5.

5.

Elements of Financial Reporting
Elements of Financial Reporting ....................................................................................... 2

5.1 Types of Elements ...................................................................................................... 2 5.1.1 Assets ................................................................................................................... 2 Current Assets.......................................................................................................... 2 Non-Current Assets.................................................................................................. 2 5.1.2 Liabilities ............................................................................................................. 3 Current Liabilities .................................................................................................... 3 Non-Current Liabilities............................................................................................ 3 5.1.3 Equity................................................................................................................... 3 5.1.4 Revenues .............................................................................................................. 4 5.1.5 Expenses .............................................................................................................. 4 5.2 Relationship Between the Elements and Financial Statements ............................. 5 5.2.1 Statement of Financial Position ........................................................................... 5 5.2.2 The Statement of Financial Performance............................................................. 6 5.3 5.4 5.5 Principle of Recognition ............................................................................................ 7 Recognition Criteria .................................................................................................. 8

Departmental and Territorial (Administered) Items ............................................. 9 Departmental Items............................................................................................ 11 Territorial (Administered) Items........................................................................ 11 5.5.1 Departmental and Territorial (Administered) Revenues.................................... 11 5.5.2 Departmental and Territorial (Administered) Expenses .................................... 12 5.5.3 Departmental and Territorial (Administered) Assets......................................... 13 Infrastructure assets ........................................................................................... 13 5.5.4 Departmental and Territorial (Administered) Liabilities................................... 14 Policy ..................................................................................................................... 14 Disclosure .............................................................................................................. 14

liabilities.4). They are then further classified according to their nature or type. Each reporting entity must prepare general purpose financial reports in accordance with the framework in this Manual.1 ! ! ! Assets provide future economic benefits to the entity.1. and result from past transactions or other past events. Examples include land. equity. an item must: For accounting purposes. and expenses. Periodic reports or special reports may include a combination of these elements. Examples include cash. To qualify as an asset of an entity. 5. assets are categorised into either “current assets” or “non-current assets”. The above elements are to be identified as either departmental or Territorial (Administered) items for reporting purposes (Refer Section 5. Examples of these include . debtors and inventories. Non-Current Assets Non-current assets are all assets other than current assets. equity. There will also be assets that must be recognised by a department because of the community service obligation the Government considers it must satisfy. Elements of Financial Reporting Types of Elements The elements of annual accrual based financial reports are: liabilities. motor vehicles. non-current debtors and non-current inventories. revenue and expenses. 5.1 ! ! ! ! ! assets.5. revenues. These financial reports will incorporate the accounting elements of assets. plant and equipment. Current Assets Current assets are items where it is intended that in the ordinary course of operations the asset would be consumed or converted into cash within twelve months after the end of the reporting period. be controlled by the entity. buildings.

monuments. and result from past transactions.heritage assets. 5. The service potential or future economic benefits of these items can be difficult to determine. such as long service leave that are not due for payment within twelve months.2 Liabilities Liabilities are existing debts or obligations that a reporting entity owes to other persons or entities. Chapter 6 provides a more detailed explanation of assets. involve a present obligation to make those future payments. an item must: ! ! ! ! require sacrifices of future economic benefits or payment of funds. eg creditors. .3 Equity Equity is the Government’s interest in the assets of the reporting entity. Examples include creditors and some employee entitlements. Chapter 7 provides a more detailed explanation of liabilities. Non-Current Liabilities Non-current liabilities include all liabilities other than current liabilities. borrowings or provisions. after deduction of its liabilities. Current Liabilities Current liabilities are those liabilities of the reporting entity that would in the ordinary course of operations of the entity be due and payable within twelve months after the end of the reporting period. Equity equals net assets or net worth and will comprise accumulated funds and reserves.1. be owed to another entity. finance lease liabilities due for payment beyond twelve months after the end of the reporting period and some employee entitlements. for example. A more detailed explanation of equity is discussed in more detail in Chapter 8. Liabilities are then further classified according to their type. To qualify as a liability.1. liabilities are categorised for reporting purposes into current liabilities and noncurrent liabilities. such as annual leave not taken. As with assets. museums and community specific assets. 5.

Revenues that a department might collect on behalf of the Territory include rates. Chapter 10 provides a more detailed explanation of expenses.5 Expenses Expenses are costs incurred in the entity's operations and service delivery. fees. contributions such as grants or gifts to the entity. administration costs and rent.5. the consumption of office supplies. Examples of this include consumption of assets (eg depreciation). Chapter 9 provides a more detailed explanation of revenue. taxes.7). eg from sales of inventory or other assets. depreciation or supplies and services expenses.4 Revenues Revenues include all inflows to an entity that increase the capital or net assets of the entity. interest. employee expenses relating to a financial period.3. Expenses do not necessarily relate solely to the payment of cash. user charges. including resources received free of charge. For Financial Statements purposes and to enable analysis of financial information and results. Entities may also have extraordinary revenues. Any consumption or diminution of service potential or future economic benefits that occurs during the reporting period is an expense and a cost to the reporting entity in providing its service. such as: ! ! ! ! ! Government payment for outputs. and other revenue.1. expenses are to be classified according to their nature or type: eg employee entitlements.1. . fines and Commonwealth Government grants. which result from extraordinary operations of the entity (Refer section 9. including details of each class of revenue. 5. All of the above revenue types are operating revenues. Operating revenue is revenue that results from the ordinary operations (ie activities) of the entity.

This relationship is illustrated in the diagram below: .5. paragraph 6. The accumulated operating result is incorporated in the Statement of Financial Position through the Equity section.1 Relationship Between the Elements and Financial Statements Statement of Financial Position The Statement of Financial Position shall disclose the assets.1) The relationship between these elements of the Statement of Financial Position can be expressed in the following equation: ASSETS - LIABILITIES = EQUITY The accumulated operating result over a period is shown in the Statement of Financial Performance of the department and represents the final results of activities after allowing for all expenses and revenues.2. liabilities and equity of the Government Department as at the reporting date. (AAS 29. In this way it ensures that any change in the Statement of Financial Performance is also reflected in the Statement of Financial Position.2 5.

user charges. .2 The Statement of Financial Performance The Statement of Financial Performance represents the results from operations over a financial period. STATEMENT OF FINANCIALPOSITION CHANGE IN results in a EQUITY 5. AND DIVIDENDS PAID OR PROVIDED FOR. capital injections required to sustain operations.2. the cost of goods and services provided during the period. interest earned and other revenues.STATEMENT OF FINANCIAL PERFORMANCE OPERATING RESULT PLUS CAPITAL INJECTIONS / DISTRIBUTIONS. The Statement of Financial Performance will disclose revenue from government for the payment for outputs. The Statement of Financial Performance will enable users to identify: ! ! ! ! the sources of revenues. This will disclose the operating result for the department. It reports the revenues and expenses of a department for the reporting period. less expenses of the department. NET EFFECT OF ADOPTION OF NEW ACCOUNTING STANDARD. and the net result. CHANGES IN THE ASSET REVALUATION RESERVE.

.REVENUE EXPENSES = OPERATING DEFICIT FROM ORDINARY ACTIVITES INCOME TAX EXPENSE/(REVENUE) = OPERATING DEFICIT FROM ORDINARY ACTIVITIES AFTER INCOME TAX OPERATING DEFICIT FROM EXTRAORDINARY ITEMS AFTER INCOME TAX = OPERATING DEFICIT 5. Where an element is “recognised” it will be reported in the Financial Statements of that reporting entity.3 Principle of Recognition The principle of “recognition” refers to the identification and recording of an element in the financial records of the entity. “Disclosure” refers to the presentation of items in the Financial Statements of the entity. Where an item is disclosed and not recognised it only appears in the Notes to the Financial Statements.

where appropriate. Reliable measurement is also a prerequisite in the recognition criteria above. or saving in outflows.4 ! ! ! Recognition Criteria it is probable that future economic benefits embodied in the asset will eventuate. and ! the inflow or other enhancement. historical cost or independent valuation. being disclosed in the notes forming part of the Financial Statements. and ! the amount of the liability can be measured reliably. of future economic benefits. A revenue shall be recognised in the Statement of Financial Performance when and only when: ! it is probable that the inflow or other enhancement. where appropriate. In the case of assets the appropriate measurement basis for an asset will depend upon the model of accounting being applied (refer Chapter 6). revenues and expenses it is usual for supporting evidence to exist for the amounts to be paid or received. and ! the consumption or loss of future economic benefits can be measured reliably. or saving in outflows of service potential or future economic benefits can be measured reliably. Assets and liabilities are disclosed in the Statement of Financial Position with further details of these account balances. Assessments as to the degree of certainty attaching to the future economic benefits (either those that are available or those to be consumed) are made on the basis of available evidence. ! . liabilities. An asset shall be recognised when and only when: A liability shall be recognised when and only when: it is probable that the future sacrifice of service potential or future economic benefits will be required. Territorial (Administered) assets. eg. Revenues and expenses are disclosed in the Statement of Financial Performance with further detail.4). has occurred.5. and the asset possesses a cost or other value that can be measured reliably. in the notes forming part of the Financial Statements. revenues and expenses of a department are disclosed separately as “Territorial (Administered) items” (Refer Section 5. In relation to the recognition criteria outlined above “probable” is taken to mean more likely than less likely. In the case of liabilities. An expense shall be recognised in the Statement of Financial Performance when and only when: it is probable that the consumption or loss of future economic benefits resulting in a reduction in assets and/or an increase in liabilities has occurred.

expenses. and Territorial (Administered). AAS 29 Financial Reporting by Government Departments adopts a classification concept for revenues. these are administered activities. and the transfer of funds to eligible beneficiaries. The framework requires that information about such items be disclosed elsewhere in the general purpose financial report of the department that administers the item because that information .1).5 Departmental and Territorial (Administered) Items Departmental. 5. the responsibilities of a government department may encompass the levying and/or collection of taxes. grant payments where the conditions of grant are specified by Government. For example. In other words. The separate disclosure of Departmental and Territorial items allows users to identify separately items that an entity can directly control and items for which it is accountable but does not control. The Manual requires the financial statements to be split between Departmental and Territorial (Administered) items. This split is an attempt to make more efficient use of financial statements by providing mechanisms to enable a more detailed assessment of management’s performance. These activities may give rise to revenues and expenses which are not attributable to the department (para 18. it could be incorrectly assumed that those amounts were available for use by the particular department in the delivery of its outputs. assets and liabilities on the basis of control. thereby avoiding the distortion caused by including costs which do not directly relate to the outputs.There may be other items that do not meet the recognition criteria outlined above that should be disclosed in the Notes to the Financial Statements if they are considered to be relevant to users of those statements in their analysis of a department’s performance. fees. the Commonwealth or other agency or legislation. “Control” of an asset is defined as the capacity of the entity to benefit from the asset in the pursuit of the entity’s objectives and to deny or regulate the access of others to that benefit (AAS 29 para 18. fines.1). Broadly. This is discussed further in the Model Financial Statements. If administered assets or revenues of a department were included in the Statement of Financial Performance and Statement of Financial Position. the provision of goods and services at a charge to recipients. The split between Departmental and Territorial items enables the full costs of outputs or other service delivery to be isolated. Items of Departments will consist of two types: ! ! These items are to be accounted for and reported separately (refer to the Model Financial Statements).

The following guidance is aimed at achieving an appropriate split between Departmental and Territorial accounts. while some items will be more obviously under (or not under) the direct control of a department. Therefore. the effective and efficient administration of those items is a part of the overall responsibility of that department. This information may be useful because. even though a particular department does not control such items. . other items will be more difficult to categorise. The responsibilities of departments usually encompass a wide variety of functions often making it difficult to determine with suitable precision an appropriate split between Departmental and Administered accounts.may be relevant for performance assessments.

For example. 5. an item would generally be regarded as a Territorial (Administered) item if the department: ! ! ! ! has restricted or no discretion in relation to the item. but restricted or no authority over its use. Territorial (Administered) revenues are those revenues which a department collects as an agent of government. or is responsible only for the collection and/or transfer of the item. Items are generally likely to be Territorial (Administered) where decisions relating to their use are primarily made by government. Examples of Territorial (Administered) revenues include those generated from: ! ! ! ! property rates. motor vehicle registration.5. assets and liabilities that a department administers but does not control.Departmental Items Departmental items are those items over which the department has discretion. These items relate to activities performed on behalf of the Territory. parking fines. parking fees (being regulatory in nature). it would be considered that the department controls the item if the department has: ! ! ! the capacity to benefit from the use of assets or funds in the pursuit of its objectives and to deny or regulate the access of others to those assets or funds. has restricted or no discretion to increase or reduce the item. has responsibility for the item. expenses. incurred a liability or received free services related to the operations under its control. responsibility and authority. Examples of Territorial (Administered) items include rates and taxes. For example. discretion and responsibility for how funds are spent. . or expended funds. These revenues include those from fee-for-service type activities. eg operating revenues and where the department is entitled to retain revenue on sale of assets.1 Departmental and Territorial (Administered) Revenues Departmental revenues are those that the department is able to retain for discretionary use. Territorial (Administered) Items Territorial (Administered) items are revenue.

Examples of items that are usually administered revenues include: ! ! ! grants. 5. under a rigidly structured set of criteria and schedule of entitlement. they should be treated as Territorial (Administered) items. Where the department does not have the discretion outlined previously over the grants and other expenditures. eg transfer payments.2 Departmental and Territorial (Administered) Expenses Departmental expenses arise where the department has some discretion in the way funds are used. . on behalf of Government. Territorial (Administered) expenses are those expenses which the agency handles. Where an eligible beneficiary has an entitlement under a law or authority and the department carries out the payment and recording process. and welfare assistance. administrative costs and salaries or where the department retains responsibility for the relevant costs. eg revenue collection services output within the Department of Treasury (Treasury). community assistance. such expenses are Territorial (Administered) as the department has no control over the amounts to be expended. as it will result in the disclosure of the full cost of collection as the costs of an output. without reference to an externally determined schedule of payments. and the framework set out in this Manual. This may occur where eligible persons or organisations apply and the department has the capacity to determine which applicants receive funds and the amounts to be paid. and other Territory taxes. There will be many cases where departmental expenses directly relate to the collection of Territorial (Administered) revenue. land tax.5. This is in line with the spirit of AAS 29 Financial Reporting by Government Departments. for example. Grant moneys paid out may also be controlled where the agency is able to determine both the amount of the grant and the recipient of the grant.! ! ! drivers’ licences. This is not an inconsistency in the framework. Appropriations determined by reference to legislation or authority which are specified for transfer to eligible beneficiaries are Territorial (Administered) because their amount and distribution are essentially specified by government.

5. obtain a benefit from the sale of the asset. Additionally. such as the ability to: ! ! ! ! use the asset to contribute to the department’s outputs. infrastructure assets. charge for use of the asset. These Territorial (Administered) items are only controlled at the Whole of Government level. it can be seen that a benefit is derived by the agency.3 Departmental and Territorial (Administered) Assets Departmental assets are controlled by the department which controls the flow of future economic benefits or service potential from the asset. the “controlled” criteria specified under AAS 29 is clearly met. as agencies tend to have exclusive use of infrastructure assets and can regulate access to them. This has been interpreted as the department which fulfils a variety of possible criteria. Where control is minimal. Indeed.5. computer equipment. Where the above tests are satisfied. Examples of departmental assets may include assets used in the operations of a department: ! ! ! ! office equipment and furniture. Infrastructure assets may only be classified as Territorial if specific approval is obtained from Treasury. and/or deny or regulate use of the asset. The assets that are to be reflected in the Departmental financial records are those resources over which management exercises significant influence or control (ie Departmental assets) and those assets that are specifically allocated to contribute to producing departments’ outputs. Section 15A of the Financial Management Act 1996 (FMA) allows the Treasurer to require agencies to apply a correct classification of departmental and Territorial assets. and certain cash balances subject to revenue retention arrangements. . Infrastructure assets The fact that infrastructure assets provide a service to the general community does not necessarily mean that they are administered by the responsible agency. the asset should be accounted for as a Territorial (Administered) item. as these assets tend to be used to deliver services which the responsible agency has agreed to provide with the Government. the asset should be accounted for as a departmental item.

liabilities.4 Departmental and Territorial (Administered) Liabilities Departmental liabilities would include amounts owed but unpaid (eg trade creditors) at the end of an accounting period.5. Infrastructure assets. Policy Agencies are to apply the concepts of Departmental (controlled) versus Territorial (Administered) classifications as specified above. Infrastructure assets may only be classified as Territorial if specific approval is obtained from Treasury. for instance. Fines and Fees (where fees include regulatory charges). . revenues and expenses that are administered on behalf of the Territory will be disclosed separately from departmental items in the Statement of Revenues and Expenses on behalf of the Territory and the Statement of Assets and Liabilities held on behalf of the Territory.5. revenues currently classified as User Charges may require reclassification to Taxes. are for all practical purposes “controlled” and must be reported in the departmental financial statements. at the end of an accounting period. Details of how departments are to disclose Territorial (Administered) items are contained in the Model Financial Statements. management discretion. Agencies should also note that in some instances. This includes amounts that may have been prepaid (eg rates and taxes) to the department. Assets. or minimal. items that the department controls. Territorial (Administered) liabilities are those over which the department has no. Disclosure The Financial Statements of a department will include. in the Statement of Financial Performance and Statement of Financial Position.