EXPLANATORY STATEMENT
Issued by the authority of the Minister for Finance and Administration
Financial Management and Accountability Act 1997
Financial Management and Accountability Orders (Financial Statements for reporting periods ending on or after 1 July 2006)
Commonwealth Authorities and Companies Act 1997
Commonwealth Authorities and Companies Orders (Financial Statements for reporting periods ending on or after 1 July 2006)
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 2005).
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 2006. Details of the main changes to reporting requirements for the reporting periods ending on or after 1 July 2006, as compared to the requirements that were previously in force are provided in Attachment A. While there have been limited technical changes to the Orders currently in force the manner in which the information is presented has been changed to improve readability and to provide easy access to additional information. Item numbers do not run continuously, to allow for future expansion without changing existing item numbers.
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 2006)
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 2006, 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 2006).
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 2005).
The Commonwealth Authorities and Companies Orders set out the financial statement reporting requirements for the reporting periods ending on or after 1 July 2006. Details of the main changes to the requirements for reporting periods that were previously in force are provided in Attachment A. While there have been limited technical changes to the Orders currently in force the manner in which the information is presented has been changed to improve readability and to provide easy access to additional information. Item numbers do not run continuously, to allow for future expansion without changing existing item numbers.
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 2006)
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 2006, 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 2006).
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
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 2006 for:
- each Australian Government Agency and Commonwealth Authority;
- each economic entity, comprising the Australian Government Agency or Commonwealth Authority and its subsidiaries;
- the activity or activities of an Australian Government Agency which is/are determined to be a Business Operation pursuant to Financial Management and Accountability Orders 6.2.1.
The main changes are:
(1) A restructure of the document.
This was done primarily to make the document easier to read and use for agencies. The new structure compares to the old as per the following table:
2006-07 | 2005-06 |
| New item |
2. Structure of this schedule | New item |
3. Further information | New item |
4. Dictionary | Definition of terms |
5. Abbreviations | Definition of terms |
6. Commencement | 1A |
7. Applicable entities | 1B |
8. Authoritative requirements | 1B |
9. Financial reporting structure and form | 1B |
10. Simplified reporting | 1F |
11. Early adoption of accounting pronouncements | 1B.6 |
12. Materiality and information disclosure | 1B.7 |
13. Rounding off | 1B.7 |
14. Certificates | 1C |
15. Departmental and administered items | 2B |
16. Exemptions from this schedule | 1D |
17. Approved exemptions | New item |
18. Income generally (excluding appropriations) | New item |
19. Expenses generally | New item |
20. Borrowing costs | 3A.10 |
21. Operating leases | New item |
22. Director/executive remuneration | 7B |
23. Remuneration of auditors | 7C |
24. Competitive neutrality | 1B.4 |
30. Financial assets generally | New item |
31. Receivables for statutory charges | New item |
32. Investment of surplus money by authorities | 7D |
33. Valuation of non‑financial assets | 3A |
34. Impairment of non‑financial assets | 3A |
35. Analysis of non‑financial assets | 3A |
36. Restricted assets | 3B |
37. Heritage and cultural assets | 3D |
38. Assets held in trust | 3C |
40. Liabilities generally | New item |
41. Liabilities relating to dividends | New item |
42. Provisions | New item |
43. Employee benefits | 4C |
44. Measurement and disclosure of post employment plans | New item |
45. Financial instruments | 8 |
50. Statement of changes in equity | Appendix A |
60. Cash flow statement | Appendix A |
75. Schedule of administered items | Appendix A |
80. Contingencies | 4A |
81. Commitments | 4B |
85. Administered reporting generally | New item |
86. Income and expenses administered on behalf of Government | New item |
87. Administered investments | 6B |
88. Administered investments held for sale | 6B |
89. Impairment of administered assets | New item |
90. Liabilities administered on behalf of Government | New item |
92. Restructures | 5A |
100. Recognition of appropriations – general | 2A, 2B |
101. Appropriation recognition – departmental | 2A, 2B |
102. Appropriation recognition – administered | 2A, 2B |
103. Appropriation recognition – CAC entities | 2A, 2B |
104. Appropriation disclosure | 2C |
120. Special accounts | 2E |
121. Reporting of outcomes and outputs | 2D |
122. Compensation and debt relief in special circumstances | 7A |
Annexure A – PRIMA | Appendix A |
(2) The addition of the following new policies:
Part A (items 1-3)
General introduction and explanation of format of Schedule 1 (including explanation of additional policy and guidance material associated with but not included in Schedule 1. Note, this additional material is not part of the legislative instrument but is available on the Department of Finance and Administration website, www.finance.gov.au).
Item 17 Approved exemptions
In prior years a small number of exemptions have been provided regularly on an annual basis. These have now been incorporated in Schedule 1 for administrative simplicity.
Items 18, 19, 30, 40, 50, 60, 75, 85, 86, 89, 90
These set out general reporting requirements that are unchanged from prior years but which were implied rather than stated, or were contained in Appendix A.
As part of the redrafting of Schedule 1, these have been included as new items for completeness.
Item 21 Operating leases
This item sets out accounting requirements for operating leases and in particular which lease payments should be expensed over the term of the lease in accordance with accounting standard AASB117 Accounting for Leases.
Item 31 Receivables for statutory charges
This item clarifies procedures for assessing impairment of statutory charges under AASB 136 Impairment of assets.
Item 41 Liabilities relating to dividends
This specifies when a liability may be recognised by an entity for dividends payable to general government.
Item 42 Provisions
This item is included so that the Department of Finance and Administration can provide policy and guidance in related documents on provisions recognised under AASB 137 Provisions, Contingent Liabilities and Contingent Assets. Schedule 1 itself does not contain any detail in item 42.
Item 44 Measurement and disclosure of post employment plans
This item clarifies reporting requirements for agencies with respect to post employment, or superannuation, plans. This was partly addressed in section 4C in 2005‑06 but further explanation was considered warranted.
(3) The following substantive changes to existing policies:
Item 12 Materiality and information disclosure
Materiality has been transformed from a single paragraph in Application in the 2005‑06 orders into a discrete area in its own right. Further to 2005-06, these orders also specify that:
- entities must prepare financial statements and notes to consider materiality of information pursuant to the Schedule at the individual entity level;
- entities must maintain proper accounting records to support all disclosures required; and
- if there is more than one change in the application of accounting policies for departmental or administered items defined in 15B of the Schedule, entities are required to make a separate disclosure for each accounting policy application.
Item 22 Director/Executive remuneration
The disclosure requirements for the remuneration of senior executives and directors who have been seconded have been clarified.
The disclosure requirements for the remuneration of star ranked military officers have been clarified.
Item 87 Administered investments
Administered investments, other than those held for sale, can no longer be carried at cost or deemed cost. This was allowed in 2005-06 as part of the transition to Australian Equivalents to International Financial Reporting Standards. However, the 2006‑07 orders require that they be measured at fair value.
Annexure A PRIMA
The disclosure requirements in the notes to the accounts have been clarified to achieve greater consistency between the financial reports of Australian Government entities.