Departmental appropriations are appropriations that the accountable authority of the reporting entity has control over to spend for the ordinary operating costs of the entity. They typically include:
- salaries
- accruing employee entitlements
- operational expenditure
- for example, for the purchase of goods and services.
Variations in the nature of appropriations or entity circumstances (or both), can result in variations for the recognition of appropriations across different jurisdictions in Australia or for different types of appropriations within a particular jurisdiction.
Over time, there may also be changes to the:
- nature and content of appropriation legislation
- way an entity’s activities are funded
- mechanisms for ensuring public funds are appropriately used, consistent with Australian Government priorities, as sanctioned by the Parliament.
Initial recognition - timing
FRR section 38 – Departmental appropriationsThis section sets out the recognition requirements for different types of departmental appropriations. |
Under AASB 1058 Income of Not-for-Profit Entities (AASB 1058), the extent to which appropriated amounts are recognised as income of a particular reporting period, is determined by the:
- characteristics of the appropriation
- circumstances in which the entity recognises the appropriated amounts.
This varies according to the type of appropriation, as shown in Table 1.
Table 1: Timing for the initial recognition of departmental appropriations
| Appropriation | Timing |
|---|---|
| Loans (appropriation Acts) | When the amount to be received is drawn from the Official Public Account (OPA) |
| Advance to the Finance Minister (AFM), or Advance to the responsible Presiding Officer (APO) | Determination commencement date |
| Departmental supplementation | Approval date |
| All other departmental appropriations (appropriation Acts) | The later of the:
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Initial recognition - categories
FRR section 38 – Departmental appropriationsThis section details the categories and accounting treatment on initial recognition. |
For departmental appropriations:
- amounts designated as contributions by owners are recognised as equity – this includes:
- departmental capital budgets (DCBs) – under paragraph 8(c) of AASB Interpretation 1038 Contributions by Owners Made to Wholly-Owned Public Sector Entities (AASB Interpretation 1038), DCBs are designated as contributions by owners
- equity injections – designated as contributions by owners in relevant appropriation Bills or supply Bills.
- loan appropriations are recognised as increases in borrowings
- all other amounts are recognised as revenue.
A transfer, or class of transfers, must be formally designated as forming part of the transferee’s contributed equity either before or at the time of the transfer, in accordance with paragraph 8(c) of AASB Interpretation 1038.
A structured approach for determining the correct accounting treatment for different classifications of appropriations is provided in AASB 1058, including at:
- paragraph 6 – entities must faithfully represent the economic substance by applying AASB 1058 to each in-scope transaction, including appropriations, based on the substance of the transaction (that is, not its legal form or description)
- paragraph 9 – on initial recognition of an asset (that is, appropriations receivable), entities are to recognise any related amounts, measured in accordance with the applicable Australian Accounting Standards (paragraph 3 of AASB 1058), including for:
- contributions by owners
- contract liabilities
- financial liabilities
- lease liabilities
- other liabilities and revenue.
- paragraph 10 – any income is recognised immediately in the statement of comprehensive income
- paragraph 12 – income is determined as the difference between the consideration for an asset and the asset’s fair value, after recognising any other related amounts
- paragraphs 15-17 – the circumstances where an exception applies.
For example, AASB 1058 applies to:
- appropriations related to an amount that meets the definition of contributions by owners over which an entity has obtained control – these are recognised as a direct adjustment to equity, under paragraph 32 of AASB 1004 Contributions (AASB 1004)
- departmental annual appropriations where consideration to acquire an asset (appropriations receivable) is significantly less than fair value – these are principally to enable a not-for-profit NCE to further its objectives.
If an NCE is appropriated $5.5M departmental equity injections:
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If an NCE is appropriated $22M departmental operating:
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Certain appropriations, such as departmental operating supplementation, are recognised as receivable from government (as distinct from appropriation receivable) until the amount approved is legally appropriated – at which time the receivable from government is reduced and the appropriation receivable is increased.
For more information on identifying when transfers are classified as contributions by owners and the accounting treatment, see RMG-123 Designating transfers of assets and liabilities as 'contributions by owners' (equity) (RMG-123).
Formal additions and reductions - overview
FRR section 40 – Formal additions and reductionsThis section lists the different types of formal additions and reductions to appropriations (including any specific requirements), as well as their impact on an entity’s financial statements. |
The timing for formal additions or reductions to be recognised in the statement of comprehensive income (that is, gain or loss of accounting control) may differ to the reporting period in which they are disclosed in the appropriation note (that is, appropriation legally available).
To be a formal addition or reduction, the gain or loss event must be:
- one of the event categories listed at subsection 40(2) of the FRR
- evidenced in writing:
- on or before 30 June of the relevant financial year, and
- by the appropriate authority – see the list of appropriate authorities at Table 2.
Publication of a budget measure in Portfolio Budget Statements (PB Statements), or entry in CBMS, by itself is not sufficient authority to support an adjustment to appropriation revenue.
Formal additions or reductions impact on the recognition or disclosure (or both) of an appropriation. If the gain or loss event is evidenced in writing but there is no government-approved legal instrument, NCEs must adopt the following approach for:
- formal additions — exclude the amount from the appropriation note (as it is not legally available appropriation)
- formal reductions — include the amount as legally available appropriation in the appropriation note.
Formal additions must be included in an NCE’s appropriation note as legally available appropriation where the written evidence is a qualifying government-approved legal instrument – which is limited by subsection 40(4) of the FRR to determinations made under section 75 of the PGPA Act and an AFM or APO. See the list of government-approved legal instruments at Table 2.
Table 2: Appropriate authorities and government-approved legal instruments for formal additions or reductions
| Formal addition or reduction | Appropriate authority | Examples of supporting documentation |
|---|---|---|
| PGPA Act section 75 transfers | PGPA Act section 75 determination signed by the Finance Minister, Finance Secretary* or delegate** | Authority and amount: PGPA Act section 75 determination (government-approved legal instrument) |
| Departmental supplementation | Decision of Cabinet or the Prime Minister*** | Authority: Cabinet minute, Expenditure Review Committee (ERC) minute (with Budget Cabinet minute), letter from the Prime Minister (or delegate) Amount: costing agreement |
| Adjustments for workload agreements and no-win, no-loss funding | Decision of Cabinet or the Prime Minister*** | Authority: Cabinet minute, ERC minute (with Budget Cabinet minute), letter from Prime Minister (or delegate) Amount: costing agreement and/or written advice from Finance confirming the agreed amount of the adjustment/funding |
| AFM (or APO) | AFM (or APO) determination signed by the Finance Minister (or for APOs, Presiding Officer) | Authority and amount: AFM (or APO) determination (government-approved legal instrument) |
| PGPA Act section 51 withholdings | PGPA Act section 51 direction signed by the Finance Minister (or delegate) | Authority: Cabinet minute, ERC minute (with Budget Cabinet minute), letter from Prime Minister (or delegate) Amount: PGPA Act section 51 direction (not a legal instrument) |
| All other adjustments (decision of Cabinet or the Prime Minister) | Decision of Cabinet or the Prime Minister*** | Authority: Cabinet minute, ERC minute (with Budget Cabinet minute) or letter from the Prime Minister (or delegate) Amount: costing agreement |
* Finance Minister may delegate to the Finance Secretary under section 107(3)(a) of the PGPA Act.
** Finance Secretary may delegate to a second delegate under section 109(1)(a)(ii) of the PGPA Act.
*** Or a decision of any other Minister, or Ministers, made with the authority of the Cabinet or the Prime Minister.
Formal additions and reductions - guidance
The accordions below provide guidance on the following formal additions and reductions:
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PGPA Act section 75 determinations (or amendment determinations) have three distinct dates. These are the:
- determination date – the date the determination is signed
- registration date – the date the determination is registered on the Federal Register of Legislation
- commencement date – the date specified in the commencement clause of the determination.
For PGPA Act section 75 transfers, the control of an appropriation is lost or gained at the later of the determination date or the commencement date. In determining the date that control is lost or gained, NCEs must refer to the PGPA Act section 75 determination (or amendment determination) – not the relevant compilation (where applicable).
Subsection 75(8) of the PGPA Act allows the transfer to take effect before, or after, the day the determination is registered – although PGPA Act section 75 transfers generally take effect after the registration date.
For information on the:
- calculation of the departmental transfer amount, see RMG-118 Accounting for machinery of government changes (RMG-118)
- accounting treatment and appropriation note for NCEs, see Table 3.
Table 3: Current year appropriation transfers – accounting treatment and appropriation note
| Entity | Accounting treatment | Appropriation note |
|---|---|---|
| Transferring NCE | Reduction in:
| The legally available appropriation is reduced in the appropriation note. |
| Receiving NCE | Increase in:
| The legally available appropriation is increased in the appropriation note. |
* Departmental operating in the current year
** Amounts designated as contributions by owners.
An NCE gains control of departmental supplementation on the date of approval – see subsection 38(2)(e) of the FRR.
Adjustments must be supported by a Cabinet minute (and associated ERC minute), or letter from the Prime Minister (or decision of any other Minister made with the authority of the Cabinet or the Prime Minister) that includes specific wording on both the timing and amount of the adjustment. For information on budget decision making, see the Cabinet Handbook, available on the Department of the Prime Minister and Cabinet's website.
Decisions by the Government relate to policy matters, and do not usually contain detailed financial information. The costing agreement is an important supporting document that provides more detailed information such as the impact on underlying cash (consistent with the Government decision), as well as the split between operating and capital, and expense and revenue impacts. Entities should contact their portfolio department or AAU for advice on costing agreements. For more information, see RMG-100 Guide to Appropriations (RMG-100).
Under sections 37 and 41 of the PGPA Act, the accountable authority must ensure that the entity keeps proper records which explain its transactions, financial performance and position.
NCEs that were required to undertake emergency response activities in the current financial year, but will not receive the appropriation until the next financial year, should accrue the appropriation as revenue from government under strict conditions. The requirement and the delay of the appropriation must have been:
- documented in writing
- explicitly approved at the whole-of-government level, either by Cabinet or the Prime Minister (without exception)
- evidenced by way of an approval document, dated on or before 30 June of the current financial year.
For more information on funding for urgent activities, see RMG-100.
As a result of a government decision, an NCE may be required to commence or continue an administered activity for which no administered appropriation has yet been provided. In this situation, the:
- NCE is expected to use available departmental operating appropriation (from the prior or current year, or both) to meet the expenditure – this will be reported in departmental financial statements
- funding in excess of actual requirements may:
- subsequently be replenished through additional departmental funding in the next Appropriation Bill (entities should consider whether the funding meets the criteria for a formal addition)
- need to be withheld under section 51 of the PGPA Act, until the relevant appropriation lapses (applicable where additional administered appropriation is already included in the next set of Bills before the Parliament).
Depending on the timing of the expenditure and supplementation, this may give rise to a technical operating loss. Where this occurs, NCEs are to:
- comply with the operating loss framework
- contact the relevant Finance Agency Advice Unit (AAU) for further advice.
If payments occur in one financial year but additional departmental funding will not be provided until the next financial year, revenue from government can only be accrued where the NCE has a specifically worded Cabinet minute or letter from the Prime Minister that details the timing and amount of departmental funding. For further information, see RMG-100.
Accounting treatment for supplementation:
Appropriation note for:
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Departmental AFMs and APOs (for parliamentary NCEs) are not common. For AFMs and APOs:
- NCEs gain control of an amount appropriated by an AFM or an APO on the commencement date of the determination – see subsection 38(2) of the FRR
- any unspent amounts at the end of the financial year are withheld under section 51 of the PGPA Act, with the effective date of the PGPA Act section 51 direction being 30 June, until such a time as the relevant appropriation Act automatically lapses.
Determinations allocating AFM or APO amounts are made in accordance with provisions in the Appropriations Acts. See RMG-100 Guide to Appropriations (RMG-100) for further information.
Accounting treatment for an AFM or APO: Accounting treatment for:
Appropriation note for 30 June (year appropriated) – AFM and APO amounts included as legally available appropriation (including amounts withheld under section 51 of the PGPA Act). |
For more information, see RMG-100.
An NCE gains or loses control of appropriation as a result of any agreement (such as purchasing, workload or other agreements) that provides for:
- additional funding for over-delivery or a reduction of funding for under-delivery
- funding arrangements that are specifically designed to not financially advantage or disadvantage an NCE (such as supplementation on the basis of no-win, no-loss arrangements agreed to by Cabinet).
For funding provided on a no-win, no-loss basis – the amount of additional funding to be provided or the amount of surplus funding to be recovered/refunded may be recognised in the current reporting period (that is, the same reporting period as the win or loss, when it can be reliably measured). The amount to be reported should be agreed in writing with Finance.
Under subsection 40(2)(c) of the FRR, such agreements must as a minimum:
- set out one or more quantifiable deliverable(s) or a specific amount of appropriation relating to each, and
- be approved by, or arise from, ministerial or Cabinet decisions prior to the funding being given.
Accounting treatment for additional funding provided in a subsequent period: Accounting treatment for over-delivery under agreement or over-spend for no-win, no-loss:
Appropriation note for over-delivery under agreement or over-spend for no-win, no-loss:
See illustrative example D4.3 in Appendix 1, available under Tools and Templates, for further information. |
Accounting treatment for funding excess to requirements: Accounting treatment for under-delivery, under agreement or under-spend for no-win, no-loss – funding is excess to requirements in current year, for:
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FRR section 36 - Withholding and quarantining of appropriationsThis section outlines the accounting treatment for amounts withheld under section 51 of the PGPA Act. |
Under section 36 of the FRR, amounts withheld under section 51 of the PGPA Act represent a loss of control event and should be adjusted against the appropriations receivable balance.
For gain or loss of control events, see subsection 40(2) of the FRR.
Any adjustments under section 51 of the PGPA Act are not valid until the direction is signed. NCEs cannot adjust appropriations on the basis of a request being submitted to Finance. Entities can only recognise the loss of control in the financial year in which the direction is signed (that is, for the current financial year, the direction must be signed by 30 June of that financial year). For advice on section 51 directions, please contact your AAU.
Under section 51 of the PGPA Act, the Finance Minister may withhold an amount of appropriation, for example, where there is:
- a movement of funds between years resulting in a reappropriation in a later year
- a reallocation or reclassification resulting in reappropriations
- a savings decision
- unspent and unrequired administered appropriations
- a foreign exchange gain under the ‘no win, no loss’ arrangements, or
- a ‘net-negative’ appropriation (where the overall reduction in appropriation estimates is greater than the overall increase in appropriation estimates).
Accounting treatment for departmental appropriation withheld: Accounting treatment: On the signature date of the PGPA Act section 51 direction, (with the entry being reversed if a new direction subsequently reverses it). Reduction in:
Appropriation note: PGPA Act section 51 withheld amounts included as legally available appropriation, with footnote disclosure (current year) and additional disclosure by appropriation Act (prior year). Amounts withheld should be the total of all section 51 directions in force at 30 June. See illustrative example D2 in Appendix 1, available under Tools and templates, for more information. |
For more information on the withholding process, email Annual.Appropriations@finance.gov.au.
Adjustments to appropriation that result from a decision of Cabinet or the Prime Minister:
- constitute a gain or loss of control event
- must be evidenced in writing by the appropriate authority with a specifically worded Cabinet minute or letter from the Prime Minister.
To be reflected in the appropriation note, formal adjustments to appropriation require a government-approved legal instrument (in addition to the written evidence) – see subsections 40(3) and 40(4) of the FRR.
In the absence of a government-approved legal instrument, there is a timing difference between the gain or loss of control of appropriation (for accounting purposes) and the appropriation being legally adjusted (as disclosed in the appropriation note). Refer to Formal additions and reductions - overview for further detail.
A Cabinet minute or letter from the Prime Minister does not constitute a government-approved legal instrument – see Formal additions and reductions - overview.
Accounting treatment for a decision of the Cabinet or Prime Minister Accounting treatment for:
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FRR section 37 - Adjustments to appropriationsThis section lists items that adjust appropriations receivable but not appropriation revenue. |
Entities should adjust appropriation receivable and not appropriation revenue for:
- Retainable receipts - see 10. Retainable receipts.
- Transfers in accordance with section 75 of the PGPA Act - see 1. Current-year appropriation transfers.
- Recoverable GST amounts retained - see 11. Recoverable GST.
Under section 74 of the PGPA Act, retainable receipts:
- are monies that can be retained by an NCE if part or all of the amount received is consistent with section 74 of the PGPA Act and section 27 of the Public Governance, Performance and Accountability Rule 2014 (PGPA Rule)
- increase an NCE’s most recent departmental appropriation when the NCE records the amounts in its internal accounts and records – see subsection 74(2) of the PGPA Act.
For an NCE to retain and spend receipts, the NCE requires both:
- legislative authority in an Act, rule, instrument or other subordinate law
- policy authority from Cabinet or the Prime Minister.
If an NCE retains input tax credits relating to the Good and Services Tax (GST) in reliance on section 74 of the PGPA Act (and subsection 27(2A) of the PGPA Rule), they cannot also credit their appropriation in reliance on section 74A of the PGPA Act. For more information, see subsection 27(8) of the PGPA Rule and 11. Recoverable GST.
Accounting treatment for retainable receipts: Accounting treatment:
Appropriation note for receipts – included as an increase to legally available appropriation. |
For more information, including a list of receipts that are retainable and those that are not, see RMG-307 Retainable receipts (RMG-307).
Section 74A of PGPA Act is usually used for administered GST payments. Under section 74 of the PGPA Act, amounts that are administered in nature are generally not retainable (with the exception of repayments) therefore, section 74A provides a mechanism to facilitate GST inclusive payments as well as amounts to be remitted to the Australian Taxation Office (ATO) as net GST collected.
Section 74A of the PGPA Act:
- authorises a limited by amount appropriation to be increased by a GST qualifying amount – as defined at subsection 74A(3) of the PGPA Act – to facilitate payments that are inclusive of GST
- is typically used for GST payments related to administered activities.
A GST qualifying amount only arises if an NCE is receiving a taxable supply as detailed in Divisions 9 and 19 of the A New Tax System (Goods and Services Tax) Act 1999.
Under section 27 of the PGPA Rule, two types of GST-related receipts qualify as retainable receipts (and may increase certain appropriations, for the purposes of section 74 of the PGPA Act (see 10. Retainable receipts)) – these are:
- amounts collected when selling goods and services (in order to pay net GST owed to the ATO)
- GST refunds from the ATO to the extent that section 74A of the PGPA Act was not used to increase an appropriation to pay the related GST qualifying amount – see subsection 27(8) of the PGPA Rule.
Accounting treatment for recoverable GST for PGPA Act section 74A used (Administered) – limited by amount of appropriation increased for GST: Accounting treatment:
Appropriation note for PGPA Act section 74A used – excluded as note is prepared on a recoverable GST exclusive basis. See illustrative example A2 in Appendix 2, available under Tools and Templates, for further information on adjusting administered appropriations. |
Accounting treatment where PGPA Act section 74A not used (Departmental) – input tax credit retained under PGPA Act section 74: Accounting treatment:
Appropriation note for PGPA Act section 74A not used – PGPA Act section 74 receipts included as increase in legally available appropriation. |
PGPA Act section 75 transfers of appropriations, representing prior years’ unspent appropriations, are accounted for against equity in the same way as other assets that are transferred as part of the restructure of administrative arrangements.
Transferred assets are treated as contribution by owners when, and only when, they satisfy the definition of contributions by owners in AASB Interpretation 1038.
Accounting treatment for prior year appropriation transfers: Accounting treatment for:
Appropriation note for:
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For more information on:
Quarantines
FRR section 36 - Withholding and quarantining of appropriationsThis section details the treatment of amounts administratively quarantined by the Department of Finance. |
Funds subject to movement of funds requests are typically quarantined on a temporary basis by AAUs to prevent entities inadvertently drawing down against the relevant appropriation.
Accounting treatment for quarantines: Accounting treatment – no accounting adjustments (that is, no impact on appropriation revenue/contributed equity or appropriations receivable for departmental). Appropriation note – quarantined amounts are included as legally available appropriation with a footnote disclosing the rationale and amount (current year) and additional disclosure by appropriation Act (prior year). |
For information on the quarantining process, email Annual.Appropriations@finance.gov.au.
Reappropriation of operating or departmental capital budget
Under paragraph 8(c) of AASB Interpretation 1038, DCBs are designated as contributions by owners (that is, equity).
Paragraph 12 of AASB Interpretation 1038 expressly prohibits NCEs from reclassifying appropriations between operating and equity or vice versa. Instead:
- NCEs must seek approval, typically from the Finance Minister, to enable the amount to be reappropriated at Additional Estimates
- the original amount appropriated is to be withheld through a PGPA Act section 51 direction, until such a time as the relevant appropriation Act automatically lapses.
Accounting treatment for departmental operating reappropriated as equity: Accounting treatment for:
Appropriation note – the original amount and reappropriated amount are both included as legally available appropriation, despite the original amount being subject to a PGPA Act section 51 withholding. See illustrative example D4.5 in Appendix 1, available under Tools and Templates, for more information. |
Lapsing appropriations
FRR section 39 - Equity returns and adjustmentsThis section defines and sets out the treatment of departmental equity returns. |
Annual appropriation Acts contain an automatic repeal date – often 1 July, 3 years after the amounts were first appropriated.
Lapsing appropriations are accounted for as departmental equity returns in accordance with subsection 39(1) of the FRR.
Accounting treatment for lapsing appropriations: The following treatment assumes a 1 July legislative repeal date:
Note – the reduction in contributed equity on 30 June reflects the expected loss of control shortly after the end of the financial year (on 1 July) – an adjusting event under paragraph 8 of AASB 110 Events after the Reporting Period.
Note – reporting of legally available amounts in appropriation note disclosures are an important part of the Government’s accountability to the Parliament and the public, and are consistent with the requirements of paragraphs 238-41 of AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities (and paragraphs 38-39 of AASB 1058 Income of Not-for-Profit Entities). See illustrative example D5 in Appendix 1, available under Tools and Templates, for further information. |
