Overview of Commonwealth financial reporting
The Commonwealth financial reporting output:
- maintains the central accounting and budget estimates system
- establishes the accounting and reporting framework for Commonwealth entities
- provides financial tables and statements for budget papers
- publishes the Commonwealth's Consolidated Financial Statements.
The major activities of this output are:
- supporting the Minister in meeting his financial reporting responsibilities under the PGPA Act, Charter of Budget Honesty Act and his responsibilities under the Appropriation Acts
- maintaining and enhancing the financial reporting framework
- facilitating a single, whole-of-government, financial reporting framework
- producing financial tables and statements for the Budget, estimates updates and the Final Budget Outcome
- maintaining and improving monitoring and reporting of the Commonwealth's cash balances.
The sections below describe the following areas in further detail:
- Monthly and annual reporting processes
- Consistency and use of accounts
- Inter-entity transactions
- Functional reporting
- Publication standards
- Fiscal balance
- Underlying cash balance
Delivery of the Monthly Financial Statements, the Final Budget Outcome and the Consolidated Financial Statements is required by legislation and serves a number of purposes.
Monthly Financial Statements shows how actual expenditure is tracking against the monthly profile and full year estimate. It provides a mixture of accounting and GFS aggregate data.
The Final Budget Outcome (FBO) provides the outcome for the latest financial year with an emphasis on a GFS presentation of the general government sector. The Consolidated Financial Statements uses the same audit cleared financial data as the FBO (sometimes updated for some entities due to a later release) but provides an accounting presentation. The FBO includes the release of the June monthly financial data as that month cannot be released until publication of the financial outcome for the year. Following the release of the FBO, July and August monthly financial statements are released.
- required by the PGPA Act (section 47) to be published by the Minister for Finance in a form consistent with the Budget estimates, as soon as practicable after the end of each month
- show how actual expenditure is tracking against the monthly profile and full year estimate
- provide a mixture of accounting and GFS aggregate data
- enable the delivery of actual results against the Budget and provide an opportunity to utilise the benefits associated with accrual budgeting and reporting by:
- delivering reports on accrual measures such as operating result and financial position as well as the use of cash
- being an integral component in forming the annual Consolidated Financial Statements and
- providing an important budget tracking mechanism for the government
- meet the International Monetary Fund's (IMF) Special Data Dissemination Standard (SDDS), to which the Commonwealth has subscribed, which requires central governments to publish financial statements on a monthly basis; within one month of the period close; and on a basis consistent with that reported in the annual Budget. Under accrual accounting, the IMF has granted some flexibility in the release of June and July monthly statements to allow for the release of the FBO by the end of September
- are used by the ABS for inclusion in the Australian National Accounts.
Final Budget Outcome (FBO)
- required by the Charter of Budget Honesty Act 1998 (section 18) by 30 September each year
- incorporate audit cleared accrual based revenue and expenses, balance sheet and cash flow information (obtained from the annual compilation process for the consolidated financial statements)
- provides the outcome for the latest financial year with an emphasis on a GFS presentation of the general government sector
- includes the release of the June monthly financial data as that month cannot be released until publication of the financial outcome for the year.
Consolidated Financial Statements (CFS)
- are required by the PGPA Act (section 48)
- must be audited by the Auditor-General
- use the same audit cleared financial data as the FBO (sometimes updated for some entities due to a later release) but provides an accounting presentation.
Entities should report financial information for monthly and annual financial reporting, consistent with their audited financial statements. Limiting the use of 'other' accounts will reduce the need for follow up questions from Finance.
Consistent use of accounts enables:
- current data to be compared to previous data for analytical purposes
- consistency in published data
- the derivation of the consolidated cash flow statement which compares operating statement data to relevant movements in balance sheet aggregates
- monthly data to be used by the ABS in the compilation of the Australian National Accounts.
In addition, reporting at the lowest level of detail in the chart of accounts allows Finance to satisfy ABS data collection requirements, avoiding the need for the ABS to undertake an additional Public Finance survey of Commonwealth entities.
Consolidation of financial information provided by entities depends on identifying transactions to and from related entities in the Central Budget Management System (CBMS).
All related entity transactions within the general government sector above a threshold should be reported in CBMS. The threshold for reporting inter-entity transactions is $20 million per CBMS account, per annum. This means that entities should separately identify those related entity balances that are likely to be greater than or equal to $20 million by year end. In addition, if the value of related entity transactions in an account will be less than $20 million for the year but it was reported against a related entity account in the previous years annual statements, it should also be reported against a related entity account in CBMS for monthly actuals, monthly estimates and annual estimates.
Related entity superannuation expenses and fringe benefit tax should be separately identified irrespective of the amount involved. This is because these related entity balances are relevant to most entities and, therefore, are material at the general government level.
The following is a list of some of the (larger) related entity transactions which are required for Finance to complete the consolidation process:
- grant revenue / receivable against related entity grant expense / payable
- interest revenue against related entity interest expense
- superannuation premium revenue (ComSuper) against related entity superannuation premiums expense
- workers compensation premium revenue (Comcare) against related entity workers compensation expense
- subsidies received against related entity subsidies paid
- prepayment asset against related entity prepayment liability
- suppliers expense against related entity goods and services revenue
- investment against related entity equity (accumulated reserves).
Reporting by function is an internationally recognised means of reporting government activities for comparison purposes (in line with the International Monetary Fund's Government Finance Statistics Manual 2001). It provides a useful means of understanding government outlays as it allows for the reporting of expenses according to their purpose.
Reporting by function was established by the . In Australia, the functional classification is based on the ABS fourteen major functions published in the Australian System of Government Finance Statistics: Concept, Sources and Methods 2005 :
- general public services
- public order and safety
- social security and welfare
- housing and community amenities
- recreation and culture
- fuel and energy
- agriculture, forestry and fishing
- mining, manufacturing and construction
- transport and communication
- other economic affairs
- other purposes.
This classification differs slightly to the IMF who recognise ten major functions. The IMF has amalgamated five economic major functions into a single economic affairs major function and established of an environmental protection major function.
Expenses by function are published in the Budget Papers and the FBO, as well as the Commonwealth monthly financial statements. A list of function codes can also be found on the CBMS website.
- Description of functions and sub-functions PDF Version [ 171 KB]
- Description of functions and sub-functions RTF Version [ 362 KB]
Consolidated analysis commentary in the monthly statements are based on a comparison of the current months (YTD) figures to a profile of the most recent published budget estimate.
Finance's analysis on monthly financial statements not only verifies the reasonableness of the information provided, it also facilitates the compilation of variance information / explanations on which the analysis commentary is based.
In order to streamline the reporting, analysis and publication process, entities are asked to provide Finance each month with information about significant variations (i.e. variations between the current months (YTD) and the profile which are greater than $50 million at the account level or $20 million at the program level). In addition, entities are required to notify Finance of any issues affecting entity's monthly financial statements at the time that financial information is submitted to CBMS.
Some examples of explanations can include:
- variations to expenses in income statement:
- grants expenses below profile due to the timing of payments. This is mainly attributed to:
- grants to states where payments are made quarterly
- grants to states where payments do not commence until projects are approved and/or agreements are signed and
- grants to non-profit institutions, where payments do not commence until applications are received and approved.
- depreciation and amortisation is below profile due to capital items have not yet been purchased, therefore depreciation has not been expensed.
- suppliers expenses are below profile due to:
- irregular payments associated with programs and
- delays in establishing new programs.
- variations to balance sheet – administered or departmental:
- other non-financial assets – the variance in other non-financial assets to the 30 June closing balance is due to the expensing of prepayments
- suppliers – variance to the 30 June closing balance is due to unanticipated delay in some payments at the end of the month.
- other provisions and payables – variance to the 30 June closing balance is due to the inclusion of an accrual for grants due but not yet paid.
Note: variances in administered expenses need to include the impact on function.
The fiscal balance is an accrual measure that shows whether the Government has to borrow from financial markets to covers its activities.
The purpose of this measure is to meet the central fiscal objective to ensure that the Government, over the economic cycle, is saving enough to cover its own investment needs and not drawing on private sector savings.
Fiscal balance is calculated as revenue net of expenses from operations, plus revaluation adjustments (to remove items that do not impact on the fiscal balance), plus net capital investment (net investment in non-financial assets) as such investment is integral to the operation of government. For example, a deficit indicates that the Australian Government is drawing on resources of other sectors in the economy. The fiscal balance is thus an accrual indicator of the financial impact of the Australian Government’s operations on the rest of the economy.
- Diagram of the calculation of the fiscal balance PDF version [ 160 KB]
- Diagram of the calculation of the fiscal balance RTF version [ 105 KB]
The underlying cash balance is a cash measure that shows whether the Government has to borrow from financial markets to covers its activities.
The underlying cash balance is calculated as net cash receipts from operations (excluding Future Fund earnings), plus financing adjustments (to remove cash flows more appropriately viewed as financing in Government Financial Statistics), plus net cash capital investment (net cash investment in non-financial assets) as such investment is integral to the operation of Government. For example, a deficit indicates that the Australian Government has to borrow from other sectors or run down its cash reserves. The underlying cash balance is thus a cash indicator of the financial impact of the Australian Government’s operations on the rest of the economy.
- Diagram of the calculation of the underlying cash balance PDF version [ 159 KB]
- Diagram of the calculation of the underlying cash balance RTF version [ 104 KB]