The treatment of certain transfers of assets (or assets and liabilities) between public sector entities within the same group of entities that occur as a consequence of a government decision to restructure the activities or functions of its controlled entities, or for other purposes, has been the subject of debate.  These transfers are transfers other than those made as consideration for the provision by the transferee of assets or services (including the provision of debt finance) at fair value to the transferor.


Australian Accounting Standard AASB 1004 Contributions requires contributions by owners and distributions to owners to be recognised directly in equity.  The Standard also includes comments concerning whether the transactions of a government department are in the nature of contributions by owners or distributions to owners.  Different views have arisen regarding whether, and under which circumstances, the transfers described above should be recognised by the transferees as contributions by owners, and which treatment(s) of these transfers by transferors would be consistent with the treatment by transferees.  Concern has been expressed that, in the absence of authoritative guidance, diverse or unacceptable practice may occur or develop and that this will undermine the relevance and reliability of general purpose financial statements.  “Contributions by owners” is defined in AASB 1004.


This Interpretation addresses the essential characteristics of contributions by owners and provides indicators of when those characteristics exist.  With one significant exception, it applies to parliamentary appropriations and other transfers to statutory authorities, government departments and government-owned corporations from other entities within the same group of entities but only where the transferee is wholly owned by the controlling government.  The exception is that this Interpretation does not apply in respect of “restructures of administrative arrangements”, as defined in AASB 1004.  In such cases the requirements in AASB 1004 apply, which means that government departments and other government controlled not-for-profit entities account for “restructures of administrative arrangements” as transactions with owners in their capacity as owners.


This Interpretation does not apply to consolidated financial statements of local governments or whole of government or general government sector financial statements of Federal, State or Territory governments.  Furthermore, this Interpretation does not address the issue of whether transferees should classify as income or liabilities transfers to them that do not qualify as contributions by owners.


The issues are:

(a) What are the primary features of contributions by owners, and are there aspects of public sector entities that affect the determination of whether those features exist?

(b) Is it necessary for a contribution by owners to give rise to a financial interest in the net assets of the public sector entity which conveys an entitlement to distributions of a return on investment?

(c) Must shares or equivalent instruments be issued if transfers are in the nature of contributions by owners?

(d) What is the significance of the form of a transfer for determining whether it qualifies as a contribution by owners?