EXPLANATORY STATEMENT

Issued by the authority of the Minister for Finance and Deregulation

Financial Management and Accountability Act 1997

Financial Management and Accountability Orders (Financial Statements for reporting periods ending on or after 1 July 2008)

Commonwealth Authorities and Companies Act 1997

Commonwealth Authorities and Companies Orders (Financial Statements for reporting periods ending on or after 1 July 2008)

Financial Management and Accountability Act 1997 (FMA Act)

Subsection 63(1) of the FMA Act provides that Orders may be made on any matter on which the FMA Act requires or permits Orders to be made and on any matter on which regulations under the FMA Act may be made. Section 49 of the FMA Act provides that the Chief Executive of an Australian Government Agency must prepare financial statements in accordance with Finance Minister’s Orders.  These requirements are currently specified in Schedule 1 to the Financial Management and Accountability Orders (Financial Statements for reporting periods ending on or after 1 July 2007).

The Financial Management and Accountability Orders set out the financial statement reporting requirements for Australian Government Agencies for reporting periods ending on or after 1 July 2008. Details of the main changes to reporting requirements for the reporting periods ending on or after 1 July 2008, as compared to the requirements that were previously in force are provided in Attachment A.

Specifics in relation to the Orders are as follows:

Financial Management and Accountability Orders (Financial Statements for reporting periods ending on or after 1 July 2008)

Clause 1 of the Orders deals with naming of the Orders.

Clause 2 of the Orders deals with commencement of the Orders.

Clause 3 inserts Schedule 1, which sets out requirements for the preparation of annual financial statements for reporting periods ending on or after 1 July 2008, and specifies the legislation to which it applies. It also notes that this Schedule 1 is identical to Schedule 1 to the Commonwealth Authorities and Companies Orders (Financial Statements for reporting periods ending on or after 1 July 2008).

Commonwealth Authorities and Companies Act 1997 (CAC Act)

Subsection 48(1) of the CAC Act provides that Orders may be made on any matter on which the CAC Act requires or permits Orders to be made.  Section 9 of the CAC Act requires the directors of a Commonwealth Authority to prepare an annual report in accordance with Schedule 1 to the CAC Act.  Part 1 of Schedule 1 to the CAC Act provides that the annual report must include financial statements prepared by the directors in accordance with the Finance Minister’s Orders. These requirements are currently specified in Schedule 1 to the Commonwealth Authorities and Companies Orders (Financial Statements for reporting periods ending on or after 1 July 2007).

The Commonwealth Authorities and Companies Orders set out the financial statement reporting requirements for the reporting periods ending on or after 1 July 2008. Details of the main changes to the requirements for reporting periods that were previously in force are provided in Attachment A.

The form and content of the Schedule 1 financial reporting requirements for a particular year is the same for both the abovementioned Orders.

Specifics in relation to the Orders are as follows:

Commonwealth Authorities and Companies Orders (Financial Statements for reporting periods ending on or after 1 July 2008)

Clause 1 deals with the naming of the Orders.

Clause 2 deals with the commencement of the Orders.

Clause 3 inserts Schedule 1, which sets out requirements for the preparation of annual financial statements for reporting periods ending on or after 1 July 2008, and specifies the legislation to which it applies. It also notes that this Schedule 1 is identical to Schedule 1 to the Financial Management and Accountability Orders (Financial Statements for reporting periods on or after 1 July 2008).

Consultation

All Commonwealth entities required to apply the Orders have been consulted, with the opportunity to provide comments on the draft version, in their preparation.  The Australian National Audit Office has been consulted and provided detailed comments on the Orders.  All feedback has been considered and amendments made where appropriate.

Attachment A to the Explanatory Statement

(Proposed Changes to the Finance Minister’s Orders for 2008-09)

This attachment summarises the main changes in relation to the Finance Minister’s Orders requiring the preparation of financial statements for reporting periods ending on or after 1 July 2008 for agencies and authorities.

The main changes are:

(a)   The addition of the following new policies:

1. Division 38 – Assets Held in Trust: entities required to include public money held on their behalf by outsiders and officials in their financial statements. This includes arrangements with salary sacrifice providers.
2. Division 45 – Financial Instruments:
   1. nominal value and unexpired discount of concessional loans required to be disclosed.
   2. additional reclassification options for financial instruments in accordance with AASB 2008-10 Amendments to Australian Accounting Standards – Reclassification of Financial Assets. This was issued by the International and Australian Accounting Standards Boards with immediate effect as a direct result of the global accounting crisis. Not expected to have a significant impact on Australian Government entities.
3. Division 91 – Transfer Payments: requires entities to disclose the broad categories of recipients of transfer payments and amounts transferred to those recipients in accordance with the new requirements of AASB 1050 Administered Items.
4. Division 101 – Recognition of Appropriations – Departmental: appropriations provided on a no-win/no-loss basis are not to be adjusted for underspends or overspends until the amount is actually paid or received.
5. Division 102 – Recognition of Appropriations – Administered, Division 104 – Disclosure of Appropriations, Division 120 – Special Accounts: reporting requirements for agencies involved with the Northern Territory Flexible Funding Pool Special Account.
6. Division 121 – Reporting of Outcomes and Outputs: requires entities to attribute assets and liabilities to outcomes where they can be reliably attributed in accordance with the new requirements of AASB 1052 Disaggregated Disclosures.

(b)  The following substantive changes to existing policies:

1. Division 100 – Recognition of Appropriations – General: changes to reflect the replacement of section 31 agreements for individual entities with centralised FMA Regulations for section 31 relevant agency receipts.
2. Division 103 – Recognition of Appropriations – CAC Entities, Division 104 Disclosure of Appropriations: significant changes to the requirements to disclose appropriations for payment to CAC Act bodies by the relevant agencies and CAC Act bodies to reflect the new format of the Appropriation Acts.
3. Division 104 – Disclosure of Appropriations:  additional disclosures to reflect the new arrangements whereby agencies specify the reduction of administered appropriations in their annual report as required by the Appropriation Acts, where previously it was determined through the section 8 determination process.

(c)   The deletion of the following existing policies:

Division 36 – Restricted Assets: removed to reflect the withdrawal of AAS 29 Financial Reporting by Government Departments which required certain disclosures for restricted assets. As the Australian Accounting Standards Board decided that disclosure requirements in other accounting standards were adequate, the requirements of AAS 29 were not transferred to any new or existing standards.