Introduction
A Machinery of Government (MoG) change occurs when the Government decides to change the way Commonwealth responsibilities are managed and may result from:
- a change to the Administrative Arrangements Orders (AAO), which set out the matters dealt with by entities and the legislation administered by ministers of state
- a decision of the government regarding the movement of responsibilities and functions between entities, where the change is not a revised AAO.
MoG changes can involve the movement of functions, appropriations, employees and other resources from one entity to another. The government expects MoG changes to be implemented as quickly as possible to achieve the best outcomes across the whole of government.
In implementing a MoG change, annual appropriation amounts may need to transfer. These need to:
- be agreed between the affected entities
- apply from the date specified in the section 75 determination.
Other assets and liabilities, revenue, expenses and appropriations should be accounted for by the entity that has responsibility for them. The timing for the change of control should align with the change of responsibility, based on legal requirements, and this may vary from item to item (see Effective date of transfers on Implementation & PGPA Act section 75 determinations).
For information and practical guidance on implementing MoG changes, see Machinery of Government Changes Guide.
Background
MoG changes follow a government decision to abolish or create entities, move functions or responsibilities between entities or into or out of the Australian Public Service (APS). A MoG change can lead to the:
- creation of new government entities or a new portfolio
- movement of entities between portfolios
- change in an entity’s status (for example, from a department to an executive entity)
- abolition of an existing government entity
- movement of functions and responsibilities between entities, including from an APS entity to a non-APS entity or vice versa.
The Department of the Prime Minister and Cabinet is responsible for informing entities of government decisions resulting in MoG changes.
Accounting
Financial reporting requirements for implementing and reflecting MoG changes are set out in:
- paragraphs 54–59 of the Australian Accounting Standards Board (AASB) 1004 Contributions (AASB 1004)
- paragraphs 216-218 of AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities (Appendix C) (AASB 1060)
- section 26 of the Public Governance, Performance and Accountability (Financial Reporting) Rule 2015 (FRR).
'Restructures of administrative arrangements’ are defined in AASB 1004 as:
“The reallocation or reorganisation of assets, liabilities, activities and responsibilities amongst the entities that the government controls that occurs as a consequence of a rearrangement in the way in which activities and responsibilities as prescribed under legislation or other authority are allocated between the government’s controlled entities.
The scope of the requirements relating to restructures of administrative arrangements is limited to the transfer of a business (as defined in AASB 3 Business Combinations). The requirements do not apply to, for example, a transfer of an individual asset or a group of assets that is not a business”.
'Business’ is defined in AASB 3 Business Combinations as:
“An integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing goods or services to customers, generating investment income (such as dividends or interest) or generating other income from ordinary activities”.
The transfer of an individual asset/liability or a group of standalone assets/liabilities is not considered a business transfer.
For the purposes of paragraphs 54–59 of AASB 1004, paragraphs 216-218 of AASB 1060 and this guide:
- section 26(2)(a) of the FRR defines ‘government department’ as any government controlled entity (that is, all non-corporate Commonwealth entities (NCEs) and corporate Commonwealth entities (CCEs)).
- section 26(2)(b) defines ‘legislation or other authority’ as any of the following:
- a decision of the Cabinet or Prime Minister
- an Administrative Arrangements Order (AAO)
- an Act of Parliament or a Regulation under an Act or
- a written agreement between the relevant portfolio minister(s) and the Minister for Finance or the Prime Minister, as appropriate.
Therefore, for an asset and liability transfer to be considered a ‘restructure of administrative arrangements’:
- the activity transferred must meet the definition of a business and:
- have a clearly defined set of integrated activities and policy purpose or return on investment element
- include the normal elements that would be expected of any business (such as staff, systems, clients/customers, fixed assets and liabilities) and
- the transfer must represent a decision by government to reorganise its activities, supported by legislation or other appropriate authority.
Paragraphs 54-56 of AASB 1004 require that restructures of administrative arrangements are accounted for as contributions by and distributions to owners by the transferee (receiving net assets) and transferor (transferring net assets) government entities respectively. Contributions by and distributions to owners should be recognised as direct adjustments to equity (AASB 1004 paragraphs 48-49).
For example, where non-financial assets (NFA) have been transferred in a restructure:
Gaining entity (Transferee):
| Dr/Cr | Account | Movement Account | Explanations |
|---|---|---|---|
| Dr | 53xxxxx NFA | 7128 Gross Value - From acquisition of entities and operations (incl restructuring) 7157 Acc Depn/Amt - From acquisition of entities and operations (incl restructuring) | Recognition of net assets received |
| Cr | 4100xxx Equity | 7207 Restructuring | Recognising contribution by owner through equity, equal to the value of net assets transferred |
Transferring entity (Transferor):
| Dr/Cr | Account | Movement Account | Explanations |
|---|---|---|---|
| Dr | 4100xxx Equity | 7207 Restructuring | Recognising distribution to owners through equity, equal to the value of net assets transferred |
| Cr | 53xxxxx NFA | 7134 Gross Value - From disposal of entities and operations (incl restructuring) 7151 Acc Depn/Amt - From disposal of entities and operations (incl restructuring) | De-recognition of the net assets transferred |
All assets and liabilities transferred must be recognised at their net book value immediately prior to the transfer date in line with section 26(1)(b) of the FRR.
Disclosure requirements for MoG changes are set out in section 26 of the FRR (restructures of administrative arrangements) and AASB 1004 (tier 1 entities) and AASB 1060 (tier 2 entities). In particular:
- AASB 1004 (paragraph 57) and AASB 1060 (paragraph 216) requires that the transferee disclose income and expenses for the transferred activities for the whole reporting period, showing separately those amounts recognised by the transferor during the reporting period. If the transferee believes this is impractical, it should liaise with Finance.
- AASB 1004 (paragraph 58) and AASB 1060 (paragraph 217) requires that transferred assets and liabilities be disclosed by class with the counterparty identified.
Accounting for restructures of administrative arrangements is subject to any determinations by the Minister for Finance under Division 4, Section 17 of the Public Governance, Performance and Accountability Rule 2014 (PGPA Rule). Entities may refer to RMG-119 Reporting requirements following machinery of government changes (RMG-119) and liaise with Finance on these requirements.
For more information on:
- financial reporting requirements for MoG changes, see:
- RMG-125 Commonwealth Entities Financial Statements Guide - Part 7 Administrative arrangements restructures
- section 8.3 of Primary reporting and information management aid (PRIMA) Documents example disclosures
- accounting for MoG changes, including Central Budget Management System (CBMS) account and movement codes, see CBMS Guide: How to - Program restructures in CBMS
- financial reporting responsibilities following MoG changes, including Division 4, Section 17 of the PGPA Rule, see RMG-119
- accounting for annual appropriation transfers, see RMG-116 Accounting for Annual Appropriations
- email Accounting Policy.
