Defining and accounting for contributions by owners (equity)

AASB 1004 Contributions (AASB 1004) defines 'contributions' and 'contributions by owners'.

For a transfer to be a contribution by owners the transfer must be:

• in the nature of a contribution (that is, a transfer that is not made for consideration, such as provision of loans or payments for goods or services approximately equal in value)
• supported by a government decision.

Contributions can be in various forms, such as cash, non financial assets, liabilities assumed or the provision of services.

Paragraphs 48 to 53 of AASB 1004 and Interpretation 1038 provide for governments to designate certain transfers to wholly owned government entities as contributions by owners. 

The following criteria need to be satisfied for a transfer to be designated by the transferor as a contribution by owners.

• There is legislation or other authority from the government (such as a ministerial or government decision) supporting the transfer of assets or liabilities – for more information, see 7. Administrative Arrangements Restructures in RMG-125 Commonwealth Entities Financial Statements Guide, and
• For transfers:
  • below $10 million in net book value, there is as a minimum written agreement between the relevant accountable authorities in the form of an exchange of letters – transfers must be consistent with broader government policy
  • above $10 million in net book value but below the Gateway Review Process (Gateway) financial thresholds, there is written agreement from the relevant portfolio minister/s – for entities in the same portfolio, this may be the same minister
  • for transfers above the Gateway financial thresholds there is written agreement from the Minister for Finance (Finance Minister). Entities should copy correspondence to the relevant Finance Agency Advice Unit (AAU) and the Assistant Secretary, Accounting and Framework Branch via Accounting Policy. This will enable Finance to brief the Finance Minister in a timely manner.

Seeking designation from ministers does not remove the obligation to demonstrate compliance with all of the requirements of AASB 1004 and Interpretation 1038.

The transfer must:

• be in the nature of a contribution
• be to a wholly-owned government transferee entity (Interpretation 1038, paragraphs 25 and 44)
• be classified consistently between transferor and transferee. For example, where the transfer is classified as a contribution by owners to the transferee, the transferor must either account for the transfer as a distribution to owners or the acquisition of an ownership interest in the transferee (Interpretation 1038, paragraphs 11, 38 and 42-43).

Designation by the transferor must be in the form of a written agreement that the transfer is designated as equity and be made prior to or at the time a transfer occurs (Interpretation 1038, paragraph 32). Entities must allow sufficient time for designation requests to be considered. Once the transfer has occurred it cannot be re-designated (for example from income to a contribution by owners or vice versa).

Cabinet decisions (and supporting costings/submissions, briefings and ministerial correspondence) for new policy proposals may provide sufficient authority for designation as contributions by owners for purposes of Interpretation 1038. In some cases Cabinet or Ministerial decisions may provide standing designation of asset and liability transfers as contribution by owners.

It is recommended that entities discuss compliance issues with their auditors and inform their AAU in Finance prior to seeking designation. The entity’s operating position should not influence the transfer.

Assets and liability transfers designated as contributions by owners must be adjusted in equity at the transferor’s net book values applicable immediately prior to the transfer. Transferors are not required to revalue prior to transfer, however net book values should be adjusted for any errors. Transferor and transferee entities should agree asset and liability balances transferred and record consistent related entity (RE) amounts in Central Budget Management System (CBMS).

For example, for a non financial asset (NFA) transfer which is designated by the transferring entity (transferor) as a contribution by owners to the transferee:

• the transferring entity (transferor) must treat the transfer as a distribution to owners or as an increase in investment in the transferee and derecognise the asset in accordance with the relevant AAS and/or the Public Governance, Performance and Accountability (Financial Reporting) Rule 2015 (FRR)
• the receiving entity (transferee) must treat the transfer as a contribution by owners and recognise the asset and increase in equity, in accordance with relevant AAS and/or the FRR, using the same net book value as the transferring entity.

Receiving entity (Transferee):

Transferring entity (Transferor):