting entities must present all items of income and expense recognised in a period in a single statement of comprehensive income.
- Under section 12 of the FRR, each entity must present income and expenses in a single statement of comprehensive income – entities are not permitted to prepare a separate income statement and statement of comprehensive income (even though AASB 101 permits this).
- NFP entities must use the Net Cost of Services format for the statement of comprehensive income consistent with PRIMA forms.
- Presentation of expenses in the comprehensive income should be on a positive basis unless the specific expense item is a negative expense (e.g. credit balance) – to support transparency.gov.au disclosures.
Extraordinary items and separate disclosures
- Under the AASB 101:
- an entity must not present any items of income and expense as extraordinary items, either on the face of the statement of comprehensive income or in the notes (paragraph 87)
- when items of income and expense are material, their nature and amount are to be disclosed separately (paragraph 97)
- paragraph 98 lists circumstances that would give rise to the separate disclosure of items, either in the statement of comprehensive income or the notes.
Losses and gains from asset sales
- Proceeds from the disposal of assets and the carrying amount of assets sold, are to be netted-off as a gain or loss on disposal. A material gain is to be presented as a separate class of income from revenue.
- Material gains and losses on the disposal of non-current assets (including investments and operating assets) are to be reported in the notes by deducting the carrying amount of the asset and the related selling expenses from the proceeds on disposal. Entities must separately disclose this information in accordance with disclosure requirements.
Accounting for the Goods and Services Tax
- As required in Interpretation 1031 Accounting for the Goods and Services Tax (GST) (Interpretation 1031), the net amount of GST recoverable from, or payable to the Australian Taxation Office (ATO), shall be included as part of a receivable or payable in the statement of financial position. Receivables and payables are to be disclosed, inclusive of GST.
- Revenues and expenses must be recognised net of the GST amount, except where the:
- amount of GST incurred is not recoverable from the ATO
- GST must be recognised as part of the expense.
- Entities should make it clear in commitment disclosures whether an amount is inclusive or exclusive of GST.
Other comprehensive income note – reclassification adjustments
- Various AAS specify if, and when, amounts previously recognised in other comprehensive income are to be reclassified to net cost of services. These are reclassification adjustments – see paragraphs 92–96 of AASB 101.
Table 3.1: Examples of when a reclassification adjustment may arise
On the disposal of a foreign operation see AASB 121 The Effects of Changes in Foreign Exchange Rates (AASB 121).
For changes in revaluation surplus recognised in accordance with:
Where an asset is reclassified from fair value through other comprehensive income to amortised cost or vice versa – see
For re-measurement of defined benefit plans recognised in accordance with
- A reclassification adjustment shall be included with the related component of other comprehensive income, in the period the adjustment is reclassified to net cost of services.
Revenue recognition by not-for-profit entities
- NFP entities must perform a detailed contract review for their income streams to determine if a transaction is in the scope of AASB 15 Revenue from Contracts with Customers (AASB 15), AASB 1058 Income of Not-for-Profit Entities (AASB 1058) or both. The decision tree at Figure 3.1 will assist NFP entities in determining which standard applies to an income stream.
Figure 3.1: Decision tree for revenue recognition by NFP entities
Application of revenue standards
- Appendix F of AASB15 provides guidance that will assist NFP entities in determining which standard applies to the recognition and measurement of income arising from a particular transaction or event.
- The principles of AASB 1058 apply to:
- transactions where the consideration to acquire an asset is significantly less than fair value – principally to enable an NFP entity to further its objectives, including transfers to enable an entity to acquire or construct a recognisable non-financial asset to be controlled by the entity
- the receipt of volunteer services.
- A contract component is likely to be for enabling the NFP to further its objectives (not related to the promised goods or services), where:
- there is a non‑refundable component of the transaction price
- the entity has the status of a deductible gift recipient – the donor can claim part of the transaction price as a tax deduction for a donation (see paragraph F31 of AASB 15).
- AASB 15 provides guidance for determining when to recognise revenue and how much revenue to recognise. The five-step guidance of a contract with a customer includes:
- identifying a contract with a customer (paragraphs 9–21)
- identifying the performance obligations in the contract (paragraphs 22–30)
- determining the transaction price of the contract (paragraphs 46–72)
- allocating the transaction price to performance obligations (paragraphs 73–90)
- recognising revenue when each performance obligation is satisfied (paragraphs 31–45).
- A customer is a party that is contracted with an entity:
- to obtain goods or services that are an output of the entity’s ordinary activities
- promises consideration in exchange for those goods or services.
- Under paragraph 6 of AASB 15, a counterparty is not a customer if the counterparty has contracted with the entity to:
- participate in an activity or process
- share in the risks and benefits from the activity or process.
- Under AASB 15, revenue is recognised when a performance obligation is satisfied by transferring a promised good or service to a customer. Transfer occurs when the customer obtains control of the good or service.
- Control of the good or service is the ability of the customer to:
- direct the use of the asset
- obtain substantially all of the remaining benefits from the asset
- prevent others from directing the use of, and obtaining the benefits from, the asset.
- Under paragraph F20 of AASB 15, to identify a performance obligation of an NFP entity, it is necessary that the promise is sufficiently specific to be able to determine when the obligation is satisfied.
- As listed in paragraph B2 of AASB 1058, examples of transactions that do not relate to performance obligations (i.e. donation transactions) are:
- For Implementation Options for AASB 1058 Income of not-for-profit entities in conjunction with AASB 15 Revenue from contracts with Customers. see Finance position paper
- Under AASB 15, entities shall measure and recognise the amount of the transaction price as revenue when a performance obligation is satisfied – excluding amounts collected on behalf of third parties (such as GST).
- Under paragraphs 9–17 of AASB 1058, income is determined as the difference between the consideration for an asset and the asset’s fair value, after recognising any other related amounts. The timing of income recognition will depend on whether a transaction gives rise to a performance obligation, liability or contribution by owners.
84. Contracts may include variable consideration due to:
- price concessions
- penalties, or
- other similar items.
- Where this is the case, under paragraph 54 of AASB 15 entities shall apply one method consistently throughout the contract when estimating the effect of an uncertainty on variable consideration. Of the two methods specified in paragraph 53 of AASB 15 must select the one expected to best predict the amount of consideration the entity will be entitled to.
Non-contractual income from statutory requirements
- Income arising from statutory requirements (e.g. taxes, rates and fines) recognised during the period must be disaggregated into categories that reflect how the nature and amount of income are affected by economic factors (paragraph 28 of AASB 1058), noting that:
- taxes, rates and fines are not recognised in accordance with AASB 15, even when they are raised in respect of specific goods or services and they are not contributions by owners acting in their capacity as owners (paragraphs B28–29 of AASB 1058)
- income tax receivable from a taxpayer, the interest income and impairment losses recognised in relation to such receivables during the period are not a financial asset as defined in AASB 132 Financial Instruments: Presentation
- under paragraph 30 of AASB 1058, other information that may be appropriate for an entity to disclose includes for each class of taxation, income that the entity cannot measure reliably during the period in which the taxable event occurs (paragraphs B28-31 of AASB 1058), including:
- information about the nature of the tax
- the reason(s) why that income cannot be measured reliably
- when that uncertainty might be resolved.
- Appendix G of AASB 15implementation guidance for NFP public sector licensors, including for:
- determining how to account for revenue from licences
- distinguishing a licence (i.e. subject to AASB 15 from a tax (i.e. subject to AASB 1058)
- non-contractual licences arising from statutory requirements
- recognition exemptions.
Accounting for grants and disclosing assistance by for-profit entities
14 Accounting for Government grants and disclosure of Government assistance
- AASB 120 Accounting for Government Grants and Disclosure of Government Assistance (AASB 120) provides (for-profit entities only) with a number of options for accounting for government grants. Section 14 of the FRR removes the alternative options for for-profit entities, except for transactions under the Paid Parental Leave (PPL) scheme.
- Under sections 7 and 8 of AASB 120, a grant is not to be recognised until there is reasonable assurance that the entity will comply with the grant conditions and that the grant will be received. Receipt of a grant, of itself, is not conclusive evidence that the grant conditions have been, or will be, fulfilled. Paragraph 10A of AASB 120 requires the benefit of a government loan at below the market rate of interest to be treated as a government grant. Such loans are to be recognised and measured in accordance with AASB 9.
Paid Parental Leave scheme
- Payments under the PPL scheme are taxable and subject to income and residency tests. PPL payments are not salary for workers compensation purposes and PPL leave is not to be counted as paid leave.
- Employers are not obliged to make payments unless they have received funding from the government prior to payroll cut off.
- Section 27 of the Public Governance, Performance and Accountability Rule 2014 (PGPA Rule) provides that amounts received by employers under the scheme are ‘relevant non-corporate Commonwealth entity receipts’ and may be retained and used by NCEs in accordance with section 74 of the PGPA Act. Entities are responsible for determining the payroll, accounting, recording and reconciliation processes relating to receipt and payment of parental leave.
- Under section 74 of the PGPA Act, NCEs are to disclose PPL receipts in their financial statements as ‘relevant non‑corporate Commonwealth entity receipts’.
- For the PPL scheme, accounting treatments include:
- the statement of comprehensive income – amounts received by employers under the scheme are not revenue for the purposes of AASB 1058 therefore, payments to employees for parental leave are not expenses
- accounting treatment for statement of financial position – as employers have received amounts at balance date that have not yet been paid to employees, these must be accounted for as cash and a liability (i.e. payable)
- statement of cash flows – for the purposes of AASB 107 Statement of Cash Flows (AASB 107), receipts and payments must be accounted for as operating cash flows – see paragraphs 13–15 of AASB 107. Cash flows associated with the PPL scheme are to be reported on either a gross or net basis, in accordance with paragraph 22(b) of AASB 107.
Recognition of accrued expenses
- Accrued expenses are only to be recognised to the extent that they meet the requirements for recognition of the liability under AASB 137 Provisions, Contingent Liabilities and Contingent Assets (AASB 137). For guidance and examples on what constitutes a present obligation, see paragraphs Aus26.1 and Aus26.2 of AASB 137.
- Where an amount that has been expensed is refunded to the entity, it is appropriate to treat this amount as a reduction in the expense, except where:
- the amount is received in a subsequent year – in which case it is recorded as income
- the expense is incurred by the Department of Foreign Affairs and Trade (DFAT) on behalf of another entity and DFAT is subsequently reimbursed by that entity. DFAT may record the reimbursement as a reduction in the applicable expense item, regardless of the year in which the reimbursement is received.
- For guidance on retainable receipts under the provisions of the PGPA Act (section 74) and section 27 of the PGPA Rule – Collecting revenue or money (RMG 307).ee
- The treatment for accrual accounting purposes may not be the same as treatment for appropriations. Refunded amounts can be added to an entity’s most recent departmental appropriation item, regardless of the accounting treatment, if the type of receipt is prescribed in the PGPA Rule subsection 27(4) for the purpose of the PGPA Act subsection 74(1).
Employee related expenses
- For the following employee related expenses:
- employee benefits expenses – include employee remuneration (both monetary and non‑monetary), but do not include payments or reimbursements of out-of-pocket expenses
- transfer of annual and long service leave (LSL) entitlements – in accordance with paragraph 42 of AASB 1004, the liability in respect of employee benefits accrued up to the transfer date is usually transferred when an employee transfers from an NCE to another Commonwealth entity or to the High Court of Australia. If a payment in consideration for the assumption of annual or LSL liability is made or is to be made:
- the receiving entity shall recognise the assumed liability and an increase in assets (cash or cash receivable); and the losing entity shall recognise the liability extinguished and a decrease in assets (cash) or an increase in liabilities (cash payable)
- where the payment is less than the total amount of the liability for employee entitlements assumed, the receiving entity shall recognise an expense equal to the amount of that shortfall
- cash received in consideration for the assumption of the liability must not be recognised as revenue
- the losing entity shall disclose liabilities assumed by another entity during the reporting period
- separation and redundancy/termination benefits expenses – payments do not include any benefits that would have been accrued and payable if the redundancy had not occurred (e.g. accrued leave entitlements and lump sum superannuation payments). Termination benefits do not include any benefits that are a result of employment being terminated at the request of the employee (i.e. without an entity’s offer or resulting from mandatory retirement requirements). Such benefits are post-employment benefits.
- Each part of an item of property, plant and equipment (PPE), with a cost that is significant in relation to the total cost of the item, is to be depreciated separately. If the useful life and depreciation method are the same for each significant part, such parts may be grouped in determining the depreciation charge.
- Depreciation of PPE used for development activities may be included in the cost of an intangible asset, recognised in accordance with AASB 138.
- Depreciation of an asset ceases at the earlier date of:
- the asset being classified as held for sale, in accordance with AASB 5 Non-current Assets Held for Sale and Discontinued Operations (AASB 5), or
- the date that the asset is derecognised.
- Depreciation does not cease when the asset becomes idle or is retired from active use.
- Heritage and cultural assets are not depreciated when appropriate restoration activities are undertaken to deem the assets have an indefinite useful life. For more information, see Part 4.5 Heritage and cultural assets.
Write-down and impairment of assets
- For NFP entities, if the carrying amount of a class of assets is increased as a result of a revaluation, the net revaluation increase shall be:
- recognised in other comprehensive income
- accumulated in equity under the heading of asset revaluation surplus
- recognised in net cost of services, to the extent that it reverses a net revaluation decrease of the same class of assets previously recognised in net cost of services.
- Under AASB 136, entities are required to assess at each reporting date if there is indication that an asset may be impaired and, if so, to assess assets for impairment. Intangible assets with an indefinite useful life or intangible assets not yet available for use must be tested for impairment annually, by comparing the carrying amount to the recoverable amount.
Recognition of accrued grant expenses
- Accrued grant expenses are only recognised to the extent that they meet the requirements to recognise the liability under AASB 137grant conditions (i.e. grant eligibility criteria) were met by the grantee entity, or those entities that have provided services or facilities required by the grant agreement.
- For more guidance and examples on what constitutes a present obligation, see paragraphs Aus26.1 and Aus26.2 of AASB 137.
3.3 Borrowing costs
15 Borrowing costs
When applying AASB 123 Borrowing Costs in preparation of financial statements, reporting entities that are not-for-profit entities must expense borrowing costs as incurred.
- While paragraph Aus8.1 of AASB 123 Borrowing Costs (AASB 123) allows NFP entities to elect to recognise borrowing costs as an expense in the period in which they are incurred, section 15 of the FRR removes such election (i.e. NFP entities must expense borrowing costs as they are incurred).
- AASB 16 LeasesAASB 16 applies to financial reporting periods on or after 1 January 2019. This standard sets the principles for the recognition, measurement, presentation and disclosure of leases to ensure that lessees and lessors provide relevant information in a manner that faithfully represents those transactions. Entities are to:
- consider the terms and conditions of contracts and all relevant facts and circumstances when applying AASB 16
- the standard consistently to contracts with similar characteristics and in similar circumstances.
Disclosure of leases
- For lessees, AASB 16 removes the distinction between operating and finance leases. On the balance sheet, all lessee leases are to be recognised as a right-of-use (ROU) asset and lease liability.
- For lessors, each lease is to be classified as either an operating lease, or a finance lease. Lessors are to:
- disclose minimum lease payments, sublease payments and contingent rents – disclosed separately for each class
- disclose operating leases in the notes to the financial statements
- classify leases with a land component for accounting purposes – assess the classification of each element as a finance lease or an operating lease separately, as detailed in Guide to implementing AASB 16 Leases.
Lessees’ treatment of right-of-use assets
- Lease ROU assets should be classified by Commonwealth lessees as separate asset classes to corresponding assets owned outright. Entities must disclose ROU assets as a separate class.
- Commonwealth lessees are required to apply a cost model under AASB 16 to measure lease ROU assets for initial recognition, initial measurement and subsequent measurement of lease ROU assets. For more information, see subsection 17(2A) of the FRR and Part 4.2 Valuation of non-financial assets.
Lessor classification of a sublease
- For a sub-lessor, whether a sublease is accounted for as a finance lease or an operating lease depends on whether substantially all the risks and rewards incidental to ownership of the underlying ROU asset are transferred. The minimum benchmark for a sublease to be considered a finance sublease is the transfer of at least 75 per cent of the head lease ROU asset.
Lease maturity analysis
34C Lease maturity analysis under AASB 16 Leases
Reporting entity is a lessee
Reporting entity is a lessor
- Under section 34C of the FRR, the disclosure requirements for lease maturity analysis are applicable to both Tier 1 and Tier 2 entities:
- essee is required to disclose a maturity analysis of lease liabilities separately from the maturity analyses of other financial liabilities in notes to the financial statements
- lessor payments receivable are to be disclosed with a maturity analysis on an annual basis for the first five years and a total for the remaining years of the lease.
Lessee lease liabilities
- Under subparagraph 47(b) of AASB 16, lessee lease liabilities can be:
- presented separately in the statement of financial position, or
- disclosed in the notes – identifying the line items in the statement of financial position that include those liabilities.
- Under paragraphs 29–31 of AASB 101, if an entity chooses to aggregate the lessee lease liability with financial liabilities, it must be able to demonstrate that the lessee lease liability and the financial liabilities are of a similar nature or function – otherwise separately present items of a dissimilar nature or function. For the purpose of the Australian Government CFS, entities are required to disclose lease liabilities separately from other financial liabilities. Aessee is required to disclose a maturity analysis of lease liabilities separately from the maturity analyses of other financial liabilities in notes to the financial statements lessor payments receivable are to be disclosed with a maturity analysis on an annual basis for the first five years and a total for the remaining years of the lease.
3.5 Key management personnel remuneration
27 Key management personnel remuneration
Measurement and disclosure
- Key management personnel (KMP) remuneration is defined in AASB 124 Related Party Disclosure (AASB 124) as consideration paid, payable or provided by the entity and is to be measured in accordance with AASB 119, with the exception of superannuation which is to be measured as follows:
- individuals in a defined superannuation contribution scheme (e.g. Public Sector Superannuation accumulation plan (PSSap)) – superannuation includes defined superannuation contribution amounts typically located on payslips of individuals
- individuals in a defined superannuation benefit scheme (e.g. Public Sector Superannuation Scheme (PSS) and Commonwealth Superannuation Scheme (CSS)) – superannuation includes the Notional Employer Contribution Rate amount and the Employer Productivity Superannuation Contribution (also known as the productivity component).
- Other KMP measurement and disclosure requirements, include:
- promotion of an individual to a KMP during the reporting period – all remuneration earned prior to the promotion is excluded from calculations, unless the person acted as KMP prior to their appointment/promotion
- disclosure of the total number of KMP – to be included in the KMP remuneration note (subsection 27(4) of the FRR), calculated as the total number of individuals who have remuneration included in the KMP remuneration table
- entities may need to provide an explanation if the total number of KMP appears unusual or warrants additional explanation (e.g. the reporting entity had a high number of part‑time directors, or many KMP were promoted in a restructure that occurred during the year)
- part-time KMP – KMP who work part-time and who meet the relevant inclusion criteria are to be included in the disclosures
- acting arrangements – the period of acting by itself is not a reliable indicator that a person is KMP. In determining if acting arrangements should be included in the KMP remuneration disclosure, entities should exercise professional judgement in applying the definition of KMP in AASB 124. Considerations may include:
- whether there is any acting arrangements directly preceding a permanent promotion to a KMP position, and/or
- roles and responsibilities given to acting personnel (i.e. decision-making the person was involved in during the acting period and the significance of those decisions on the entity’s financial position, performance and operations).
KMP secondment arrangements
- In the context of this RMG, a secondment may occur between:
- one Australian Public Service (APS) entity and another APS entity, or
- an APS entity and a non-APS entity.
- Secondment is an arrangement where an employee ‘lent’ by one entity/organisation to perform work with/for another entity/organisation for a period of time. During the secondment period, the employee remains an employee of their home entity/organisation. The essence of a secondment arrangement is that:
- for an APS employee – the employee’s APS entity (the home employer, that has signed the employment contract) directs them to perform duties in/for another APS entity, or a non-APS organisation (the host employer)
- for a non-APS employee – the employee’s non-APS organisation (the home employer) directs them to perform duties in/for an APS entity (the host employer).
- Typically, the home employer remains responsible for the payment of salary and nearly all employment terms and conditions. However, the host employer may, for practical reasons, pay the employee or reimburse the home entity for the costs of the employee.
- For the purposes of the KMP remuneration note, amounts are to only be reported by the host employer and the expense is measured as follows:
- where a formal written agreement for secondment exists – the amount of remuneration to be disclosed, is in line with the formal agreement
- where no formal written agreement for secondment exists between the home and host entities – the remuneration expense relating to the secondee is to be obtained from the home entity.
- Entities benefiting from a resource received free of charge arrangement under a secondment arrangement are to make a statement to the effect that the amounts disclosed are included as receipt of goods or services from another entity.
KMP remuneration note
- Entities are required to disclose remuneration using the following four major categories:
- short-term employee benefits (includes for example: salary annual leave expense and performance bonus)
- other long-term employee benefits (includes for example: long-service leave expense, long-term disability benefits, profit-sharing)
- post-employment benefits (includes for example: superannuation, post-employment life insurance and post-employment medical)
- termination benefits, other than accrued leave entitlements.
- The remuneration note is to include:
- the accrued leave expenses for the period (subsection 27(1) of the FRR)
- performance bonuses (i.e. expenses incurred during the reporting period not the cash paid).
- The remuneration note is to exclude:
- leave balances transferred from other entities, where they only impact on the provision rather than the expense (paragraph 42 of AASB 1004)
- leave paid out on separation – this is a reduction in the provision and was previously reported as remuneration when the entitlement was earned.
Other KMP disclosures
- Under paragraph 17A of AASB 124, disclosure of KMP compensation is not required by category if the KMP services are provided by a separate management entity. Where KMP services are from another entity on a fee-for-service contract arrangement, it is not a requirement to include the breakup of amounts in the disclosure of KMP remuneration. However, the amount in total needs to be disclosed.
- Other KMP disclosures include:
- ministers’ remuneration – implementation guidance (paragraphs IG7 and IG8) applies to all KMP including ministers. Entities:
- are not required to disclose ministers’ remuneration in their financial statements
- may include (at the entity’s discretion) a note to disclose the fact that ministers’ remuneration is met by the Australian Public Service Commission and Finance through special appropriations
- consolidated financial statements – when preparing the consolidated financial statements for an economic entity, the parent entity is required to separately disclose the KMP of the following in accordance with the requirements of this topic:
- the economic entity
- the parent entity (including where the parent entity elects to disclose only parent entity supplementary information as permitted by section 6 of the FRR)
- related party transactions – the objective of AASB 124 is to draw attention to the possibility that an entity’s financial position and operating result and performance may have been affected by transactions with related parties. The criteria that are relevant when assessing materiality for disclosing transactions between an entity and its KMP related parties are discussed in:
- AASB 124 Agenda Decision (April 2017)
- AASB Practice Statement 2 (December 2017)
- other references such as the ‘Australian Implementation Guidance to AASB 124’ can also assist entities in making materiality judgements
- auditor’s remuneration – only Tier 1 reporting entities who do not receive audit services free of charge need to provide separate disclosure of auditor’s remuneration (paragraphs 10 and 11 of AASB 1054).
Part 4. Statement of financial position
4.1 Receivables for statutory charges
20 Receivables for statutory charges
Receivables for statutory charges must be assessed for impairment under AASB 136 Impairment of Assets.
- Statutory charges (receivable or payable) are not financial instruments – examples of statutory charges include GST (receivable from or payable to the ATO), levies, rates and fines. However, the initial recognition and measurement of statutory receivables are treated as if they are financial instruments under AASB 9.
- Material individual receivables should be separately assessed for impairment. When statutory receivables exhibit similar characteristics that provide information about the possible collectability of the amounts owing to the entity, they shall be grouped together and assessed collectively for impairment.
- AASB 136 is relevant for impairment for statutory receivables and applies to administered assets that are not financial instruments. Estimates, averages and shortcuts may be applied under paragraph 23 of AASB 136, for determining fair value less costs of disposal or value in use. This assessment can be made on a portfolio basis where this is appropriate (e.g. impairment of a large portfolio of statutory receivables).
- Where the statutory receivables are material, entities are encouraged to include in their accounting policy, a reference to the fact that impairment is made under AASB 136.
4.2 Valuation of non-financial assets
17 Valuation of non-financial assets
(2A) Despite subsection (2), if a right-of-use asset recognised under AASB 16 relates to a class of property, plant and equipment to which the lessee reporting entity applies the revaluation model in AASB 116, the lessee reporting entity must, after the initial measurement of the right-of-use asset, measure the right-of-use asset by applying the cost model in AASB 16.
Asset recognition, valuation and depreciation
- As permitted by paragraph 35 of AASB 116, either the gross or net approach to disclosing revalued assets may be used for:
- guidance on assets held for sale as defined in AASB 5, see Accounting for non-current assets held for sale (RMG 111)
- more information on accounting for PPE, see Accounting for subsequent expenditure on property, plant and equipment (RMG 113).
- AASB 116 defines a class of assets as ‘a grouping of assets of a similar nature and use in an entity’s operations’. If an asset of a type listed in subsection 17(2) of the FRR is to be revalued, every other asset in the class in which that asset falls must also be revalued. Types of assets referred to in subsection 17(2) of the FRR are not automatically synonymous with classes. Classes and valuation classes are not necessarily a direct reflection of the groups of assets that are reported in disclosures such as ‘3.2A: Reconciliation of the Opening and Closing Balances of Property, Plant and Equipment and Intangibles’.
- Internally developed software is separable under AASB 138 and, if it meets the criteria under paragraphs 21 and 57 of AASB 138, can be recognised as an asset. For more information, see Accounting for internally developed software (RMG 109).
- Expenditure for research and development costs related to intangible assets that are not capitalised is to be disclosed under paragraph 126 of AASB 138.
- Each non-financial asset held at fair value listed in subsection 17(2) of the FRR or recognised in compliance with paragraph 17(4)(b) of the FRR, other than investment properties, should be assessed each year to ensure that the carrying amount does not differ materially from fair value as at reporting date. Where there is a material difference, then the entire class needs to be revalued (i.e. not just the individual assets).
- Where valuation is at fair value, AASB 13 sets out the requirements for measurement. Each entity is responsible for arranging appropriate valuations for assets they control or administer on behalf of the Commonwealth, on a timely basis for inclusion in financial statements.
- Subsection 17(2) of the FRR requires Commonwealth lessees to continue to measure ROU assets at cost (not revalued to fair value) after the initial measurement.
- Subsection 17(3) of the FRR allows an entity to measure immaterial other PPE at cost in accordance with paragraph 29 of AASB 116. This then requires those assets to be disclosed as a separate class of non-financial assets (e.g. minor PPE).
- In choosing the valuation model for immaterial PPE, consideration needs to be given to the cost of valuations against the benefit of doing so. Entities also need to exercise professional judgement to assess if immaterial PPE at an individual item remains immaterial for the total class of assets.
- A change of valuation of immaterial (or minor) other PPE from fair value to cost, is a change in accounting policy under AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors (AASB 108) that requires the entity to return the item to original cost less accumulated depreciation and amortisation (i.e. not simply a cessation of revaluation).
PPE: fair value measurement of asset under construction
- In order to recognise assets under construction/work in progress (WIP), entities need to satisfy the recognition test under paragraph 7 of AASB 116 (i.e. that the expenditure on WIP is probable to realise future economic benefits). The FRR requires the valuation of PPE using the revaluation model at AASB 116. Where WIP assets are included in a PPE class, WIP is to be measured at fair value.
- A number of techniques such as an indexation test can be used to guide an entity in determining if there is likely to be a material difference between carrying amount of WIP and current replacement cost – see Example 4.1. PPE WIP assets indexation test.
Example 4.1: PPE WIP assets indexation test
at 30 June
< 1 yr
1 - 2 yrs
2 - 3 yrs
3 - 4 yrs
4 - 5 yrs
In this example:
- CPI is assumed to be 3% pa compounded (i.e. Indexed Amount = Cost Amount X (1+r)n where r is CPI and n is number of years)
- the carrying amount of the WIP assets (all part of its ‘plant and equipment’ asset class) at cost differs from the indexed amount by 6.2%. If this amount was considered material for the asset class, the entity would need to revalue the relevant WIP assets in accordance with AASB 13.
NB: If the WIP carrying amounts have already been subject to indexation
(e.g. indexation clauses in a construction contract), then this approach would need to be modified.
- It is generally considered that there is no active market for the sale of partially completed PPE assets. In such circumstances, it is appropriate for the entity to use the cost approach (current replacement cost) under AASB 13.
- While the FRR does not mandate WIP to be at fair value (i.e. where WIP is not included within the PPE class), entities should still consider whether the carrying value of WIP, adjusted for any impairment loss, would differ materially from its fair value. This is particularly so where the construction period is extended over several years and there is a risk that WIP expenditure includes items unlikely to meet AASB 116 asset recognition requirements (e.g. discontinued project elements and significant rework).
Accounting for land under roads
- Under AASB 1051 Land Under Roads (AASB 1051), land under roads is defined as ‘land under roadways, and road reserves, including land under footpaths, nature strips and median strips’. Under AASB 116, land under roads acquired on or after 1 July 2008 is to be recognised. Finance has determined that land under roads acquired before this date will continue to be not recognised.
- Roads constructed on land are to be recognised and measured under AASB 116. Land under roads acquired on or after 1 July 2008 shall only be recognised if:
- it is probable that associated future economic benefits will flow to the entity – paragraph Aus49.1 of the Framework for the Preparation and Presentation of Financial Statements states that, for NFP entities, assets provide a means for entities to achieve their objectives. Future economic benefits are synonymous with the notion of service potential and can be from the provision of needed services to beneficiaries
- while the framework is silent on the degree of contribution necessary to meet this requirement, the future economic benefits test is assumed to be satisfied where it is probable that the entity will achieves its objectives. Entities need to regularly assess land under roads contribution against their objectives
- the cost or fair value can be reliably measured – fair value is determined in accordance with AASB 13. The valuation of land under roads is based on its potential rather than as a road, where physically possible, legally permissible and financially feasible – see Example 4.2. However, in many cases the land under roads cannot have an alternate use because of road dimensions, the need for continued road access and planning restrictions on surrounding areas etc.
- the amount is material – even where the value of land under roads can be determined, it may only be recognised as an asset when material (in accordance with the applicable AAS).
|If the land on which the roads in the parliamentary triangle in Canberra is commercially zoned, it would be valued on the basis of its potential to put an office building upon it, rather than as a road.|
- For assistance in determining whether land under roads can be reliably measured, email firstname.lastname@example.org.
Accounting for service concession arrangements by public sector grantor
- AASB 1059 Service Concession Arrangements: Grantors (AASB 1059) takes effect for reporting periods beginning on or after 1 January 2020. AASB 1059 sets out the accounting for service concession arrangements that public sector entities enter into with a private sector operator for the delivery of public services.
- Under AASB 1059, a public sector grantor is required to:
- recognise a service concession asset or reclassify an existing asset as a service concession asset
- measure the service concession asset at the current replacement cost at the initial recognition
- in most cases, recognise a corresponding liability relating to the service concession asset adjusted for any other consideration between the grantor and operator, using either or both the:
- financial liability model
- Grant of a Right to the Operator (GORTO) model.
- For the initial measurement of the GORTO liability, AASB 1059 requires a grantor to apply the revaluation model to measure the fair value using the current replacement cost of the service concession asset at the date of initial application, adjusted to reflect the remaining concession period relative to the total period of the arrangement. The net difference between the assets and liabilities recognised is reflected as an adjustment to opening retained earnings.
- The diagram at paragraph IG10 of AASB 1059 summarises the recognition and measurement requirements for service concession arrangements within the scope of AASB 1059.
- AASB 16 does not apply to assets that would be recognised as service concession assets under AASB 1059.
- For assistance in implementing AASB 1059, email email@example.com.
4.3 Impairment of non-financial assets
22 Impairment of non-financial assets
For the purposes of AASB 136, parts of reporting entities are not cash generating units where they are primarily dependent on funding from appropriations.
Generation of cash inflows
- Entities, or parts of entities, other than those whose main purpose is to generate net cash inflows, are not cash-generating units for the purpose of AASB 136.
- Non-corporate Commonwealth entity receipts related to income from the sale of goods and services, retained under section 74 of the PGPA Act, are to be included for determining whether entities are cash-generating units under AASB 136.
- NFP entities must refer to paragraph Aus5.1 of AASB 136 for non-cash generating assets held for continuing use of their service capacity – noting that under the revaluation model in AASB 116 and AASB 138, AASB 136 does not apply to assets regularly revalued to fair value.
Indicators of impairment
- Impairment indicators that are developed need to be appropriate to the entity’s operations and consider the materiality of the asset/asset class and the internal and external minimum indicators of impairment listed in paragraph 12 of AASB 136.
- Where an asset is assessed for impairment, some minimum impairment indicators specified in AASB 136 will be more relevant than others. The consideration of indicators of impairment is to be documented.
4.4 Analysis of non-financial assets
- Sufficient information and sub-total columns are to be disclosed for the reconciliation of amounts with corresponding line items on the statement of financial position. Notes to the financial statements need to include:
- reconciliation of the opening and closing balances of PPE and intangibles
- reconciliation of the opening and closing balances of investment property.
4.5 Heritage and cultural assets
21 Heritage and cultural assets
30 Heritage and cultural assets
- Heritage and cultural assets are buildings, other structures, works of art, artefacts, collectables, historical treasures, nature reserves, national parks, or similar items that are used for their cultural, environmental or historical significance. Heritage and cultural assets will generally be:
- used for public exhibition, education or research; and/or
- protected, cared for, and preserved.
- Heritage and cultural items are for the community’s benefit and represent, in part, Australia’s cultural and historic background. These assets are primarily used for purposes relating to their cultural, environmental or historical significance.
- However, structures that assist in the display, transport or storage of items (e.g. backdrops, hanging apparatus, storage racks or protective cases) are not heritage and cultural items – except where it has heritage or cultural value in its own right, or is an integral part of the heritage and cultural item. For example, an asset that is an integral part of a heritage and cultural asset may be include the original frame surrounding a painting, which is classified as a heritage and cultural asset.
Asset recognition criteria
- Not all heritage or cultural items will meet the accounting definition of assets despite having intrinsic heritage value. Only items useful to achieving the entity’s objectives and with a financial value that can be reliably measured are recognised as assets.
- Heritage and cultural assets acquired at no cost, or for a nominal cost, are to be initially recognised at fair value, as at the date of acquisition. Entities need to exercise professional judgement in determining whether fair value can be reliably measured for a heritage or cultural asset as at the date of acquisition.
- The AAS contemplate indefinite useful lives for some assets and non-depreciation of these. This does not exempt the asset from impairment testing.
- Under paragraph G3 of AASB 116, heritage and cultural assets may be deemed to have an indefinite useful life and, as such, not depreciated where appropriate curatorial and preservation policies are established and implemented. Entities must ensure such policies satisfy the criteria in the Australian Implementation Guidance to AASB 116 and only depreciate these assets where they are determined to have a limited life.
- To establish evidence that the policies have been adopted by the entity’s governing body, it is critical to:
- demonstrate clear understanding on what condition an entity is seeking to maintain an asset
- document how the policy is being followed for its condition to be maintained.
Primary use of assets
- An example of an item subject to subsection 21(1) of the FRR is buildings of historical interest that are used primarily to provide office accommodation. These are not to be accounted for as heritage and cultural assets.
Curatorial and preservation policies
- When disclosing information required by subsection 30(1) of the FRR, entities are not required to disclose sensitive material (e.g. information about fraud/theft prevention) if contained in the same document as curatorial or preservation policies.
4.6 Assets held in trust
31 Assets held in trust
- For trust amounts received as retainable receipts under section 74 of the PGPA Act:
- where the trust is not controlled by the entity and is held for the benefit of a person or entity other than the entity itself or the Commonwealth, include a footnote in the special account note to specify that trust money retained under section 74 of the PGPA Act and subsection 27(3) of the PGPA Rule is not reported in the special account
- entities should refer to the annual appropriations, special accounts and assets held in trust notes.
- Trust amounts will be included in the assets held in trust disclosure note and reported separately. These amounts will not be included in the Statement of Comprehensive Income or the Statement of Financial Position where the amounts are not controlled by the entity or held for the benefit of the Commonwealth. Entities should seek legal advice to confirm whether amounts retained are actually trust amounts.
- For trust amounts credited to the special account, the amount will be included in the special account balance and a footnote is required to specify that such an amount is included.
- Reporting and disclosure requirements for entities who held part of the closing balance of a special account on trust are detailed at Appendix D: Disclosure of trust moneys.
- Administered receipts relating to a special account and remitted by an entity to the OPA, should be treated as cash equivalents in the entity’s:
- administered schedule of assets and liabilities
- administered cash flow statement
- administered reconciliation schedule
- administered – financial assets note
- special accounts note.
- The balance of the OPA (incorporating balances of special accounts transferred by entities to the OPA) will be disclosed as appropriate by Finance, on behalf of the whole of government in its financial statements as cash/cash equivalents in the administered schedule of assets, and liabilities and administered – financial assets note.
- Special account balances held in the OPA (excluding trust amounts) will be included in the financial instrument disclosure note under AASB 9. There is a contractual right to receive cash and this is therefore a financial instrument and a financial asset to the entity. While amounts may be held in the OPA, receipts collected and subsequent payments are distinct from contributions to entities via appropriation funding.
- Special account balances held by an entity in a bank account (excluding trust amounts) will be included in the financial instrument disclosure note. Under AASB 9, a cash deposit held in a bank account creates a contractual right to receive cash and is therefore a financial instrument and a financial asset to the entity.
- For more guidance on special accounts reporting:
- see Guide to appropriations (RMG 100)
- see CBMS User Reference Material – 09. Reference Material – Guidance: Quick Reference Guides – Special Accounts
- email Special.Appropriations@finance.gov.au.
- For agreements that constitute a legal trust (including for charitable purposes under trust law), entities are encouraged to obtain legal advice if they are unsure as to whether or not an asset is held in trust.
- All trust accounts are to be identified by the type of trust (beneficiary or other third party purpose) and disclosed in the notes to the financial statements.
- Entities must report assets covered by subsection 31(1) of the FRR that stand to the credit of a special account in the notes to the financial statements for special accounts (see Part 9.1 Special accounts).
- Entities are to cross-reference any monetary assets held in trust that are disclosed in their special account note. However, monetary assets held in trust will not necessarily form all of the balance of a special account.
- Under section 74 of the PGPA Act, trust moneys may be received as retainable receipts. These amounts will increase the departmental appropriation and are to be disclosed in the appropriation table amounts, with an appropriate footnote.
- Trust moneys may be credited to an entity’s special account only where this is permitted by special account crediting clauses. The amount is to be included in the special account balance and disclosed with an appropriate footnote (see Part 9.1 Special accounts).
- For both situations, trust amounts will be included in the assets held in trust disclosure note and reported separately. These amounts will not be included in the Statement of Comprehensive Income and the Statement of Financial Position, as the amounts are not controlled by the entity or held for the benefit of the Commonwealth. Entities should seek legal advice to confirm whether amounts are actually trust amounts. Appendix D illustrates reporting and disclosure requirements for trust moneys.
- Money found on Australian Government premises and other unidentified receipts are to be accounted for as administered receipts. As there is no beneficiary or third-party purpose, these receipts must not be treated as assets held in trust. For more information, email firstname.lastname@example.org.
Consolidated Revenue Fund money outside the Commonwealth
- Other Consolidated Revenue Fund (CRF) money is not trust money. An amount of money is other CRF money if it is in the physical possession or a bank account, of a person other than the Commonwealth and that person is acting on behalf of the Commonwealth in relation to that money.
- For more information about other CRF money held by persons outside the Commonwealth, see Part 4.11 Financial instruments.
4.7 Liabilities - general information
- An essential characteristic of a liability is the existence of a present obligation, being a duty or responsibility for the entity to act or perform in a certain way. A liability is only recognised when the entity has little or no discretion to avoid the sacrifice of future economic benefits. For example:
- a liability for workers’ compensation premium is recognised at the earlier of:
- the start of the period for which there is a legal obligation to have workers’ compensation insurance, or
- when the invoice is due to be paid under the terms of the contractual arrangement for insurance coverage
- employee benefit liability, such as for unpaid salary or superannuation is to be recognised at the earlier of:
- when service is provided by the employee, or
- the time of obligation specified in the employment agreement.
- The existence of an obligation does not mean the identity of the party, to whom the obligation is owed, should be known – this party may be different from the party that will receive the goods and services under the obligation.
- While most obligations are legal, others are constructive. A constructive obligation is defined in paragraph 10 of AASB 137. A constructive obligation is created, inferred or construed from facts in a particular situation, rather than from an agreement or being imposed by government. For example, a constructive obligation exists where:
- an entity has committed to remove environmental contaminants used in the past for building construction
- the removal of these contaminants is not required under legislation but there is an established practice for performing such work
- the public has a reasonable expectation that the entity will fulfil its commitment.
Decommissioning, restoration and similar provisions (‘make good’)
- For guidance on the accounting and disclosure requirements for initial recognition of make good provisions and subsequent accounting, including the unwinding of the discount and changes made to the provision – see Accounting for decommissioning, restoration and similar provisions (‘make good’) (RMG 114).
Recognition of grant liabilities
- Grant liabilities to state, territory and local governments are only recognised to the extent that grant conditions (such as grant eligibility criteria) were met by the grantee government entity, or those governments have provided required services or facilities under the grant agreement. In such cases, only amounts outstanding in relation to current or previous periods satisfy the definition of liabilities.
Social benefit payments
- Social benefits are typically, though not exclusively, provided by Budget funded agencies in the form of a regular (e.g. fortnightly) cash payment (e.g. Newstart allowance, pensions and PPL).
- However, there may be circumstances where non-cash benefits are provided and/or the paying entity is not Budget funded (e.g. the National Disability Insurance Agency, a CCE, provides cash and in-kind benefit to National Disability Insurance Scheme recipients).
- A standard requirement of social benefits payments is the use of ongoing eligibility requirements to assess the recipients’ entitlement to the payment – so a recipient will not qualify for the payment if they cease to satisfy the eligibility criteria. Eligibility requirements are usually set in the legislation authorising the payment.
- Under paragraph 60 of the Framework for the Preparation and Presentation of Financial Statements, obligations may be legally enforceable or arise from custom, equitable consideration or the desire for good relations. In the case of social benefits, the government incurs a liability at the time it has a legal obligation to make payment (i.e. when the recipient meets the eligibility requirements).
- Consequently, social benefits payments will not give rise to a constructive obligation under AASB 137 and no liability will be recognised for potential claimants who have not applied for the benefit as the government has no legal obligation until a claim is lodged and the applicant is assessed to have met the eligibility requirements.
- Under paragraph Aus 26.1 of AASB 137, the present obligation (and consequently the liability) for social benefits payment is recognised at the point when the entitlement conditions are met for payment during a particular payment period. Paragraph Aus26.1 only automatically applies to entities that are part of the Commonwealth legal entity. However, paragraphs 10 and 11 of AASB 108 require entities to consider accounting standards dealing with similar issues and would reasonably extend the application of paragraph Aus 26.1 to include CCEs.
- As the present obligation does not extend beyond the current payment period, payments the government may make in future periods, however probable, are future obligations that do not meet the recognition criteria for liabilities.
- The expense for social benefits payments is recognised at the time the cash payment or other benefit is due (i.e. the ‘due and payable’ basis). At the end of each reporting period a liability is recognised for the outstanding accrual for the payment period (e.g. if 30 June fell in the middle of a fortnightly payment period, the liability would be the seven days’ accrual for eligible recipients).
- The ‘due and payable’ basis is considered to be the most appropriate under accounting standards, and is consistent with the approach currently taken in accounting for social benefit payments.
- Entities should review existing social benefits payments to confirm they are accounted for on a ‘due and payable’ basis. If another accounting treatment has been used, to determine if a change in accounting treatment is required, email email@example.com.
- If an accounting treatment other than the ‘due and payable’ basis is used for an existing payment and this will be changed to the ‘due and payable’ basis, this is normally disclosed as a change in accounting policy under paragraph 29 of AASB 108, and applied retrospectively, where practicable, under paragraph 19 of AASB 108.
- The most probable change in the accounting policy will be a change in the length or scope of the social benefit liability. This will have no impact on the underlying cash balance (as the timing of cash payments is determined under the relevant legislation) and is unlikely to have a significant impact on the fiscal balance.
- Fortnightly payments are recognised as an expense when they are made. Any unpaid amounts at year end should be accrued. Where there is any uncertainty over the number of claimants, amount or timing, this can be recorded as a provision.
4.8 Liabilities relating to dividends
23 Liabilities relating to dividends
disclose a contingent liability.
- Enabling legislation normally sets out procedures for dividends. Typically, the board or other governing body recommends a dividend to the minister. The minister has the authority to accept or reject a recommendation. A liability for the dividend is not recognised by the entity until the minister has made a determination.
- Sometimes, legislation or government policy provides for a dividend to be paid as an amount or percentage of profit for the year, or profit less specified deductions. In such cases, there is no need for a determination to create a liability. A liability for dividends arises at the reporting date, when the amount is known.
- In accordance with paragraphs 12 and 13 of AASB 110, if an entity declares dividends to holders of equity instruments after the reporting date, no liability is to be recognised at the reporting date. Such dividends are to be disclosed in the notes to the financial statements in accordance with AASB 101.
4.9 Employee benefits
- Where sick leave (i.e. ‘personal/carer’s leave’ under the Fair Work Act 2009) is non‑vesting and average sick leave estimated to be taken each year is less than the annual entitlement, there is no requirement to record a provision for sick leave at year end.
Long service leave
24 Employee benefits
Other on‑costs, such as workers’ compensation insurance and payroll tax, are not on‑costs that are to be allowed for in calculating the provision of employee benefits for the purposes of this section.
- The Australian Government Actuary recently reviewed the shorthand method for estimating employee LSL provisions. The shorthand method:
- incorporates probability factors that reflect the characteristics of small entities –entities with up to 1,000 full-time-equivalent (FTE) employees
- is not suitable for large entities – entities with more than 1,000 FTE employees.
- Small entities (i.e. with up to 1,000 FTE employees) are to:
- apply the shorthand model to estimate their entity’s LSL provisions for reporting periods commencing on or after 1 July 2020
- estimate LSL liabilities based on inputs of individual employee data.
As an interim arrangement, the former shorthand method may be applied in calculating the liability in respect of an employee’s LSL entitlement when the employee transfers from an NCE to another Commonwealth entity. Finance will continue to issue the probability factors and discount factors that are applicable to the former shorthand method, as part of the Standard Parameters for financial reporting purposes.
The shorthand model and its step-by-step guidance can be obtained from the CBMS knowledge library or by emailing firstname.lastname@example.org.
Under subsection 24(2) of the FRR, when estimating the provision of accrued leave entitlements the on-costs associated with employer superannuation contributions, annual leave and LSL must be taken into account.
- For the purpose of calculating the provision of employee benefits, apart from the on‑costs allowed for under subsection 24(2) of the FRR, other on-costs such as payroll tax and workers’ compensation insurance are excluded.
4.10 Post-employment plans: measurement and disclosure
25 Measurement and disclosure of post employment plans
Public Sector Superannuation Scheme (PSS), Commonwealth Superannuation Scheme (CSS) and military superannuation schemes (including the Military Superannuation and Benefits Scheme (MSBS))
(4A) Despite subsection (4), reporting entities participating in the PSS and CSS schemes must not account for additional lump sum payments (which are not considered compensation under AASB 124) that are payable to Finance in relation to those schemes.
- Superannuation additional lump sum (ALS) paid by an entity to the consolidated revenue fund payments in relation to the PSS and CSS are not considered compensation under AASB 124. Entities are required to make ALS payments to Finance where significant salary increases for individuals’ impact on the superannuation liability. Because ALS payments are not an individual employee benefit, it should be excluded from the KMP remuneration disclosure note (subsection 25(4A) of the FRR).
- Consistent with AASB 119, for-profit entities are required to use the market yield on high quality corporate bonds when discounting employee benefit obligations. NFP entities are required to use the market yields on government bonds to discount employee benefits.
4.11 Financial instruments
16 Financial instruments
Expected credit losses
Definitions and measurement
- AASB 7 Financial Instruments: Disclosures (AASB 7) applies to recognised and unrecognised financial instruments:
- recognised financial instruments include financial assets and financial liabilities that are within the scope of AASB 9
- unrecognised financial instruments include some financial instruments that, although out of scope of AASB 9, are within scope of AASB 7 (e.g. credit risk disclosure requirements in paragraphs 35A – 35N of AASB 7, apply to those rights specified in AASB 15, and paragraph 5A of AASB 7).
- Under AASB 7, disclosures are to be made by the ‘class’ of financial instrument. ‘Classes’ are smaller units than categories (e.g. loans and receivables category of financial instruments contain classes such as cash at bank and trade receivables).
- Appropriations receivable and statutory charges (receivable or payable) are not financial instruments (e.g. statutory charges are GST receivable from or payable to the ATO, however, amounts payable to, or receivable from, other entities need to be disclosed inclusive of GST).
- Financial guarantee contracts as defined in AASB 9 do not include performance guarantees. For guidance on fair value measurement considerations for the recognition and measurement of financial instruments, see AASB 13 and Chapter 5 of AASB 9.
- When financial instruments must be disclosed by class, entities need to ensure they have appropriate classes for disclosure requirements of AASB 7.
- Trust amount and statutory credits received in the special account will be excluded from the financial instrument disclosure table – see Part 9.1 Special accounts.
- AASB 9 advises that, except in some circumstances, the fair value of a financial instrument is normally the transaction price (e.g. a loan issued on favourable terms – in this case a valuation technique is employed to determine fair value).
- Under AASB 13, a valuation technique must use prevailing market data for identical or comparable/similar financial instruments issued in the market. Similar financial instruments have substantially the same terms in regard to denominated currency term, type of interest rate (fixed or floating) and other relevant factors.
- Appendix B5.1.2A or AASB 9 allows different treatment where fair value is based on:
- quoted price in an active market for an identical asset, or
- a valuation technique that uses only data from observable markets.
- In the above circumstances, the difference between fair value and transaction price goes through as gain or loss. In all other cases the difference between fair value and transaction price is deferred only to the extent that it arises from a change in a factor that market participants would take into account when pricing the asset.'
- Upon examination of available market data, if there is not sufficient data to determine a prevailing market interest rate, or acceptable interest rate range for financial instruments issued, then fair value is the transaction price.
- If a prevailing interest rate or range is determined, and the financial instrument is issued at a rate below this rate, a valuation technique will result in a value less than the transaction price – it is likely the difference would be recognised as an expense, unless upfront compensation is received for the discount.
Subsequent measurement, classification and concessional loans
- subsequent measurement – requirements of subsequent measurement of financial assets and liabilities are provided in paragraph 5.2.1 to 5.3.2 of AASB 9
- disclosure – disclosure requirements of AASB 13 apply to financial instruments where AASB 7 requires or permits fair value disclosures.
- the classification of financial instruments – the classification, or designation, of financial instruments for an entity has the effect of designating those instruments in the Australian Government CFS.
- concessional loans – for guidance, see Accounting for concessional loans (RMG 115)
Analysis of market risk sensitivity
- AASB 7 requires disclosures of market risk sensitivity analysis and permits the analysis to be disclosed as either:
- a separate sensitivity analysis for each type of market risk the entity is exposed to, based on changes in the risk variable considered ‘reasonably possible’, or
- analysis taking account of interdependencies between market risk variables, if it is used to manage the entity’s financial risks.
- Entities are encouraged to adopt the disclosures in PRIMA forms as part of their market risk sensitivity analysis. Where the sensitivity analysis disclosed is unrepresentative of the risk inherent in a financial instrument, the entity is required to disclose that fact and the reason for this belief.
Market risk sensitivity – standardised rates
- Interest rate (IR) and foreign exchange (FX) sensitivity analyses have been prepared on a ‘reasonably possible’ change basis. A ‘reasonably possible’ change of IR or FX has been estimated using both statistical and non-statistical analyses.
- The statistical analysis for the IR sensitivity analysis rate (IRSA rate):
- until the 2019-20 reporting period, has been based on the interbank cash rates issued by the Reserve Bank of Australia as the underlying dataset
- from 2020-21, 10-year Australian Government bond yields will be used in analysing the IRSA rate due to changes in the economic environment.
- The statistical analysis for the FX sensitivity analysis rate (FXSA rate) is based on main currencies movement for the last five years with information revised and adjusted for reasonableness under the current economic circumstances. The five main currencies that the Commonwealth has exposure to are the USD (United States Dollar), EUR (Euros), GBP (British Pound), JPY (Japanese Yen) and the NZD (New Zealand Dollar).
Market risk sensitivity – alternative rates
- Entities are to use the rates indicated in Standard Parameters for use in Financial Statements unless otherwise agreed with Finance.
- Entities that hold financial instruments for which they consider the underlying risk profiles to be substantially different from assumptions used in this RMG need to contact Finance to discuss the use of alternative rates. System limitations do not provide suitable grounds for use of an alternative rate.
Other CRF money held by persons outside the Commonwealth
- Other CRF money, as described by section 105D of the PGPA Act, forms part of the CRF but is held and managed by an entity other than the Commonwealth.
- As a result, other CRF money is not reported as cash held in financial statements and is to be managed in accordance with an arrangement (under section 23 of the PGPA Act), which is compliant with the requirement of section 29 of the PGPA Rule.
- For more information, see Other CRF money (RMG 303) or email PGPA@finance.gov.au.
4.12 GST treatment in the statement of financial position
- Under paragraph 8 and 9 of Interpretation 1031 receivables and payables should be inclusive of GST in the statement of financial position.
- Commitments may be inclusive or exclusive of GST but entities must disclose the GST treatment applied. However, as commitments are potential receivables or payables, for consistency with Interpretation 1031, entities are encourage to treat commitments as inclusive of GST.
Part 5. Cash flows, contingencies, commitments
5.1 Statement of cash flow
13 Statement of cash flows
When applying AASB 107 Statement of Cash Flows in preparation of financial statements, reporting entities must:
- Entities are required to prepare a statement of cash flows in accordance with AASB 107, including:
- cash flows in a foreign currency – recorded in Australian dollars, by applying the exchange rate between the functional currency and the foreign currency at the date of the cash flow (AASB 107, paragraphs 25–28)
- restrictions on use of cash balances – the amount of significant cash and cash equivalent balances that is held by the entity and not available for use by the group (i.e. parent entity and other subsidiaries) is to be disclosed with an explanation on the restrictions of use
- other CRF money – considered in the context of paragraph 48 of AASB 107
- appropriation designated as contributions by owners – cash flow activities being disclosed under financing activities
- administered cash flows to/from the OPA – disclosed as adjustments to administered cash held.
- Subject to paragraph 11 of Interpretation 1031 and AASB 107, cash flows are to be disclosed on a gross basis.
- Transfers of the PGPA Act section 74 receipts to the OPA are to be presented as operating cash flows. If NCE receipts are returned to the OPA and subsequently redrawn as departmental appropriation, this is to be disclosed as separate operating cash outflow and inflow (i.e. not netted off). This is the same treatment required for amounts credited and debited to a special account.
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 (e.g. 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.
- Entities need to:
- review the Statement of Risks (SoR), published in Budget Paper No. 1: Budget Strategy and Outlook, to ensure that all relevant contingencies are considered for disclosure in the statements. Entities may need to consider when the SoR was prepared (e.g. at Budget or at Mid-Year Economic and Fiscal Outlook) to determine details of relevant contingencies
- ensure contingencies disclosed in the SoR are consistent with their annual financial statements (including whether the contingency is quantifiable or unquantifiable).
- SoR disclosure requirements may differ (e.g. the threshold applied for the SoR differs to the materiality level applied for entity financial statements). Entities are encouraged to include an explanation of any differences in the SoR and their financial statements in relevant work papers. Where appropriate, entities may wish to discuss this matter with their auditors.
- Paragraph 2.1(e) of AASB 9 includes financial guarantee contracts in its scope (as defined in AASB 9 Appendix A). Paragraph 2 of AASB 137 excludes from its scope financial instruments covered by AASB 9.
- Paragraph 92 of AASB 137 provides for reduced disclosures for extremely rare cases where an entity is in a dispute with other parties; and where full disclosure is likely to seriously prejudice the entity. In such cases, ‘entity’ must be read to mean ‘entity, another Commonwealth entity or the Australian Government as a whole’.
- With a commitment, there is either no present obligation to make a payment for a past transaction or event, or a payment obligation is subject to the future performance by another party.
- Generally, a commitment arises when an entity has entered into an agreement with an external party (e.g. through a purchase order or other contractual document) and this creates a future obligation for the outflow of resources. Without an agreement, there is no commitment (see AASB 137, paragraphs Aus26.1 and Aus26.2).
- A commitment becomes a liability when a present obligation arises (e.g. the entity has little or no discretion to avoid payment for work or services completed by another party).
Example 5.1: Agreement, commitment and liability
- an agreement would not exist until contracts are entered into
- a commitment would not be recognised until the agreement is in place
- no liability or asset would be recognised until performance by the entity or the other party has taken place.
- An intention to make payments to other parties because of a government policy statement, an election promise or other public pronouncement does not, of itself, create a present obligation.
- The following items are not commitments:
- provisions – these occur when an entity is already under an obligation to sacrifice future economic benefits but there is uncertainty about the timing or amount of the future expenditure required in settlement (see Example 5.2)
- social benefit payments – see Part 4.8 – Liabilities – general Information
- future payment of GST revenue to the states and territories
- undertakings where further approval is required or legislation needs to be enacted – unilateral promises, intended to result in payments in future periods are not reported as undertakings, and, therefore, are not disclosed as commitments.
Example 5.2: Provisions
- Where there are no commitments in either the current or the immediately preceding reporting periods, this fact can be disclosed in the notes to the financial statements.
Part 6. Administered reporting
9 Administered reporting
Administered reporting must:
Note: The financial statements of reporting entities must also comply with all other AAS that relate to administered items (see paragraph 7(1)(b) of this rule).
- AAS and AASB interpretations apply to administered items or activities as if the administered reports were the financial statements of the Australian Government as a parent entity.
- Disclosures in relation to accounting policies in accordance with the relevant AAS, such as AASB 1050 Administered Items (AASB 1050), and all applicable requirements of this guide need to be included.
- Unless otherwise stated in this RMG:
- accounting policies for ‘administered’ are the same as those for ‘departmental’
- administered transactions between entities are accounted for in the same manner as departmental transactions (e.g. purchase of services may be recognised as income in one entity and an expense in the other).
- A statement of changes in equity is not required for administered items or activities.
- AASB 136 applies to administered assets that are not financial instruments. However, estimates, averages and shortcuts may be applied under paragraph 23 of AASB 136 for determining fair value less costs of disposal, or value in use.
- The assessment can be made on a portfolio basis where appropriate (e.g. impairment of a large portfolio of statutory receivables).
- The Australian Government as a whole is not considered a cash-generating operation. Therefore, the provisions of AASB 136 for cash-generating assets will apply to administered assets only where they are used to generate cash inflows primarily from outside the Australian Government economic entity.
- For more information, see AASB 136 for impairment assessment of receivables for statutory charges and Part 4.1 - Receivables for Statutory Charges.
- Paragraph 22 of AASB 1050 requires entities to disclose ‘broad categories of recipients’ of transfer payments and amounts transferred to those recipients – however, 'broad categories of recipients' is not defined.
- Entities are to determine the categories of recipients appropriate to their circumstances. Similar recipients or categories of recipients may be aggregated into broad categories for disclosure purposes.
- Where an entity has discretion to determine the amount or timing of a payment, the identity of beneficiaries or conditions under which payments are to be made, judgement is necessary to establish whether or not the entity controls the payment.
Administered reconciliation schedule (in PRIMA forms)
- The ‘adjustment for change in accounting policies’ and ‘adjustment for errors’ lines in the Administered Reconciliation Schedule are only for use in the comparative year, not the current year of the financial reports.
- Transfers to the OPA of administered amounts are to be recognised in the line ‘Transfers to OPA’, not as administered expenses.
- When an entity makes a payment to a CCE that is either an equity injection or a loan, that payment has a zero net change in the schedule of administered assets and liabilities of the entity.
Example 6.1: Administered reconciliation schedule
6.1 Administered disclosure
- The note to the Rule 9(1)(b), means that the disclosure notes relating to administered items should include all notes that would have been required, if the disclosures were departmental items and in a similar format to the notes applying to departmental items. This requirement provides for complete information, to enable completion of the Australian Government CFS.
6.2 Administered investment
32 Administered investments
- Administered investments include Commonwealth controlled companies and CCEs and are classified as:
- fair value through profit and loss
- fair value through other comprehensive income, or
- amortised cost.
Fair value measurement
- For consistency and comparability in fair value measurements and related disclosures, AASB 13 establishes a fair value hierarchy (see AASB 13 paragraphs 76–90) that categorises inputs to valuation techniques for measuring fair value:
- level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date
- level 2 inputs are inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly
- level 3 inputs are unobservable inputs for the asset or liability – unobservable inputs are inputs for which market data is not available and are developed using the best information about assumptions that market participants would use when pricing the asset or liability.
- Under paragraph 61 of AASB 13, entities can measure fair value using valuation techniques that are appropriate in the circumstances, for which sufficient data is available, that maximise the use of relevant observable inputs and minimise the use of unobservable inputs.
- Entities should consider industry practice when considering applicable valuation techniques (AASB paragraph 13.62). Common examples of valuation techniques used in practice where observable inputs are unavailable include but are not limited to:
- discounted cash flows – this method needs to be considered when an entity invests in another entity that generates significant non-government cash inflows and those cash flows can be reliably predicted
- net assets – this method needs to be considered when an entity invests in another entity that does not generate significant non-government cash inflows or those cash flows cannot be reliably predicted.
- For more information on fair valuation of administered investments, see AASB 13, AASB 1049 Whole of Government and General Government Sector Financial Reporting (AASB 1049) and paragraphs B5.1.1 to B5.1.2A of AASB 9.
6.3 Investment: held for sale
33 Administered investments held for sale
- Under AASB 5, administered investments that are held for sale are to be disclosed. However, as they are financial assets, they are measured under AASB 9.
- Costs of sale (or selling costs) of an administered investment typically include:
- project management
- advisory services
- advertising and marketing
- legal fees
- scoping studies
- regulatory fees.
Sale of administered investments managed by Finance
- AASB 5 does not apply to the restructuring of administrative arrangements (MoG changes). Finance has responsibility for the sale of assets under a MoG change but this does not mean that Finance needs to own the asset being sold. The:
- sale may be managed by Finance on behalf of the portfolio department, or
- asset may be transferred to Finance for sale.
- Assets should only be transferred to Finance where there is a formal decision of the Australian Government or ministerial agreement to transfer the asset. Under paragraph 33(1)(b) of the FRR, if there is no formal agreement or decision to transfer the assets/investments to Finance, the administered investments ‘held for sale’ must be reported by the relevant portfolio department.
Part 7. Administrative arrangements restructures
26 Restructures of administrative arrangements
the relevant reporting entity must prepare financial statements in accordance with that Division.
Note: Division 4 of Part 2-3 of the Public Governance, Performance and Accountability Rule 2014 sets out special reporting requirements that apply when:
- Restructures of administrative arrangements include a:
- transfer of responsibility for delivery of goods and services, including delivery of advice to the Australian Government
- transfer of responsibility for managing assets and liabilities
- reclassification between ‘departmental’ and ‘administered’ items.
- Accounting entries do not need to be processed by the date of the transfer for an entity to make the disclosures required.
- For PGPA Act section 75 transfers, control of appropriation is lost or gained at the later of:
- the date of the determination, or
- the commencement date set out in the determination (subsection 75(8) of the PGPA Act allows the transfer to take effect before, or after, the day it is registered).
- For more information on restructures of administrative arrangements, see:
- Accounting for machinery of government changes (RMG 118)
- Machinery of Government (MoG) changes: A guide.
Disclosures and notes for financial statements
- In preparing financial statements to reflect a restructure of administrative arrangements:
- a transfer of appropriations representing prior years’ unspent appropriations – is accounted for against equity in the same way as other assets transferred as part of the restructure of administrative arrangements. Section 75 determinations under the PGPA Act need to be in place to enable the receiving entity to access and spend annual appropriations. For more information, email Annual.Appropriations@finance.gov.au
- prior year disclosure – restructures that occurred in the current and previous financial reporting periods must be disclosed in the restructuring note. In the rare event that a single restructure crosses two consecutive financial reporting periods, comparative figures must also be disclosed
- assumed functions (disclosure of income and expenses) – the notes to financial statements must disclose the full annual expense/income of the functions, which have been transferred to the entity. The statement of comprehensive income recognises only those expenses/income incurred/earned whilst the functions were under the control of the reporting entity.
Transfer of assets and/or liabilities
- Transfers of assets and/or liabilities for no consideration to a wholly-owned Commonwealth entity, must be recognised by the transferee as a contribution by owners when, and only when, it satisfies the definition of contributions by owners in AASB Interpretation 1038. For more information, see Deeming or designating transfers of assets and liabilities as 'contributions by owners' (equity) (RMG 123).
- For NFP entities, where an asset is acquired at no cost or nominal cost, the cost is its fair value as at the date of acquisition.
Special reporting requirements following machinery of government changes
- Division 4 of Part 2-3 of the PGPA Rule provides special reporting requirements for Commonwealth entities that have ceased to exist or whose functions have been transferred following machinery of government changes. Under subsection 26(1A) of the FRR, where these circumstances occur, the relevant reporting entity must prepare financial statements accordingly.
- For guidance on the special reporting requirements under the Division 4 of Part 2-3 of the PGPA Rule, see Reporting requirements following machinery of government changes (RMG 119).
Part 8. Appropriations
- This part provides appropriation related guidance on payments to CCEs, special appropriations and acting as an agent. For guidance on the:
- accounting recognition, treatment and disclosure requirements for annual appropriations to NCEs, see Accounting for appropriations (RMG 116)
- constitutional basis, legislative framework and administrative processes for annual appropriations, special appropriations and special accounts (including information related to establishing and amending appropriations), see Guide to appropriations (RMG 100).
8.1 Payment to corporate Commonwealth entities
42 Payments to corporate Commonwealth entities
- NCEs (i.e. portfolio department) may receive appropriations for payment to CCEs in annual Appropriation Acts or other Acts as special appropriations (not including amounts paid to CCEs under other arrangements, such as contractual arrangements).
- Upon receipt of a payment from an NCE, a CCE is to recognise the amount as ‘revenue from government’, unless the funding is in the nature of an equity injection based on the appropriation purpose.
- A CCE should not recognise a receivable unless that entity has a statutory right to receive the full amount of the appropriation.
- Where a CCE has a legislative entitlement to receive an appropriation payment from an NCE, before that payment is received, the CCE is to recognise the amount as ‘receivable from government’ at the time it becomes legally entitled to that amount.
- Equity injections paid to a CCE are recorded by the relevant NCE (i.e. portfolio department) as an adjustment to administered investments. An equity injection received by a CCE, is to be recognised as ‘contributions by owners’, only where it has been deemed as a business transfer, or formally designated as such by the portfolio minister or Finance Minister in accordance with AASB 1004 and AASB Interpretation 1038. For more information, see Deeming or designating transfers of assets and liabilities as 'contributions by owners' (equity) (RMG 123).
- An Appropriation Act provides a portfolio department with the right to draw from the CRF to make payments to a CCE. When the money is paid from the portfolio department to the CCE, the appropriation is considered to have been applied – the payment is not a transfer of the right to draw.
- Transferring cash from the OPA to a CCE’s bank account takes that money out of the CRF and reduces the available appropriation balance, except in cases where the CCE handles public money. CCEs are required to disclose these amounts in accordance with the nature of the payment – this must be by reference to the Appropriation Acts.
8.2 Special appropriations
46 Special appropriations
Note: For requirements in relation to investments from special accounts made under section 58 of the PGPA Act investment powers that are delegated by the Finance Minister, see subsection 48(9)
- Disclosures are required for all special appropriations (i.e. whether or not the appropriation has been drawn against). Where a special appropriation has not been drawn against during the reporting period and the comparative period, it should still be reported. It is up to each entity to determine the appropriate format of disclosure – e.g. a table, list or footnote.
- Section 77 of the PGPA Act provides special appropriation authority for defined events that involve repayments by the Commonwealth. Where refunds are paid, ‘appropriation applied’ is the total amount drawn in accordance with section 77 of the PGPA Act.
- There may be more than one responsible entity for a special appropriation. Where this is the case, each entity must make disclosures of the amounts they have drawn on.
- Section 58 of the PGPA Act provides some entities with the power to invest using:
- certain special appropriations as delegated by the Treasurer (e.g. the Australian Office of Financial Management)'
- special accounts as named in the Finance Minister’s delegation.
- Entities that use appropriations to invest under either section 58 of the PGPA Act or a provision in another Act of parliament (i.e. not the PGPA Act) must disclose the appropriation applied according to whether that investment is from a:
- special appropriation (section 46 of the FRR)
- special account (subsection 48(9) of the FRR) – also see 9.1 Special Accounts.
- Entities should include a footnote against the relevant special appropriation disclosing the fair value of the investment made from the special appropriation.
Acting as an agent
47 Disclosures by agent in relation to annual and special appropriations
Where an entity (‘the spending entity’) has paid money out of the CRF on behalf of another entity (‘the responsible entity’):
- An entity is an agent for a responsible entity, where it has authority to make payments from the responsible entity’s appropriation (i.e. the spending entity is an agent).
- In this situation:
- both the agent and the responsible entity disclose the arrangement in their financial statements
- only the responsible entity records the transactions in its financial management information system.
- For cross-referencing purposes, where one or more other entities have drawn from the same appropriation, the entity making the appropriation-related disclosures (i.e. the responsible entity) must name those other entities in a footnote to the relevant appropriations note table.
- Where an entity receives an amount from another entity, retains it by increasing its appropriation and then pays it to a third party, it is acting on its own behalf and is therefore not acting as an agent.
Part 9. Other disclosures
9.1 Special accounts
48 Special accounts
- Some entities have special accounts with the power to invest – either delegated by the Finance Minister (under section 58 of the PGPA Act) or under a provision in another Act of parliament. Subsection 48(9) of the FRR requires an entity that uses such a special account to invest, in the financial year in which transactions occur, to disclose in the special account note the:
- relevant money invested from the special account as a gross decrease
- proceeds from the investment credited to the special account as a gross increase.
- Where investments have already been made from a special account, but there are no transactions with the special account during a financial year:
- the invested amounts are not included in the balance in the special accounts disclosure note for that financial year, however
- entities should include a footnote disclosing the fair value of the investments made from the special account.
- Appropriations that have been received and recognised as income by an entity and are subsequently transferred to a special account of that entity, are not to be recognised again as income to that entity. These transfers are internal transfers.
- Where a special account has not been used during the current and the comparative reporting periods, the entity may make footnote disclosures in the special accounts note, instead of disclosing that special account, including:
- the title of the special account
- the purpose of the special account
- the authority under which the special account was established
- a statement noting the fact that the special account has not been used during the current and the comparative reporting periods
- the balance of the special account.
- For other items include:
- each special account – must have separate disclosure for expenditure that is departmental or administered in nature
- Comcare receipts – amounts received from Comcare for workers compensation to be provided to employees can be retained. See Retainable receipts (RMG 307)
- assets held in trust and unidentified receipts – assets held in trust that form part of the balance of a special account, must also be reported in compliance with section 31 of the FRR. Information on this requirement and for unidentified receipts is at Part 4.6 Assets held in trust.
- A statutory credit is a provision in an Act that allows the balance of a special account (and hence the associated appropriation) to be increased, provided certain conditions are met. A statutory credit does not usually involve the receipt of funds from another appropriation (annual appropriation or special appropriation), from outside the entity or from parties outside of government (including another government) – it is a self‑executing transaction.
- A statutory credit provision is not:
- in itself a separate special appropriation
- a financial instrument and therefore not required in financial instrument disclosures.
- The entity is to record the statutory credit received as ‘cash in the OPA’ with the corresponding accounting entry against equity (administered) or appropriation receivable (departmental). There is no requirement to disclose appropriation increases that have resulted from the execution of a statutory credit provision, separately.
Disclosure of special account balances
- Entities should record all special account related funds in their departmental receipts and payments bank account, as cash in their:
- statement of financial position
- cash flow statement
- financial assets note
- special accounts note.
- Reporting entities should disclose all special account related funds held in their administered receipts and administered payments bank account as cash at bank in the:
- administered schedule of assets and liabilities
- administered cash flow statement
- administered reconciliation schedule
- administered – financial assets note
- special accounts note.
9.2 Reporting of outcomes
- Under AASB 108, reclassification of an item between outcomes may result in a change in accounting policy and require:
- restatement of comparative data
- disclosure in the notes of entities’ financial statements, in accordance with AASB 108.
- AASB 1050 and AASB 1052 Disaggregated Disclosures (AASB 1052) use the term ‘activities’ that generally equates to the term ‘outcomes’ for departmental and administered items.
- Paragraph 16 of AASB 1052 requires the disclosure of departmental assets and liabilities to each major activity where they are reasonably attributable – this guide includes the same disclosure for administered assets and liabilities. Where particular assets and liabilities cannot be reliably attributed, this matter is to be determined through professional judgement.
- Accountable authorities are required to disclose the following information:
- expenses, income, assets and liabilities at the outcome level (however, entities may choose to report some or all of this information at a lower level)
- major classes applicable to the disclosing entity.
- Administered income does not include administered appropriations.
- Payments to CCEs are not related to the paying entity’s outcomes and, therefore, these are not attributed. These need to be included in the disclosures for completeness.
- Outcome disclosures need to agree to the:
- corresponding totals in the entity’s statement of comprehensive income
- statement of financial position and administered schedules.
- This means the disclosure note may need to include items not allocated to an outcome.
Outcomes reporting for Tier 2 entities
- Tier 2 entities are not required to present outcome reports in their financial statements. However, all entities are expected to present relevant disaggregated disclosures in the body of their annual report. For more information, see Annual report for non-corporate Commonwealth entities (RMG 135).
9.3 Regulatory charging
34A Regulatory charging
- Since the introduction of the Australian Government Charging Framework, the note referred to in section 34A of the FRR relates to regulatory charging activities only. All regulatory charging activities must be reported, regardless of their financial value.
- The FRR sets out the requirements for reporting regulatory charging activities. To provide users with further information, entities can also:
- provide information relating to amounts written off
- list all regulatory charging activities and provide link(s) to the websites containing relevant cost recovery documentation.
- Financial information:
- needs to be prepared as an aggregate (i.e. the total of the entity’s regulatory charging activities)
- is a subset of information contained elsewhere in the financial statements (e.g. the external revenue reported in this note is a subset of the entity’s total external revenue).
- Where entities do not manage all parts of the regulatory charging activity (e.g. deliver the activity but do not collect receipts or vice versa), entities need to disclose those parts of the activity that they manage.
- Resource and commercial charging activities do not need to be reported, nor do inter‑government or intra-government charges.
- Reference to other entities involved in the activity needs to be included in the 'regulatory charging activities'. For more information, see PRIMA forms or email email@example.com.
9.4 Guidance to assist in completing PRIMA form
Regulatory charging summary disclosure note
- The reporting of ‘appropriations applied’ (NCEs) and ‘payments from portfolio bodies’ (CCEs) is to provide a connection between the external receipts collected and the amount appropriated to the entity to undertake the regulatory charging activity:
- CCEs need to complete the ‘payments from portfolio bodies’ line, as shown in PRIMA forms, to report any funding received via their portfolio department to undertake regulatory charging activities
- NCEs need to complete the relevant appropriation line(s).
- Total amounts expensed and external revenue recognised:
- can be attributed to regulatory charging activities
- are split between departmental and administered items.
- Revenue only relates to revenue that can be attributed to external sources (i.e. it does not include appropriation revenue).
- CCEs need to complete the ‘payments to portfolio departments’ line, as shown in PRIMA forms, if they collect revenue on behalf of the Commonwealth and return receipts to their portfolio department.
- ‘Amounts written off’ allow entities to provide information about whether receivables are being recovered. Entities need to report any receivables that have been written off, consistent with PGPA Act requirements. Amounts written off comprise receivables only, and are split between departmental and administered items.
- ‘Regulatory charging activities’ allows entities to list the regulatory charging activities that are reported in the note and direct readers to more detailed information. All regulatory charging activities reported in this note are to be listed, accompanied by link/s to the web location of relevant documentation (e.g. a link to the entity’s published Cost Recovery Implementation Statement(s)).
Appropriations disclosure note
- Entities need to exercise professional judgement in explaining variances, particularly where variance explanations are of a security or sensitive nature. Under paragraph 15 of AASB 1055, explanations are to focus on a high-level explanation of the cause, not merely the nature, of the major variance(s) and are not to simply focus on the numerical difference between the original budget and the actual amounts.
- NFP entities in the GGS are to disclose:
- the original budgeted financial statement presented to parliament, with
- explanations for major variances between the actual amounts presented in the financial statements that corresponds with information in the original Budget.
- Entity financial statements are subject to audit and require adequate working papers to support Budget information disclosed.
- Examples of appropriate working papers include:
- appropriate Budget authority documentation
- CBMS reconciliations and CFO sign-offs (comparative budgetary information for the previous period is not required).
- The ANAO audit variances between actual and original budget amounts only (i.e. not the budget amount). Reporting entities need to understand and explain the underlying basis of the budget amount to provide an appropriate explanation for any variance.
- Budgetary reporting, under AASB 1055, can be presented in a note to the financial statements or on the primary statements.
- Explanations for major variances are to be disclosed, particularly those relevant to performance analysis of a reporting entity and the use of resources entrusted to it.
- Reporting entities need to consider the materiality of variances. As a general guide, a variance may be considered material or major if it is:
- more than +/- 10 per cent of the line item for both departmental and administered, or
- more than +/- 2 per cent of total expenses or total own-source revenue for departmental only
- more than +/- 2 per cent of the relevant sub-total for total expenses, revenue, assets or liabilities for administered only.
- Reporting entities need to be aware that discussions with auditors may conclude that more or fewer variance explanations are required and entities will need to use judgement. For example, a line item budget might be so small, in the overall context of the financial statements, that explaining a variation above 10 per cent would not be useful in analysing the entity’s performance. Other factors to be considered could include:
- the sensitivity of particular line items and transaction, and/or
- large offsetting movements within a line item.
- For more information on the:
- operating loss approval process, contact the relevant AAU
- net cash appropriation arrangements, email BudgetFramework@finance.gov.au.
Current and non-current distinction for assets and liabilities
34B Disclosure of current and non‑current assets and liabilities
A reporting entity must disclose the following in a note in the financial statements for a reporting period:
- Consistent with paragraphs 60–61 of AASB 101, reporting entities must provide current and non-current distinction for assets and liabilities.
- Entities should consistently classify and disclose in the current and non-current distinction for assets and liabilities note by line item, consistent with the ones the entity’s :
- statement of financial position
- administered schedule of assets and liabilities.
- The disclosure requirement under section 34B of the FRR applies to both Tier 1 and Tier 2 entities.
9.5 Net cash appropriation arrangements
- Under the net cash appropriation arrangements:
- the NCEs listed in tables E1 and E2 of Appendix E receive departmental capital budget (DCB) funding as equity injections in Appropriation Acts (No. 1/3/5), in lieu of an appropriation for depreciation/amortisation
- the CCEs and NCEs listed in tables E3 and E4 of Appendix E are designated as collection institutions (CIs) which receive a collection development acquisition budget (CDAB) funding as equity injections in Appropriation Acts (No. 2/4/6), to allow them to grow and maintain their heritage and cultural asset collections]
- entities that are fully cost recovered or primarily funded from external revenue (e.g. through the sale of goods or services) do not receive government funding for their assets as they self-fund asset purchases and replacements.
- The ‘net cash appropriation arrangements note’ in the financial statements is:
- used to identify whether operating loss applications are required by the entities that receive DCB and CDAB funding
- voluntary, however, entities that receive DCB funding should include this note in their entity’s financial statements to provide a clear read with their entity’s Portfolio Budget Statements and Portfolio Additional Estimates Statements.
361. In preparing the net cash appropriation arrangements note, entities are required to disclose the following expenses. For:
- entities with a DCB:
- the note must show depreciation/amortisation expenses excluding amounts related to assets/functions funded through cost recovery arrangements or external revenue
- include a footnote explaining the amount of depreciation/amortisation expenses that have been excluded from the note and the assets/functions they relate to
- entities with a CDAB:
- the note must show only depreciation expenses related to heritage and cultural asset collections (note that depreciation/amortisation of assets that are not funded through CDAB funding must be excluded)
- include a footnote to explain which depreciation/amortisation expenses have been included and why
- entities with a lessee transactions (including CCEs):
- the note must only show depreciation/amortisation expenses related to ROU leased assets and the lease principle repayment amount, excluding the amounts recovered through cost recovery arrangements
- if incurring a technical losses as a result of AASB 16 transition treatment for lease incentive and straight-lining provisions, a footnote is required that explains the extent to which they contribute to the overall operating loss.
362. No other expenses must be shown in the note – it may impair user’s understanding of the entity’s operating surplus or deficit.
363. See Appendix E: Disclosure of capital budget funding for entity disclosure requirements:
- E1: NCEs with full DCB funding
- E2: NCEs with partial DCB funding
- E3: CCEs that are Collection Institutions and receive a CDAB
- E4: NCEs that receive a CDAB
- E5: NCEs that receive an Administered Capital Budget (ACB).