AASB 1049

The objective of this Standard is to specify requirements for whole of government general purpose financial statements and General Government Sector (GGS) financial statements of each government. This Standard requires compliance with other applicable Australian Accounting Standards except as specified in this Standard. It also requires disclosure of additional information such as reconciliations to key fiscal aggregates determined in accordance with the ABS GFS Manual and, for the whole of government, sector information (GGS, Public Non-Financial Corporations (PNFC) sector and Public Financial Corporations (PFC) sector). Whole of government financial statements and GGS financial statements prepared in accordance with this Standard provide users with:

(a) information about the stewardship by each government and accountability for the resources entrusted to it;

(b) information about the financial position, performance and cash flows of each government and its sectors; and

(c) information that facilitates assessments of the macro-economic impact of each government and its sectors.

This Standard applies to each government’s whole of government general purpose financial statements and GGS financial statements.

This Standard applies to annual reporting periods beginning on or after 1 January 2009.

[Note: For application dates of paragraphs changed or added by an amending Standard, see Compilation Details.]

This Standard may be applied to annual reporting periods beginning before 1 January 2009, provided there is early adoption for the same annual reporting period of AASB 101 Presentation of Financial Statements (September 2007).

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When applicable, this Standard supersedes AASB 1049 Financial Reporting of General Government Sectors by Governments (September 2006) and AAS 31 Financial Reporting by Governments (November 1996), as amended.

A government shall prepare both whole of government financial statements and GGS financial statements, whether presented together or separately in accordance with the requirements of this Standard.

A government shall, at all times, make its GGS financial statements available at the same time that its whole of government financial statements are made available.

Unless otherwise specified in this Standard, the whole of government financial statements and the GGS financial statements shall adopt the same accounting policies and be prepared in a manner consistent with other applicable Australian Accounting Standards.

With limited significant exceptions, this Standard requires the definition, recognition, measurement, classification, consolidation, presentation and disclosure requirements specified in other applicable Australian Accounting Standards to be adopted. This Standard only requires a different treatment from another applicable Australian Accounting Standard when the requirements of this Standard directly conflict with the requirements of that other Standard. In particular, in relation to the GGS, in conflict with AASB 10 Consolidated Financial Statements, paragraph 19 prohibits the consolidation of controlled entities in other sectors.

Where an Australian Accounting Standard:

(a) explicitly excludes from its scope not-for-profit entities, such as AASB 8 Operating Segments; or

(b) [deleted by the AASB]

(c) only applies to certain entities, such as listed companies, that are required to prepare financial reports in accordance with Part 2M.3 of the Corporations Act 2001, such as AASB 133 Earnings per Share;

the whole of government financial statements and the GGS financial statements are not required to adopt the requirements of that Standard.

Paragraph 9 of AASB 1054 Australian Additional Disclosures applies to the whole of government. It does not apply to the GGS. Accordingly, the GGS is not required to disclose whether its financial statements are general purpose financial statements or special purpose financial statements.

In satisfying paragraph 9 of this Standard, subject to paragraph 13A, where compliance with the ABS GFS Manual would not conflict with Australian Accounting Standards, the principles and rules in the ABS GFS Manual shall be applied. In particular, certain Australian Accounting Standards allow optional treatments within their scope. Those optional treatments in Australian Accounting Standards aligned with the principles or rules in the ABS GFS Manual shall be applied.

A government is not required to early adopt Australian Accounting Standards.

Subject to paragraph 13C, for the purpose of this Standard, a government shall apply the version of the ABS GFS Manual effective at the beginning of the previous annual reporting period or any version effective at a later date, as the basis for GFS information included in the financial statements under this Standard. The date on which amendments to the ABS GFS Manual become effective is, for the purpose of this Standard, the publication date if no effective date is specified by the ABS.

A government may elect not to apply Chapter 2 Amendments to Defence Weapons Platforms of the ABS publication Amendments to Australian System of Government Finance Statistics, 2005 (ABS Catalogue No. 5514.0) – published on the ABS website on 5 April 2011 – in the financial statements prepared in accordance with this Standard for reporting periods ending before 30 June 2015.

Notwithstanding paragraph 13, a government may elect to measure a class of right-of-use assets at cost or at fair value in accordance with AASB 16 Leases for leases that had at inception significantly below-market terms and conditions principally to enable the entity to further its objectives.

Examples of particular optional treatments in Australian Accounting Standards that paragraph 13 of this Standard has the effect of limiting, include:

(a) assets within the scope of AASB 116 Property, Plant and Equipment, AASB 138 Intangible Assets or AASB 140 Investment Property that may be measured at cost or at fair value. Those assets that are assets under the ABS GFS Manual that are within the scope of those Standards are required to be measured at fair value because the ABS GFS Manual requires those assets to be measured at market value.

However, the fair value options allowed under AASB 116, AASB 138 and AASB 140 are not amended by paragraph 13 of this Standard. If the fair value of an asset cannot be reliably measured in accordance with an Australian Accounting Standard that allows a choice between fair value and cost, then that asset is to be measured at cost. Where historical cost is adopted because fair value cannot be measured reliably, historical cost is not characterised as fair value. Also, for example, the requirement for the fair value of an intangible asset to be determined by reference to an active market under AASB 138 continues to apply;

(b) certain financial instruments that may be measured at fair value or on another basis under AASB 9 Financial Instruments. Where financial instruments meet the criteria for measurement at fair value under AASB 9, they are required to be measured at fair value where the ABS GFS Manual requires market value as the measurement basis.

Although fair value measurement in the statement of financial position may be mandated through paragraph 13 of this Standard, the accounting for changes in fair value in the statement of comprehensive income is not mandated by paragraph 13. Rather, changes in fair value are classified in the statement of comprehensive income in accordance with AASB 9. AASB 9 anticipates certain financial assets being classified as either:

(i) ‘fair value through profit or loss’, with changes in fair value included in operating result; or

(ii) ‘fair value through other comprehensive income’, with changes in fair value included in the other comprehensive income section of the statement of comprehensive income;

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(d) [deleted]

(e) cash flows from operating activities that may be reported using either the direct method or the indirect method in the statement of cash flows under AASB 107 Statement of Cash Flows. Because the direct method is consistent with the format of the cash flow statement under the ABS GFS Manual, paragraph 13 of this Standard has the effect of requiring the direct method to be adopted;

(f) dividends paid by entities within the PNFC sector and PFC sector that may be classified by those sectors as a financing cash flow or as a component of cash flows from operating activities under AASB 107. Because classification as a financing cash flow is consistent with the format of the cash flow statement under the ABS GFS Manual, paragraph 13 of this Standard has the effect of requiring classification of dividends paid as a financing cash flow; and

(g) government grants accounted for by entities within the PNFC sector and PFC sector in accordance with AASB 120 Accounting for Government Grants and Disclosure of Government Assistance. In accordance with paragraphs 52(b)(i) and 53 of this Standard, information about the PNFC sector and PFC sector disclosed for the whole of government is prepared in a manner consistent with the accounting policies adopted in the whole of government statement of financial position, statement of comprehensive income, statement of changes in equity and statement of cash flows. Therefore, the options in AASB 120 are not adopted and instead the principles in AASB 1004 Contributions are applied.

Certain Australian Accounting Standards do not prescribe specific treatments for all items and issues within their scope. An example is AASB 101, which requires additional line items, headings and subtotals to be presented when such presentation is relevant to an understanding of the entity’s financial position. The ABS GFS Manual specifies principles and rules for the presentation of a balance sheet prepared for GFS purposes. Those ABS GFS Manual principles and rules are required to be applied in the presentation of the whole of government statement of financial position and the GGS statement of financial position to the extent that they do not conflict with AASB 101.

Subject to paragraphs 41(a)(i)(A) and 52(b)(ii)(A) of this Standard, key fiscal aggregates that are disclosed for the whole of government or the GGS, either because they are required by this Standard or a government elects to provide additional information, shall be measured in a manner that is consistent with amounts recognised in the corresponding statement of financial position, statement of comprehensive income, statement of changes in equity and statement of cash flows.

This Standard requires certain information that is relevant to an assessment of the macro-economic impact of:

(a) a whole of government and GGS to be included in the statements of financial position, statements of comprehensive income and statements of cash flows (see paragraphs 28, 32 and 37); and

(b) a government’s sectors to be included in the sector statements of financial position, statements of comprehensive income and statements of cash flows required to be disclosed for the whole of government by paragraph 52(b)(i).

This Standard requires the information to be determined in a manner consistent with other amounts recognised in the statement of financial position, statement of comprehensive income, statement of changes in equity and statement of cash flows. Corresponding amounts, determined in accordance with the ABS GFS Manual, are required to be disclosed in the notes where they differ from the amounts presented in the statement of financial position, statement of comprehensive income and statement of cash flows (see paragraphs 41(a)(i)(A) and 52(b)(ii)(A)).

A government may elect to disclose key fiscal aggregates (as defined) or other information additional to the requirements of this Standard. If a government elects to make additional disclosures, they are made in a way that does not detract from the information prescribed in this Standard.

Examples of additional disclosures that may be made voluntarily include the classification of other economic flows consistent with Table 7.4 of the ABS publication Australian System of Government Finance Statistics: Concepts, Sources and Methods, 2005 (ABS Catalogue No. 5514.0) and additional key fiscal aggregates, such as change in net worth due to revaluations and change in net worth due to other changes in the volume of assets.

Consistent with the requirements in paragraph 16 of this Standard, additional key fiscal aggregates are measured in a manner consistent with recognised amounts. Consistent with paragraphs 41(a)(i) and 52(b)(ii) of this Standard, where they differ, corresponding key fiscal aggregates measured in accordance with the ABS GFS Manual are disclosed, together with a reconciliation of the two measures of each key fiscal aggregate.

Fiscal aggregates that are not measured in a manner consistent with recognised amounts or the ABS GFS Manual may be disclosed, but are not presented as key fiscal aggregates.

If a government elects to disclose aggregates that are not key fiscal aggregates, they are made in a way that clearly differentiates them from key fiscal aggregates.

A government shall present GGS financial statements in which it consolidates only entities that are within the GGS, using the consolidation procedures specified in AASB 10.

A GGS equity investment in a government controlled entity that is within the PNFC sector or PFC sector shall be recognised as an asset in the GGS statement of financial position. It shall be measured:

(a) at fair value, where fair value is reliably measurable; or

(b) at the government’s proportional share of the carrying amount of net assets of the PNFC sector or PFC sector entity before consolidation eliminations, where fair value is not reliably measurable and the carrying amount of net assets before consolidation eliminations is not less than zero; or

(c) at zero, where fair value is not reliably measurable and the carrying amount of net assets of the PNFC sector or PFC sector entity before consolidation eliminations is less than zero.

Any change in the carrying amount of the investment from period to period shall be accounted for as if the change in carrying amount is a change in fair value and accounted for in a manner consistent with the requirements in AASB 9.

If the carrying amount of net assets of a PNFC sector or PFC sector entity is less than zero, a liability may need to be recognised by the GGS to the extent a present obligation exists.

Income from GGS investments in controlled entities in the PNFC sector and PFC sector is accounted for in accordance with AASB 9. Dividends are classified as revenue consistent with AASB 9. A change in the carrying amount of the investment over the reporting period that does not arise from the government acquiring or disposing of an interest or undistributed dividends is classified as a gain or loss. The gain or loss is included in the operating result or other comprehensive income, depending on whether the investment is classified in the same manner as ‘fair value through profit or loss’ investments or in the same manner as ‘fair value through other comprehensive income’ investments consistent with the principles in AASB 9.

For the purposes of determining the carrying amount of net assets of entities within the PNFC sector and PFC sector recognised and measured in accordance with paragraph 20(b):

(a) each PNFC sector and PFC sector entity’s accounting policies are adjusted to align with the accounting policies adopted for the whole of government for the same period;

(b) intersector balances between the GGS and entities within the PNFC sector and PFC sector are not eliminated; and

(c) individual amounts for each PNFC sector and PFC sector entity are presented in aggregate.

Investments in jointly controlled entities and associates shall be measured using the equity method of accounting, unless the investment is classified as held for sale in accordance with AASB 5 Non-current Assets Held for Sale and Discontinued Operations, in which case AASB 5 is applied.

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The whole of government statement of financial position and the GGS statement of financial position, and notes thereto, shall be presented in a manner consistent with the requirements in AASB 101.

Net worth shall be presented in the whole of government statement of financial position and GGS statement of financial position, measured in a manner consistent with other amounts recognised in the respective statements of financial position.

The whole of government statement of comprehensive income and GGS statement of comprehensive income, and notes thereto, shall be presented in a manner consistent with the requirements for a single statement of comprehensive income in AASB 101.

For the purpose of presentation, all amounts relating to an item included in the determination of comprehensive result (total change in net worth [before transactions with owners in their capacity as owners]) shall be classified as transactions or other economic flows in a manner that is consistent with applying the principles in the ABS GFS Manual from the GAAP perspective.

In accordance with paragraph 30:

(a) where GAAP and GFS both recognise the item in the reporting period, amounts relating to that item shall be classified in accordance with the ABS GFS Manual; and

(b) where GAAP recognises an item that GFS does not recognise in the reporting period, subject to paragraph 55(b), amounts relating to that item shall be classified by applying GFS principles to the underlying event giving rise to the amounts, as if the amounts were recognised under GFS, using an analogous GFS item.

The following examples illustrate how the approach in paragraphs 30 and 30A applies to particular items:

(a) in both a whole of government and GGS financial reporting context, where GAAP and GFS both recognise the item in the reporting period:

(i) net profit/(loss) from associates potentially comprises two components under GFS classification – dividends from associates and the remainder. Accordingly, dividends are classified as transactions and the remainder is classified as other economic flows. Such dividends are not included in the line item that includes dividends from entities other than associates;

(ii) changes in the fair value of financial instruments measured at fair value, that do not arise from undistributed interest or dividends, are classified as other economic flows, irrespective of whether the instruments are classified as ‘fair value through profit or loss’ or ‘available-for-sale’;

(iii) remeasurements of the defined benefit liability (asset) relating to defined benefit superannuation plans are classified as other economic flows;

(iv) changes in the fair value of investment property potentially comprise two components under GFS classification – consumption of capital and price changes. Accordingly, the expense arising from consumption of capital is classified as transactions and the gains and losses arising from price changes are classified as other economic flows. Although the consumption of capital may be considered to be similar in nature to depreciation, it is not included in the line item that includes depreciation; and

(v) bad debts expense is classified as transactions to the extent it is mutually agreed, otherwise it is classified as other economic flows; and

(b) in both a whole of government and GGS financial reporting context, where GAAP recognises an item that GFS does not recognise in the reporting period:

(i) income that arises from the amortisation of a prepayment received for a licence involving the licensee having rights over a specified period of time (that GFS treated in a previous period as a sale of intangible asset) is classified as transactions, by analogy with the GFS classification of the amortisation of a prepayment received for a service to be rendered;

(ii) doubtful debts expense that arises from the impairment of loans and receivables is classified as other economic flows, by analogy with the GFS classification of revaluation of financial assets;

(iii) an expense that arises from the initial recognition of the difference between the fair value of a concessionary loan and the transaction price (the loan proceeds) is classified as transactions, by analogy with the GFS classification of subsidies; and

(iv) an expense that arises from the initial recognition of a provision for decommissioning costs for which there is no counterparty that recognises a related financial asset is classified as transactions, by analogy with the GFS classification of an expense arising from the initial recognition of a liability. Subsequent changes in the measurement of such provisions arising from changes in estimates of the expenditure required to settle the present obligation are classified as other economic flows, by analogy with the GFS classification of revaluation of liabilities; and

(c) in a GGS financial reporting context, dividends from PNFC sector and PFC sector entities are classified as transactions to the extent the ABS GFS Manual accounts for them as dividends and otherwise as other economic flows.

In some cases the approach in paragraphs 30 and 30A facilitates the reduction of differences between GAAP and GFS, particularly at the key fiscal aggregate level. Illustrative Examples A and B illustrate the classification between transactions and other economic flows for some of the items listed above and other possible circumstances where items recognised in the whole of government statement of comprehensive income and the GGS statement of comprehensive income do not have GFS equivalents.

The following shall be presented in the whole of government statement of comprehensive income and the GGS statement of comprehensive income:

(a) net operating balance;

(b) total change in net worth (before transactions with owners in their capacity as owners, where they exist); and

(c) net lending/(borrowing) and its derivation from net operating balance;

measured in a manner consistent with other amounts recognised in the respective statements of comprehensive income.

Under AASB 101, an entity may present a single statement of profit or loss and other comprehensive income, with profit or loss and other comprehensive income presented in two sections. The sections shall be presented together, with the profit or loss section presented first followed directly by the other comprehensive income section. An entity may present the profit or loss section in a separate statement of profit or loss. If so, the separate statement of profit or loss shall immediately precede the statement presenting comprehensive income. This Standard requires a single statement of profit or loss and other comprehensive income option to be adopted, and therefore requires all recognised income and expenses to be included in a single statement that presents the comprehensive result (total change in net worth [before transactions with owners in their capacity as owners, where they exist]).

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The whole of government statement of changes in equity and the GGS statement of changes in equity, and notes thereto, shall be presented in a manner consistent with the requirements in AASB 101.

Generally, transactions with owners in their capacity as owners do not arise in a GGS context because there is no ownership group identified for the GGS. They may arise in a whole of government context in relation to partly-owned subsidiaries. They may also arise between PNFC sector and PFC sector entities and their owner, the GGS.

The whole of government statement of cash flows and the GGS statement of cash flows, and notes thereto, shall be presented in a manner consistent with the requirements in AASB 107.

Cash flows relating to investing in financial assets for policy purposes and for liquidity management purposes shall be presented separately, determined in a manner consistent with the ABS GFS Manual, in the whole of government statement of cash flows and the GGS statement of cash flows.

The whole of government statement of cash flows and the GGS statement of cash flows shall also include cash surplus/(deficit) and its derivation, measured in a manner consistent with other amounts recognised in the respective statements of cash flows, without the deduction of the value of assets acquired under finance leases and similar arrangements.

An example of an acceptable whole of government statement of financial position, statement of comprehensive income, statement of changes in equity and statement of cash flows format and GGS statement of financial position, statement of comprehensive income, statement of changes in equity and statement of cash flows format that are in accordance with this Standard is provided in Illustrative Examples A and B respectively.

In addition to the disclosures required by other Australian Accounting Standards in the notes containing material accounting policy information, the following disclosures shall be made prominently in the notes:

(a) for the whole of government and the GGS:

(i) a statement that the financial statements are prepared in accordance with this Standard;

(ii) a reference to the version of the ABS GFS Manual used as the basis for GFS information included in the financial statements, and when an entity has not applied the most recent version of the ABS GFS Manual (including when an entity has elected to adopt the relief available in paragraph 13C):

(A) this fact; and

(B) known or reasonably estimable information relevant to assessing the possible impact that application of the latest version of the ABS GFS Manual will have on the financial statements in the period of initial application; and

(iii) where the GGS financial statements and whole of government financial statements are presented separately from each other, a cross-reference to each other; and

(b) for the GGS only:

(i) a statement of the purpose for which the GGS financial statements are prepared;

(ii) a description of the GGS; and

(iii) a description of how the GGS financial statements differ from the whole of government financial statements in terms of the treatment of the government’s investments in PNFC sector and PFC sector entities.

In complying with paragraph 39(a)(ii), an entity considers disclosing:

(a) the version of the latest ABS GFS Manual;

(b) the nature of the impending change or changes in the ABS GFS Manual;

(c) the date by which application of the latest version of the ABS GFS Manual is required;

(d) the date as at which it plans to apply the latest version of the ABS GFS Manual initially; and

(e) either:

(i) a discussion of the impact that initial application of the latest version of the ABS GFS Manual is expected to have on the entity’s financial statements; or

(ii) if that impact is not known or reasonably estimable, a statement to that effect.

An example of the information to be included in the material accounting policy information disclosed for the GGS in accordance with paragraph 39 is provided in Illustrative Example C.

In addition to the disclosures required to be made in other explanatory notes in accordance with other applicable Australian Accounting Standards, the following disclosures shall be made:

(a) for the whole of government and the GGS:

(i) where the key fiscal aggregates measured in accordance with the ABS GFS Manual differ from the key fiscal aggregates provided pursuant to paragraph 16 of this Standard:

(A)

(1) the key fiscal aggregates measured in accordance with the ABS GFS Manual; and

(2) a reconciliation of the two measures of key fiscal aggregates and an explanation of the differences; or

(B) an explanation of how each of the key fiscal aggregates provided pursuant to paragraph 16 of this Standard is calculated and how it differs from the corresponding key fiscal aggregate measured in accordance with the ABS GFS manual;

(ii) where the key fiscal aggregates measured in accordance with the ABS GFS Manual do not differ from the key fiscal aggregates provided pursuant to paragraph 16, a statement of that fact; and

(iii) explanations of key technical terms used; and

(b) for the GGS:

(i) a list of entities within the GGS, and any changes to that list that have occurred since the previous reporting date and the reasons for those changes;

(ii) a list of significant investments in PNFC sector and PFC sector entities, including:

(A) the name;

(B) proportion of ownership interest and, if different, proportion of voting power held; and

(C) the measurement basis adopted for the amount recognised in accordance with paragraph 20; and

(iii) the aggregate amount of dividends and other distributions to owners in their capacity as owners from PNFC sector and PFC sector entities to the GGS and the aggregate amount of the comprehensive result attributable to the GGS of the PNFC sector and PFC sector entities disclosed in the whole of government statement of comprehensive income by sector for the reporting period.

In relation to the requirements in paragraph 41(a)(i), differences in the key fiscal aggregates determined under the ABS GFS Manual and pursuant to paragraph 16 of this Standard arise from differences in definition, recognition, measurement and certain classification requirements. Each difference gives rise to the need for disclosure of a reconciliation and an explanation of the difference. Examples of such differences include:

(a) in a whole of government and GGS context:

(i) doubtful debts – although the ABS GFS Manual recognises bad debts written off, it does not recognise write-downs of accounts receivable in relation to doubtful debts;

(ii) provisions recognised as liabilities – in the absence of a counter-party recognising a related financial asset, the ABS GFS Manual does not recognise a liability arising from a constructive obligation;

(iii) inventories – under the ABS GFS Manual, inventories are measured at current prices, whereas under AASB 102 Inventories (as amended by AASB 2007-5 Amendments to Australian Accounting Standard – Inventories Held for Distribution by Not-for-Profit Entities), depending on their nature, inventories are measured at the lower of cost and net realisable value or at cost adjusted when applicable for any loss of service potential; and

(iv) investments in associates – under the ABS GFS Manual, those assets are measured at current prices where current prices exist, whereas under AASB 128 Investments in Associates the equity method of accounting generally applies; and

(b) in a whole of government context only:

(i) non-controlling interest in controlled entities – under the ABS GFS Manual, minority interest is classified as a liability and measured at current prices, whereas under AASB 10 non-controlling interest that is classified as equity is not remeasured; and

(ii) outgoing dividends – under the ABS GFS Manual, outgoing dividends are classified as an expense, whereas under AASB 101 a dividend is treated as a distribution to owners.

Illustrative Examples A and B illustrate some of these and other possible circumstances where differences arise and the manner in which they are reflected in reconciliation notes.

In relation to the whole of government, for the purpose of paragraph 41(a)(i)(A), the ABS GFS Manual key fiscal aggregate that corresponds to the requirement in paragraph 32(b) to present ‘total change in net worth before transactions with owners in their capacity as owners’ is ‘total change in net worth’ (after transactions with owners in their capacity as owners). Accordingly, the reconciliation required to be disclosed for the whole of government by paragraph 41(a)(i)(B) is from ‘total change in net worth before transactions with owners in their capacity as owners’ as presented in accordance with paragraph 32(b) to ‘total change in net worth’ measured in accordance with the ABS GFS Manual. As noted in paragraph 34B, transactions with owners in their capacity as owners do not arise in a GGS context.

Some differences between GAAP and GFS requirements relate to differences in classification or differences in consolidation eliminations that do not cause a difference in measurements of key fiscal aggregates and therefore do not need to be included in the reconciliation notes. However, they do give rise to the need for explanations of the differences to be disclosed. Examples of such differences include:

(a) for both the whole of government and the GGS:

(i) AASB 132 Financial Instruments: Presentation classifies certain prepaid expenses as non-financial assets, whereas the ABS GFS Manual classifies them as financial assets;

(ii) AASB 137 Provisions, Contingent Liabilities and Contingent Assets may classify an amount within provisions, whereas the ABS GFS Manual classifies them as accounts payable; and

(iii) paragraph 31(a)(iv) of this Standard notes that consumption of capital of investment property is classified separately from depreciation, whereas the ABS GFS Manual classifies it as depreciation; and

(b) for the whole of government, consolidation eliminations. Under the ABS GFS Manual, certain transactions between the GGS and entities within the PNFC sector and PFC sector are not eliminated on whole of government consolidation, whereas under AASB 10 intragroup transactions that are not, in substance, transactions with external parties are eliminated in full. The GFS treatment has the effect of ‘grossing up’ both GFS revenue and GFS expenses by equal amounts and though the key fiscal aggregates remain the same, the differences in GAAP and GFS revenues and expenses should be disclosed. For example, a GGS may compensate a PNFC sector entity for a community service obligation, imposed by the GGS, that requires the PNFC sector entity to provide free services to a cohort of private individuals. The compensation provided by the GGS to the PNFC sector entity is not eliminated for whole of government reporting under the ABS GFS Manual (instead it is ‘rerouted’ through the household sector of the economy and therefore treated as an expense of the GGS to the household sector, and an expense of the household sector to the PNFC sector entity, and therefore revenue of the PNFC sector entity).

The GGS is not subject to the disclosures required by AASB 12 Disclosure of Interests in Other Entities. The requirements in AASB 12 are either addressed elsewhere in this Standard or are not significant for GGS financial reporting.

In relation to the requirement in paragraph 41(a)(iii) to disclose explanations of key technical terms, key technical terms include:

(a) transactions;

(b) other economic flows;

(c) net operating balance;

(d) net lending/(borrowing);

(e) financial assets;

(f) non-financial assets;

(g) net worth;

(h) cash surplus/(deficit);

(i) operating result;

(j) comprehensive result (total change in net worth [before transactions with owners in their capacity as owners]);

(k) total change in net worth; and

(l) net debt.

An example of the disclosures required by paragraph 41(a)(iii) is provided in Illustrative Example D.

Paragraph 112 of AASB 101 requires additional information to be provided in notes that is not presented in the statement of financial position, statement of comprehensive income, statement of changes in equity and statement of cash flows but is relevant to an understanding of them. Consistent with this, the components of aggregate numbers presented in those statements, including key fiscal aggregates, are disclosed in the notes where relevant.

In respect of each broad function identified in Table 2.6 “Government Purpose Classification: Major Groups” of the ABS publication Australian System of Government Finance Statistics: Concepts, Sources and Methods, 2005 (ABS Catalogue No. 5514.0), the whole of government and the GGS shall disclose by way of note:

(a) a description of that function;

(b) the carrying amount of assets recognised in the respective statements of financial position that are reliably attributable to that function; and

(c) expenses, excluding losses, included in operating result in the respective statements of comprehensive income for the reporting period that are reliably attributable to that function.

The information provided by way of note in accordance with paragraph 48 shall be aggregated. A reconciliation of the aggregate amount of expenses, excluding losses, included in operating result to the aggregate of expenses from transactions recognised in the statement of comprehensive income shall be disclosed.

Paragraph 48 requires disclosure of information about the recognised expenses, excluding losses, included in operating result and assets that are reliably attributable to broad functions determined to at least the ABS GFS Manual two-digit level of classification shown in Table 2.6 of the ABS publication Australian System of Government Finance Statistics: Concepts, Sources and Methods, 2005 (ABS Catalogue No. 5514.0). Disclosure of this information assists users in identifying the resources committed to particular functions and the costs of service delivery that are reliably attributable to those functions. Functional classification of financial information, where it can be determined reliably, will also assist users in assessing the significance of financial or non-financial performance indicators reported by the government.

AASB 114 (AASB 8) does not apply to the whole of government or the GGS. The bases used in the ABS GFS Manual for identifying functions do not necessarily accord with the criteria for identifying segments contained in AASB 114 (AASB 8). However, AASB 114 (AASB 8) may be useful in identifying the expenses, excluding losses, included in operating result and assets that are reliably attributable to each function. An example of the disclosures required by paragraphs 48(b) and 48(c) in respect of each function of the whole of government and the GGS is provided in Illustrative Examples A and B respectively.

The whole of government shall disclose by way of note, in respect of the GGS, PNFC sector and PFC sector as defined in the ABS GFS Manual:

(a) a description of each sector;

(b) for each sector:

(i) a statement of financial position, statement of comprehensive income, statement of changes in equity and statement of cash flows that are consistent with the whole of government’s corresponding financial statements prepared in accordance with this Standard;

(ii) where the key fiscal aggregates measured in accordance with the ABS GFS Manual differ from the key fiscal aggregates determined in a manner consistent with paragraph 16 of this Standard:

(A)

(1) the key fiscal aggregates measured in accordance with the ABS GFS Manual; and

(2) a reconciliation of the two measures of key fiscal aggregates and an explanation of the differences; or

(B) an explanation of how each of the key fiscal aggregates provided pursuant to paragraph 16 of this Standard is calculated and how it differs from the corresponding key fiscal aggregate measured in accordance with the ABS GFS manual; and

(iii) where the key fiscal aggregates measured in accordance with the ABS GFS Manual do not differ from the key fiscal aggregates determined in a manner consistent with paragraph 16, a statement of that fact; and

(c) a reconciliation between the information disclosed for the sectors in total and the corresponding information in the whole of government’s statement of financial position, statement of comprehensive income, statement of changes in equity and statement of cash flows (see, for example, Illustrative Example A).

Sector information prepared in accordance with paragraph 52(b) is determined before consolidation eliminations. Accordingly, GGS investments in PNFC sector and PFC sector entities are included in the GGS information that is disclosed for the whole of government. They are measured at the carrying amount of net assets disclosed by the whole of government for the PNFC sector and PFC sector.

Notes to the sector statements of financial position, statements of comprehensive income, statements of changes in equity and statements of cash flows, other than those required by paragraph 52, are not required to be disclosed.

In relation to the requirements in paragraph 52(b)(ii), differences in the key fiscal aggregates determined under the ABS GFS Manual and consistent with paragraph 16 of this Standard arise from differences in definition, recognition, measurement and certain classification requirements. Each difference gives rise to the need for disclosure of a reconciliation and an explanation of the difference. Examples of such differences for the PNFC sector and the PFC sector include those identified in paragraph 42 of this Standard, as well as:

(a) ownership interest in PNFC sector and PFC sector entities – in contrast to Australian Accounting Standards, under the ABS GFS Manual, the carrying amount of ownership interest in PNFC sector and PFC sector entities is deducted in the determination of net worth of those sectors. In particular:

(i) where the market value of ownership interest in PNFC sector and PFC sector entities is reliably measurable, GFS deducts it in determining net worth of those sectors. Accordingly, negative GFS net worth arises if the market value exceeds the recognised carrying amount of net assets. Under Australian Accounting Standards, the market value of ownership interest is not recognised; and

(ii) where ownership interest in PNFC sector and PFC sector entities is measured by GFS at the carrying amount of net assets, GFS net worth is nil. Under Australian Accounting Standards, the carrying amount of net assets is not deducted in determining net worth; and

(b) deferred tax assets and deferred tax liabilities of PNFC sector and PFC sector entities – the ABS GFS Manual does not recognise deferred tax assets and deferred tax liabilities that are recognised by PNFC sector and PFC sector entities in accordance with AASB 112 Income Taxes. Like the approach in paragraph 61A of AASB 112, a deferred tax revenue or expense recognised in accordance with AASB 112 is classified in the statement of comprehensive income as a transaction or an other economic flow consistent with the underlying event giving rise to the related deferred tax asset or liability. For example, when a deferred tax liability arises from the revaluation of an asset, the related deferred tax expense is classified as an other economic flow because the asset revaluation itself is recognised as an other economic flow.

For the purpose of paragraph 52(b)(ii)(A), the ABS GFS Manual key fiscal aggregate that corresponds to the requirement implicit in paragraph 52(b)(i) to present ‘total change in net worth before transactions with owners in their capacity as owners’ for the PNFC sector and PFC sector is ‘total change in net worth’ (after transactions with owners in their capacity as owners). Accordingly, the reconciliation required to be disclosed by paragraph 52(b)(ii)(B) is from ‘total change in net worth before transactions with owners in their capacity as owners’ as presented in accordance with paragraph 52(b)(i) to ‘total change in net worth’ measured in accordance with the ABS GFS Manual.

A government may choose to disclose sectors in addition to the GGS, PNFC sector and PFC sector. For example, a government may disclose information about the total non-financial public sector, comprising the GGS and PNFC sector. Where that is the case, the additional sectors are disclosed on a comparable basis to the information disclosed for the GGS, PNFC sector and PFC sector.

The sector statements of financial position, statements of comprehensive income, statements of changes in equity and statements of cash flows could be presented in a single schedule that includes an adjustments column or row to facilitate reconciliation to the corresponding whole of government statements in accordance with paragraph 52(c). Alternatively, those sector financial statements may be presented in columns, with or without an adjustments column, in the whole of government statement of financial position, statement of comprehensive income, statement of changes in equity and statement of cash flows. Where an adjustments column is not provided in those whole of government financial statements, the reconciliation required by paragraph 52(c) is provided in the notes. Disclosure of the individual eliminations between the sectors is not required.

Australian Bureau of Statistics (ABS) publications Australian System of Government Finance Statistics: Concepts, Sources and Methods, 2005 (ABS Catalogue No. 5514.0) and Amendments to Australian System of Government Finance Statistics, 2005 (ABS Catalogue No. 5514.0) published on the ABS website.

Net cash flows from operating activities plus net cash flows from acquisition and disposal of non-financial assets less distributions paid less value of assets acquired under finance leases and similar arrangements. Defined in the ABS GFS Manual (paragraph 2.124).

Institutional sector comprising all government units and non-profit institutions controlled and mainly financed by government. Defined in the ABS GFS Manual (Glossary, page 256).

The Australian Government, the Government of the Australian Capital Territory, New South Wales, the Northern Territory, Queensland, South Australia, Tasmania, Victoria or Western Australia.

Unique kinds of legal entities established by political processes which have legislative, judicial or executive authority over other institutional units within a given area and which: (i) provide goods and services to the community and/or individuals free of charge or at prices that are not economically significant; and (ii) redistribute income and wealth by means of taxes and other compulsory transfers. Defined in the ABS GFS Manual (Glossary, page 257).

An economic entity that is capable, in its own right, of owning assets, incurring liabilities and engaging in economic activities and in transactions with other entities. Defined in the ABS GFS Manual (Glossary, page 257).

Referred to as analytical balances in the ABS GFS Manual, are data identified in the ABS GFS Manual as useful for macro-economic analysis purposes, including assessing the impact of a government and its sectors on the economy. They are: opening net worth, net operating balance, net lending/(borrowing), change in net worth due to revaluations, change in net worth due to other changes in the volume of assets, total change in net worth, closing net worth and cash surplus/(deficit).

The financing requirement of government, calculated as the net operating balance less the net acquisition of non-financial assets. A positive result reflects a net lending position and a negative result reflects a net borrowing position. Based on the definition in the ABS GFS Manual (Glossary, page 259).

This is calculated as income from transactions minus expenses from transactions. Based on the definition in the ABS GFS Manual (Glossary, page 259).

Assets less liabilities and shares/contributed capital. For the GGS, net worth is assets less liabilities since shares and contributed capital is zero. It is an economic measure of wealth and reflects the contribution of governments to the wealth of Australia. Defined in the ABS GFS Manual (Glossary, page 259).

A legal or social entity that is created for the purpose of producing or distributing goods and services but is not permitted to be a source of income, profit or other financial gain for the units that establish, control or finance it. Defined in the ABS GFS Manual (Glossary, page 260).

Changes in the volume or value of an asset or liability that do not result from transactions (i.e. revaluations and other changes in the volume of assets). Defined in the ABS GFS Manual (Glossary, page 260).

Institutional sector comprising resident government controlled corporations and quasi-corporations mainly engaged in financial intermediation or provision of auxiliary financial services. Based on the definition in the ABS GFS Manual (Glossary, page 261).

Institutional sector comprising resident government controlled corporations and quasi-corporations mainly engaged in the production of market goods and/or non-financial services. Based on the definition in the ABS GFS Manual (Glossary, page 261).

An unincorporated enterprise that functions as if it were a corporation, has the same relationship with its owner as a corporation, and keeps a separate set of accounts. Defined in the ABS GFS Manual (Glossary, page 261).

Interactions between two institutional units by mutual agreement or actions within a unit that it is analytically useful to treat as transactions. Defined in the ABS GFS Manual (Glossary, page 263).

General purpose financial statements prepared by a government that are prepared in accordance with Australian Accounting Standards, including AASB 10 Consolidated Financial Statements, and thereby separately recognise assets, liabilities, income, expenses and cash flows of all entities under the control of the government on a line-by-line basis.

Z  Functional Classification for Whole of Government

Reconciliation of ‘expenses, excluding losses, included in the operating result’ to ‘expenses from transactions’ in the statement of comprehensive income

Z  Functional Classification for General Government Sector

Reconciliation of ‘expenses, excluding losses, included in operating result’ to ‘expenses from transactions’ in the statement of comprehensive income

The following notes are for explanatory purposes only, and do not form part of the financial statements or accompanying notes illustrated in Illustrative Examples A or B.

The notes provide explanations of the convergence differences between the key fiscal aggregates presented in each of the financial statements and GFS measures of the key fiscal aggregates for the whole of government (including the sectors) and GGS.

Expenses from Transactions – Use of Goods and Services

The convergence difference of ($45m) in the GGS and ($41m) in the PNFC sector arises because GFS expenses certain development costs and classifies them as expenses from transactions. However, the development costs are not recognised as expenses from transactions in the statement of comprehensive income because they are recognised as intangible assets upon acquisition. GFS treats goods and services used for research and development as use of goods and services expenses from transactions, rather than as acquisitions of intangible assets, even though some development activities are expected to bring benefits for more than one year (refer also to Note (b)).

The total difference of ($86m) flows through to the whole of government amounts.

Expenses from Transactions – Depreciation

The convergence difference of $6m in the GGS and $5m in the PNFC sector arises because GFS recognises a smaller amortisation of produced intangibles than is recognised as an expense from transactions in the statement of comprehensive income. GFS treats goods and services used for research and development as use of goods and services expense from transactions, rather than as acquisitions of intangible assets, even though some development activities may bring benefits for more than one year (refer also to Note (a)).

The total difference of $11m flows through to the whole of government amounts.

Expenses from Transactions – Social Benefits

The convergence difference of $94m in the GGS arises because GFS does not recognise a liability relating to the potential beneficiaries of a social benefit scheme who had not registered for benefits as at the reporting date. Therefore, GFS does not recognise the associated expense from transactions, whereas such an amount is recognised in the statement of comprehensive income and classified as expenses from transactions.

This difference flows through to the whole of government amounts.

Dividends to GGS from Other Sector Entities

The convergence difference comprises ($259m) in the PNFC sector and ($789m) in the PFC sector because GFS treats dividends to owners as an expense, whereas such an amount is not recognised as an expense in the statement of comprehensive income because it is treated as a distribution to owners and therefore a direct debit to equity.

The total difference of ($1,048m) does not flow through to the whole of government amounts as it arises from intersector transactions.

Other Differences Included in the GFS Net Operating Balance

A classification difference arises in the whole of government and the GGS, because GFS classifies the debt security written off by mutual agreement of $380m as a capital grant expense from transactions, whereas, although it is recognised as an expense from transactions in the statement of comprehensive income, it is classified as loss on write-off of financial assets at fair value through operating result. [For the purpose of Illustrative Examples A and B, the debt security is assumed to have satisfied the criteria in AASB 9 Financial Instruments for classification as a ‘fair value through profit or loss’ financial asset.] The write-off arose from the Government agreeing to forgive the outstanding debt of a Country. The classification difference has no impact on the amount of the GFS Net Operating Balance.

A GGS/PNFC elimination difference arises in respect of the treatment of $25m of the social benefits. Under GFS, certain transactions between the GGS and entities within the PNFC and PFC sectors are not eliminated on consolidation, whereas under AASB 10 Consolidated Financial Statements intragroup transactions that are not in substance transactions with external parties are eliminated in full. The GFS treatment has the effect of ‘grossing up’ both GFS ‘revenue from transactions – other current revenues’ and GFS ‘expenses from transactions – grants’ of the whole of government by equal amounts even though the key fiscal aggregates remain the same. [For the purpose of this illustration, it is assumed the GGS has compensated a PNFC entity for $25m of community service obligations, imposed by the GGS, that requires the PNFC entity to provide free services to a cohort of private individuals.] The compensation provided by the GGS to the PNFC entity is not eliminated under GFS (instead it is ‘rerouted’ through the household sector of the economy and therefore treated as an expense of the GGS to the household sector, and an expense of the household sector to the PNFC entity and therefore revenue of the PNFC entity). This convergence difference has no impact on the amount of the whole of government’s GFS Net Operating Balance. This difference does not affect the GGS or the PNFC and PFC sectors but impacts the total of revenues and expenses in the whole of government statement of comprehensive income.

Net Acquisition/(Disposal) of Non-Financial Assets from Transactions

The convergence differences are explained as follows:

Other Economic Flows – Included in Operating Result – Other Revenue – Dividends to GGS from the sale of PNFC sector assets

The convergence difference of ($300m) arises in the GGS because GFS classifies $300m of the distributions from other sector entities as a transaction in financial assets (that is, as a withdrawal of equity because it is funded from proceeds from sale of assets), whereas the statement of comprehensive income recognises it as dividend revenue and classifies it as other economic flows (refer also to Note i).

This difference does not flow through to the whole of government amounts as it arises from intersector transactions.

Other Economic Flows – Included in Operating Result – Doubtful Debts

The convergence differences of $500m in the GGS, $63m in the PNFC sector and $41m in the PFC sector arise because GFS does not recognise doubtful debts, whereas the statement of comprehensive income recognises doubtful debts and classifies it as other economic flows. In this example, no bad debts were written off from doubtful debts. GFS recognises amounts written off when there is mutual agreement with debtors as capital grants expenses in the period of the write-off, and recognises those written off unilaterally by the government as other economic flows also in the period of the write-off.

The total difference of $604m flows through to the whole of government amounts.

Other Economic Flows – Other Comprehensive Income – Net Gain on Equity Investments in Other Sector Entities Measured at Proportional Share of the Carrying Amount of Net Assets/(Liabilities)

The convergence differences comprise:

$90m in the GGS: The carrying amount of net assets (and therefore the change in carrying amount of net assets) of other sector entities determined under GFS principles and rules differs from the carrying amount of net assets (and therefore the change in carrying amount of net assets) of the subsidiaries recognised in the statement of financial position (being the carrying amount of net assets determined before elimination of intersector balances).

The difference is therefore equivalent to the total of those convergence differences affecting the total change in net worth impacting either through the net operating balance (itemised in Note S1 of Illustrative Example A) or other economic flows (other than transactions with owners in their capacity as owners in the form of dividends paid – itemised in Note S3 of Illustrative Example A). The components are:

$300m in the GGS: GFS treats this amount as a distribution from other sector entities classified as a transaction in financial assets (that is, as a withdrawal of equity because it is funded from proceeds from sale of assets), whereas the statement of comprehensive income recognises it as dividend revenue and classifies it as other economic flows (refer also to Note g). Under GFS, the holding gain on other sector entities is determined after taking into account additions to and withdrawals from equity that have occurred.

The total difference of $390m does not flow through to the whole of government amounts as it arises from intersector items.

Other Economic Flows – Included in Operating Result – Share of Net Profit/(Loss) from Associates (Excluding Dividends)

The convergence difference of $51m arises in the GGS because GFS does not recognise the share of the associate’s loss (excluding dividends), whereas consistent with the equity method of accounting, it is recognised as an expense of $51m and classified as an other economic flow and dividends are recognised as a revenue of $1m and classified as a transaction in the statement of comprehensive income. GFS recognises the decrease in the market value of investments in associates of $55m as an other economic flow (refer to Note k(ii)), and the dividends on such investments of $1m as dividend revenue from transactions.

This difference flows through to the whole of government amounts.

Other Economic Flows – Other Comprehensive Income – Revaluations

The convergence differences comprise:

($55m) in the GGS because GFS recognises the decrease in the market value of investments in associates of $55m as an other economic flow, whereas it is not recognised in the statement of comprehensive income. Consistent with the equity method of accounting, the statement of comprehensive income recognises the share of the associate’s loss of $50m as a loss of $51m classified as other economic flows and revenue (from dividends) of $1m (refer also to Note j).

This difference flows through to the whole of government amounts.

$130m in the GGS and $12m in the PNFC sector because GFS recognises the net increase in the revalued intangible assets as an other economic flow, whereas it is not recognised in the statement of comprehensive income. In accordance with paragraph 81 of AASB 138 Intangible Assets, the intangible assets in this example are not revalued because there is no active market for them.

The total difference of $142m flows through to the whole of government amounts.

$10m in the PNFC sector because while GFS recognises the gross increase in the revalued asset (in Illustrative Example A, assumed to have arisen from an upward asset revaluation of properties), it does not recognise as an offset part of the increase in the revalued asset as being due to a corresponding increase in the deferred tax liability. (Refer also to Note q(ii))

This difference does not flow through to the whole of government amounts as the whole of government does not have a deferred tax liability.

Remeasurement of Shares and Other Contributed Capital

The convergence differences of $4,093m in the PNFC sector and ($7,378m) in the PFC sector arise because GFS measures net worth as assets less liabilities less share capital/contributed capital (remeasured). Because in Illustrative Example A PNFC and PFC sectors are 100 per cent owned by the GGS, the GFS net worth, and therefore the GFS change in net worth, of these sectors is zero. In effect, all of the convergence differences that impact on the comprehensive result are netted off for the PNFC and PFC sectors against the GFS remeasurement of shares and other contributed capital.

The total difference of ($3,285m) does not flow through to the whole of government amounts as they relate to the GGS ownership interest in PNFC/PFC sectors.

Assets – Financial Assets – Accounts Receivable

The convergence differences of $1,800m in the GGS, $165m in the PNFC sector and $298m in the PFC sector arise because GFS does not recognise doubtful debts, whereas a provision for doubtful debts is recognised in the statement of financial position.

This total difference of $2,263m flows through to the whole of government amounts.

Assets – Financial Assets – Shares and Other Equity – Investments Accounted for Using Equity Method

The convergence difference of $36m arises in the GGS because GFS recognises the net decrease in the market value of investments in associates, whereas the equity method of accounting is applied in the calculation of the carrying amount recognised in the statement of financial position.

This difference flows through to the whole of government amounts.

Assets – Financial Assets – Shares and Other Equity – GGS Investments in Other Sector Entities

The convergence difference of $900m arises in the GGS in relation to the measurement of equity investments in other sector entities measured at proportional share of the carrying amount of net assets/(liabilities), due to different definition, recognition and measurement principles and rules for certain assets and liabilities under GFS.

The difference is therefore equivalent to the total of those convergence differences affecting Net Worth (as itemised in Note T). The components are:

This difference does not flow through to the whole of government amounts as it arises from an intersector item.

Assets – Non-Financial Assets – Produced Assets – Intangibles

The convergence differences comprise:

($400m) in the GGS and ($69m) in the PNFC sector because GFS treats research and development costs as use of goods and services expenses from transactions, whereas some are treated as acquisitions of intangible assets for the statement of financial position because some development activities are expected to bring benefits for more than one year.

This total difference of ($469m) flows through to the whole of government amounts.

$150m in the GGS because GFS recognises the revaluation of certain intangible assets, whereas those intangible assets have not been revalued in the statement of financial position because there is no active market (in accordance with paragraph 81 of AASB 138).

This difference flows through to the whole of government amounts.

Liabilities – Provisions

The convergence differences comprise:

$94m in the GGS because GFS does not recognise certain provisions that are recognised in the statement of financial position as liabilities (for example, to the extent that they arise from constructive obligations for which there is no counterparty recognising a related financial asset).

This difference flows through to the whole of government amounts.

$506m in the PNFC sector because GFS does not recognise the deferred tax liability.

This difference does not flow through to the whole of government amounts as it arises from a PNFC sector liability that is not a whole of government liability.

[Note: Depending on the arrangements operating in a particular jurisdiction, a GGS, as an income tax collector, may not be able to recognise a related revenue unless it meets the criteria in AASB 1058 Income of Not-for-Profit Entities. Under the tax regime assumed for the purpose of this example, the GGS, as the tax collector, does not recognise deferred tax balances because the tax events associated with the PNFC sector’s deferred tax balances have not occurred, even though from the PNFC sector’s viewpoint, the event is the recognition of the underlying assets and/or liabilities in accordance with AASB 112 Income Taxes. This treatment in the GGS accords with GFS, which does not recognise deferred tax assets. Therefore, no convergence difference arises.]

Shares and Other Contributed Capital

The convergence differences of ($20,609m) in the PNFC sector and ($13,050m) in the PFC sector arise because GFS measures net worth as assets less liabilities less shares/contributed capital, whereas shares/contributed capital are not deducted in the determination of GAAP net worth. Because in this example GFS measures shares/contributed capital of the PNFC and PFC sectors at the carrying amount of net assets of those sectors, PNFC and PFC sector GFS net worth is nil.

The total difference of ($33,659m) does not flow through to the whole of government amounts as they relate to the GGS ownership interest in the PNFC and PFC sectors.

Classification Difference Included in the GFS Net Worth

A classification difference arises in the GGS because GFS classifies $28,000m of the $28,094m of provisions as other accounts payable. The classification difference has no impact on the amount of the GFS Net Worth.

This difference flows through to whole of government amounts.

Cash Flows from Investments in Non-Financial Assets

The convergence difference of ($4m) in the GGS arises because GFS recognises a notional cash outflow relating to new finance leases and similar arrangements in calculating cash surplus/(deficit), whereas the statement of cash flows does not recognise notional cash flows.

This difference flows through to the whole of government amounts.

Classification Differences Included in the GFS Cash Surplus/(Deficit)

For the whole of government and GGS, amounts of $41,019m and $37,898m respectively have been recognised as payments for purchases of goods and services from operating activities in the statement of cash flows. Under GFS, the corresponding amounts are $41,105m and $37,943m respectively.

The convergence difference of $45m in the GGS is due to capitalised development costs that are classified as purchases of non-financial assets – which are investing activities in the statement of cash flows.

For the PNFC sector, an amount of $3,151m has been recognised as payments for purchases of goods and services from operating activities in the statement of cash flows. Under GFS, the corresponding amount is $3,192m.

The convergence difference of $41m comprises capitalised development costs that are classified as purchases of non-financial assets – which are classified as investing activities in the statement of cash flows.

The total convergence difference of $86m flows through to whole of government.

These classification differences have no impact on the amount of the GFS Cash Surplus/(Deficit).

The financial statements of the General Government Sector (GGS) of [name of the Government] have been prepared in accordance with AASB 1049 Whole of Government and General Government Sector Financial Reporting, which requires compliance with all Australian Accounting Standards except those identified below. The purpose of the financial statements is to provide users with information about the stewardship by the Government in relation to its GGS and accountability for the resources entrusted to it; information about the financial position, changes in net assets/(liabilities), performance and cash flows of the Government’s GGS; and information that facilitates assessments of the macro-economic impact of the Government’s GGS.

The GGS of [name of the Government] is a component of the Whole of Government of [name of the Government]. The GGS is determined in accordance with the principles and rules contained in the Australian Bureau of Statistics publications:

(a) Australian System of Government Finance Statistics: Concepts, Sources and Methods, 2005 (ABS Catalogue No. 5514.0); and

(b) Amendments to Australian System of Government Finance Statistics, 2005 (ABS Catalogue No. 5514.0)

published on the ABS website on [publication date, or refer to effective date if specified by the ABS] (ABS GFS Manual). The GGS consists of all government units and non-profit institutions controlled and mainly financed by government. Government units are legal entities established by political processes that have legislative, judicial, or executive authority over other units and which provide goods and services to the community or to individuals on a non-market basis; and make transfer payments to redistribute income and wealth. Non-profit institutions are created for the purpose of producing or distributing goods and services but are not a source of income, profit or other financial gain for the government.

The Standard under which the GGS financial statements are prepared does not require full application of AASB 10 Consolidated Financial Statements and AASB 9 Financial Instruments. Assets, liabilities, income, expenses and cash flows of government controlled entities that are in the Public Non-Financial Corporations sector and the Public Financial Corporations sector are not separately recognised in the GGS of [name of the Government’s] financial statements. Instead, the GGS financial statements recognise an asset, being the controlling equity investment in those entities, and recognise a gain or loss relating to changes in the carrying amount of that asset, measured in accordance with AASB 1049. Readers are referred to the Whole of Government general purpose financial statements of [name of the Government] for the year ended 30 June 20XX for financial information that separately recognises assets, liabilities, income, expenses and cash flows of all entities under the control of the [name of the Government].

The ABS GFS Manual also provides the basis upon which Government Finance Statistics (GFS) information that is contained in the financial statements is prepared. In particular, notes disclosing key fiscal aggregates of net worth, net operating balance, total change in net worth, net lending/(borrowing) and cash surplus/(deficit) determined using the principles and rules in the ABS GFS Manual are included in the financial statements, together with a reconciliation of those key fiscal aggregates to the corresponding key fiscal aggregates recognised in the financial statements.

Cash surplus/(deficit) is net cash flows from operating activities plus net cash flows from acquisition and disposal of non-financial assets and less distributions paid. GFS cash surplus/(deficit) also deducts the value of assets acquired under finance leases and similar arrangements.

Comprehensive result (total change in net worth before transactions with owners in their capacity as owners)^[3] is the net result of all items of income and expense recognised for the period. It is the aggregate of operating result and other comprehensive income, other than transactions with owners in their capacity as owners.

Convergence difference is the difference between the amounts recognised in the financial statements compared with the amounts determined for GFS purposes as a result of differences in definition, recognition, measurement, classification and consolidation principles and rules.

Financial asset is any asset that is:

(a) cash;

(b) an equity instrument of another entity;

(c) a contractual right:

(i) to receive cash or another financial asset from another entity; or

(ii) to exchange financial assets or financial liabilities with another entity under conditions that are potentially favourable to the entity; or

(d) a contract that will or may be settled in the entity’s own equity instruments and is:

(i) a non-derivative for which the entity is or may be obliged to receive a variable number of the entity’s own equity instruments; or

(ii) a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity’s own equity instruments. For this purpose the entity’s own equity instruments do not include instruments that are themselves contracts for the future receipt or delivery of the entity’s own equity instruments.

General Government Sector (GGS) is the institutional sector comprising all government units and non-profit institutions controlled and mainly financed by government.

Government Finance Statistics (GFS) enable policymakers and analysts to study developments in the financial operations, financial position and liquidity situation of the government. More details about the GFS can be found in the Australian Bureau of Statistics (ABS) publications Australian System of Government Finance Statistics: Concepts, Sources and Methods, 2005 (ABS Catalogue No. 5514.0) and Amendments to Australian System of Government Finance Statistics, 2005 (ABS Catalogue No. 5514.0) published on the ABS website.

Gross fixed capital formation is the value of acquisition less disposals of new and existing produced assets that can be used in production, other than inventories.

Mutually agreed bad debts are financial assets written off where there was prior knowledge and consent by the counterparties.

Net acquisition/(disposal) of non-financial assets from transactions is gross fixed capital formation less depreciation plus changes in inventories plus other transactions in non-financial assets.

Net actuarial gains includes actuarial gains and losses on defined benefit superannuation plans.

Net cash flows from investments in financial assets (liquidity management purposes) is cash receipts from liquidation or repayment of investments in financial assets for liquidity management purposes less cash payments for such investments. Investment for liquidity management purposes means making funds available to others with no policy intent and with the aim of earning a commercial rate of return.

Net cash flows from investments in financial assets (policy purposes) is cash receipts from the repayment and liquidation of investments in financial assets for policy purposes less cash payments for acquiring financial assets for policy purposes. Acquisition of financial assets for policy purposes is distinguished from investments in financial assets (liquidity management purposes) by the underlying government motivation for acquiring the assets. Acquisition of financial assets for policy purposes is motivated by government policies such as encouraging the development of certain industries or assisting citizens affected by natural disaster.

Net gain on equity investments in other sector entities measured at proportional share of the carrying amount of net assets/(liabilities) comprises the net gains relating to the equity held by the GGS in other sector entities. It arises from a change in the carrying amount of net assets of the subsidiaries. The net gains are measured based on the proportional share of the subsidiary’s carrying amount of net assets/(liabilities) before elimination of intersector balances.

Net lending/(borrowing) is net operating balance minus the net acquisition/(disposal) of non-financial assets. It is also equal to transactions in the net acquisition/(disposal) of financial assets minus the net incurrence of liabilities. It indicates the extent to which financial resources are placed at the disposal of the rest of the economy or the utilisation of financial resources generated by the rest of the economy. It is an indicator of the financial impact on the rest of the economy.

Net other economic flows is the net change in the volume or value of assets and liabilities that does not result from transactions.

Net result from transactions – net operating balance is revenue from transactions minus expenses from transactions. It is a summary measure of the ongoing sustainability of operations. It excludes gains and losses resulting from changes in price levels and other changes in the volume of assets. It is the component of the change in net worth that is due to transactions and can be attributed directly to government policies.

Net worth is assets less liabilities and shares/contributed capital. For the GGS, net worth is assets less liabilities, since shares and contributed capital do not exist in a GGS context^[4]. It is an economic measure of wealth and reflects the contribution to the wealth of Australia. The change in net worth is the preferred measure for assessing the sustainability of fiscal activities.

Non-financial assets are all assets that are not ‘financial assets’.

Non-produced assets are assets needed for production that have not themselves been produced. They include land, subsoil assets, and certain intangible assets.

Non-produced intangibles are intangible assets needed for production that have not themselves been produced. They include constructs of society such as patents.

Operating result is a measure of financial performance of the operations for the period. It is the net result of items of revenue, gains and expenses (including losses) recognised for the period, excluding those that are classified as ‘other comprehensive income’.

Other current revenues refers to current revenue other than current revenue from taxes, sales of goods and services, and property income. It includes revenue from fines other than penalties imposed by tax authorities.

Other economic flows – see definition of ‘net other economic flows’ above.

Other sector entities are government controlled entities that are not part of the GGS.

Public Financial Corporations (PFC) sector is the institutional sector comprising resident government controlled corporations and quasi-corporations mainly engaged in financial intermediation or provision of auxiliary financial services.

Public Non-Financial Corporations (PNFC) sector is the institutional sector comprising resident government controlled corporations and quasi-corporations mainly engaged in the production of market goods and/or non-financial services.

Quasi-corporation is an unincorporated enterprise that functions as if it were a corporation, has the same relationship with its owner as a corporation, and keeps a separate set of accounts.

Securities other than shares are negotiable financial instruments serving as evidence of the obligations to settle by means of providing cash, a financial instrument, or some other item of economic value. The security normally specifies a schedule for interest payments and principal repayments. Some examples are: bills, bonds and debentures, commercial paper, and securitised mortgage loans.

Social benefits are transfers in cash or in kind to relieve households of the burden of a defined set of social risks. Social risks are events or circumstances that may adversely affect the welfare of households either by imposing additional demands on their resources or by reducing their incomes.

Transactions are interactions between two units by mutual agreement or an action within a unit that is analytically useful to treat as a transaction.

Unilaterally determined bad debts are financial assets written off without an agreement with the debtor in cases such as bankruptcy of the debtor.

Use of goods and services is the total value of goods and services used in production, and use of goods acquired for resale. Goods and services acquired for use as direct in-kind transfers to households or as grants are excluded.

Valuables are produced goods of considerable value that are acquired and held primarily as stores of value over time and are not used primarily for purposes of production or consumption. They include works of art not used primarily in museums to produce services for the public.

Wages, salaries and supplements consist of all uncapitalised compensation of employees except for superannuation. It includes pay in cash or in-kind.

Whole of government financial statements are financial statements that are prepared in accordance with Australian Accounting Standards, including AASB 10 Consolidated Financial Statements, and thereby separately recognise assets, liabilities, income, expenses, and cash flows of all entities under the control of the government on a line-by-line basis.