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For Official Use


Organisation de Coopration et de Dveloppement Economiques

Organisation for Economic Co-operation and Development

English - Or. English

For Official Use
National Accounts



Paper prepared by ABS, Australia


Chteau de la Muette, Paris
8-11 October 2002
Beginning at 9:30 a.m. on the first day
English - Or. English

Document complet disponible sur OLIS dans son format d'origine

Complete document available on OLIS in its original format





The Australian system for producing Government Finance Statistics (GFS) was changed in the late
1990s from a cash basis to an accrual basis of recording. This followed the adoption of accrual
accounting by a majority of Australian State governments, and the concurrent revision of
international statistical standards to incorporate accrual recording. As a result, a new conceptual
framework was introduced, in the form of an integrated statement of stocks and flows. This new
framework allows a more comprehensive assessment of the economic impact of government activity
and the sustainability of fiscal policy. It also provides an improved basis for monitoring efficiency in
the allocation and use of government resources.


This paper outlines the major changes in Australia's Government Finance Statistics as a result of
implementing accrual accounting, and summarises the major implementation issues in both the GFS
and National Accounts statistics.


A system of accruals GFS provides details of revenues, expenses, cash flows and assets and
liabilities of the public sector. In Australia the public sector comprises units that are owned and/or
controlled by the Australian Commonwealth, State and local governments. These units are grouped
as follows:
General Government - a sector which includes all of the agencies of Australian government such
as departments, agencies, offices and other bodies engaged in providing services free of charge or
at prices significantly below their cost of production and non-market non-profit institutions which
are controlled and mainly financed by Australian governments.
Public Non-financial Corporations - a subsector comprising public sector corporations which are
mainly engaged in providing market non-financial goods and services. Includes corporations
which aim at covering most of their expenses from revenue.
Public Financial Corporations - a subsector comprising public sector corporations which are
engaged in providing financial intermediation services or auxiliary financial services.
Non-financial Public Sector - a subsector formed by the consolidation of the general Government
and Public Non-financial Corporations sectors.

Total Public Sector - the consolidated total of the General Government, Public Non-financial
Corporations and Public Financial Corporations sectors.



There are two main accrual-based standards for public sector budgeting and reporting in Australia.
They are:
the ABS accrual GFS which is an economic reporting standard for government based on relevant
international statistical standards.
the Australian Accounting Standard (AAS31) Financial Reporting by Government, which is the
relevant accounting standard for financial reporting by government agencies in Australia.


GFS and AAS are equally valid systems. The conceptual differences between them mainly reflect
the economic focus of the former and the accounting focus of the latter.


The ABS system of GFS is designed to provide statistical information on all Australian public sector
entities classified in a uniform and systematic way. Since budget year 1992-93, Australian
governments themselves have presented some information in their budget documents on a GFS
basis. The information presented in the budget documents of each jurisdiction is compiled with the
advice and assistance of ABS officers and generally conforms with the standards applied by the
ABS. Jurisdictions may present the information based on their interpretation of the GFS
classifications, but must provide a reconciliation of this information with information reflecting the
ABS decision on these issues. Of course, the ABS also publishes its own GFS, which represent the
'"official" estimates.


The ABS has compiled GFS data from 1998-99 on an accrual accounting basis. The accrual GFS
framework follows the principles contained in the international standards set out in the United
Nations A System of National Accounts 1993 (SNA93) and the International Monetary Funds
Government Finance Statistics Manual 2001. The second edition of the IMF Government Finance
Statistics Manual was introduced in 2001 and is focused on definitions, classifications, and
guidelines for presenting government finance statistics. It complements SNA93 so that GFS can be
utilised jointly with other macro-economic statistics.


Through the move towards accrual accounting in Australia in the 1990s, the challenge for the ABS
was to develop its own accrual GFS reporting framework since the IMF at the time had not released
an accruals manual. The IMF has since released its Manual on Government Finance Statistics, 2001.
The conceptual bases of the ABS and the IMF frameworks are identical since they are both derived
from SNA93; however, there are minor presentational differences reflecting their somewhat
independent development.


The adoption of accrual reporting by Australian governments represents a major development in

public sector financial management and reporting of recent years. The ABS move to an accrual
based framework for GFS needs to be understood in the context of this gradual move by the various
Australian governments (National and State) from cash to accrual reporting during the 1990s. Over
this period, Australian government units have progressively introduced various Australian
Accounting Standards that have required the adoption of an accrual basis of accounting. The relevant
accounting standards are:
Australian Accounting Standard 27 (AAS 27): Financial Reporting by Local Governments.
Australian Accounting Standard 29 (AAS 29): Financial Reporting by Government Departments.
Australian Accounting Standard 31 (AAS 31): Financial Reporting by Governments.



GFS is mainly sourced from the budget management and/or the underlying accounting systems
maintained by these units. At the time of writing, most jurisdictions had adopted accrual reporting
for the general government sector. Those jurisdictions that have not yet implemented it provide
approximate accrual data to the ABS for GFS purposes. This enables the ABS to compile accruals
GFS statistics for the whole of the public sector across all jurisdictions.


For a detailed explanation of the conceptual changes in accruals GFS and the changed nature and
presentation of the statistics, the ABS publication 'Information Paper Accruals-based Government
Finance Statistics 2000 Cat. no. 5517.0' should be referred to. This paper is available in Acrobat
format, from the ABS website

The differences between cash and accruals


The differences between cash and accrual reporting can be grouped into two categories - the
recognition of transactions, and the timing of transactions. In cash accounting, transactions are
recognised when cash transactions are actually received or dispatched. As a result, those transactions
which do not involve cash movements such as provisions and revaluations are not included. On the
other hand, accruals reporting includes transactions when economic value changes instead of when
cash movements are made. This means that accrual reporting can cover significant transactions
which are not included in cash accounting because there are not associated cash flows.


In considering the timing of transactions, under cash accounting transactions are shown in the period
in which the cash is actually received or paid. In accrual accounting, transactions are shown in the
period in which revenue is earned or expenses incurred, irrespective of the timing of the related cash


Three of the more significant differences between cash and accruals accounting presentations for
Australia are the treatment of unfunded superannuation (pension) funds for government employees,
provisions for the depreciation of capital assets, and the recording of public debt interest.


Superannuation. The cash framework shows the movements of cash into and out of superannuation
funds. The accrual framework records the accruing superannuation expense whether the liability is
funded or unfunded, and therefore records the true cost of accruing superannuation liabilities. The
type of variables taken into account when Treasuries are calculating changes to the level of unfunded
superannuation liabilities include employee numbers, and assumptions on wages growth, future
inflation, and the expected rate of return on investments.


Depreciation. The cash accounting framework records capital expenditure in a given period, while in
the accruals accounting framework, the operating statement records depreciation of the capital, with
the cost of the capital being gradually defrayed across the life of the assets. However, the accruals
operating statement and the net lending/borrowing accrual measure is set out so that it continues to
provide information on capital expenditure as well as depreciation. The accompanying cash flow
statements under accruals also show dissections of capital expenditure.


Public debt interest. Under cash reporting public debt interest is shown as the interest paid during a
period. Under the accruals framework, account is taken for any interest accrued, but not yet paid
during the period.


The differences between accruals GFS and the National Accounts


The Australian GFS data provide the basis for many components of the published national accounts
but there are differences in concept for which adjustments are made in finalising the accounts. These
relate to the following categories.


Financial Services. Indirectly charged financial services for both FISIM and non-life insurance are
allocated to consuming units within the Australian System of National Accounts. These are not
standard GFS items and hence an estimate of government consumption of these services is made in
the broader financial services estimation systems. These estimates are added to Government Final
Consumption Expenditure and taken into account in estimating the Gross Operating Surplus of
Public Non-financial Corporations in the national accounts.


Defence weapons equipment adjustments. Much of Australia's defence weapons equipment is

imported from overseas. To ensure consistency between Balance of Payments recording of the flows
and National Accounts recording, a timing adjustment is made within Government Final
Consumption Expenditure. It is also necessary to adjust estimates of defence gross fixed capital
formation derived from accounting systems to treat appropriate items as consumption expenditure
consistent with SNA93.


Computer software. The are numerous issues associated with the compilation of GFCF on computer
software. The approach taken in the Australian System of National Accounts has been to derive a
benchmark based on surveys of public and private units and to use this benchmark in place of
estimates emerging through the GFS system. This consistent estimate for all sectors is based on a
common conceptual basis. One issue is that reporting government units often expense rather than
capitalise expenditure on computer software. Adjustments are made to Government Final
Consumption Expenditure, Public Gross Fixed Capital Formation and the Gross Operating Surplus
of Public Non-financial Corporations in the national accounts.


Compensation of employees.In the GFS system compensation of employees excludes own account
capitalised wages (instead it is recorded under Gross Fixed Capital Formation) and hence
understates the level of compensation of employees. This amount can be significant in Australia
especially with respect to the construction of roads. At present, GFS data are not used to estimate
compensation of employees for the public sector in the national accounts - except with respect to the
employer social contributions associated with unfunded pension schemes. Rather the estimates are
derived from a specific purpose survey of public sector earnings and employment.


Interest accruals on bonds.Within the Australian System of National Accounts, interest accruals on
bonds are estimated using the so-called creditor approach where interest is calculated using
prevailing market interest rates rather than the rates determined at the time the bond was issued.
These calculations are not undertaken for GFS purposes, which due to the limitations of source data
are compiled using the debtor approach. (However, this is currently being reviewed by the various


Consumption of fixed capital. Estimates of consumption of fixed derived in the National Accounts
capital stock system are used in place of estimates of depreciation which are collected within the
GFS system. This ensures that the national accounts estimates relate to the economic, and not
accounting depreciation.


Presentation of the accruals GFS framework


The accruals GFS framework presents information on the expenses, revenue, payments, receipts, and
assets and liabilities of the Australian public sector. Generally speaking, GFS includes only those
transactions over which a government exercises control under its legislative or policy framework.
Details of accruals GFS are presented in three principal statements - operating statement, balance
sheet and cash flow statements. Sample statements are included in the Attachment. The ABS and the
major stakeholders have agreed to the GFS accrual analytical balances presented in these tables.

Operating statement

The operating statement sets out data for revenues and expenses and is designed to show the
composition of these revenues and expenses and the resulting net cost of a government's activities
for a given period. It is designed to show the cost of resources consumed by a government in
achieving its objectives, and how these costs have been met from a number of revenue sources. The
operating statement also shows information on capital expenditure.


The operating statement presents two major fiscal measures - the GFS net operating balance and
GFS net lending/borrowing.


GFS net operating balance. This represents the operating result and is the difference between
revenue and expenses. It excludes expenditure on the acquisition of capital assets but includes
accrual costs such as superannuation entitlements and depreciation. This measure therefore
encompasses the full costs of providing government services and presents a fair measure of the
sustainability of a government's fiscal position over time and provides an indication of the
sustainability of current services by government. The measure can also represent the change in net
worth, less the effect of revaluations of financial assets and liabilities and changes in the volume of
assets that result from discoveries, depletion and destruction of assets.


GFS net lending/borrowing. Net lending/borrowing differs from the net operating balance in the
treatment of capital expenditure. Unlike the net operating balance, net lending/borrowing includes
net capital expenditure, but does not include depreciation. A surplus would indicate that a
government is saving more than enough to finance its investment spending and is therefore not
contributing directly to the current account deficit. As this measure includes the full amount of
investment by a government in a period, net lending/borrowing is a good measure of the impact of a
government's budget on the economy in a given period, particularly in the current account of the
balance of payments.

Balance sheet

The balance sheet presents a government's stock of assets and liabilities, both financial and nonfinancial at a point in time, and shows the resources over which a government maintains control. The
balance sheet is a financial snapshot of a government, taken at the end of a given period. By
providing information on the type of assets and liabilities held, the statement shows information on
the government's financial liquidity. The balance sheet shows information on the composition of a
government's financial assets, on its holdings of fixed assets, and on the extent of government
liabilities including borrowings and unfunded superannuation.



The major measures presented in the GFS balance sheet are as follows:
GFS net debt. Net debt comprises the stock of selected gross financial liabilities less financial
assets. Net debt is reported in the balance sheet and is the sum of deposits held, advances
received and borrowing, less the sum of cash and deposits, advances paid, and investments, loans
and placements.
GFS net worth. The net worth measure from the balance sheet provides a more comprehensive
picture of a government's overall financial position than GFS net debt. It comprises total assets
(financial and non-financial) less total liabilities, less shares and other contributed capital.
GFS change in net worth. This analytical balance measures the change in a government's
accumulated assets and liabilities. The total change in net worth can be measured by comparing
successive end-of-year balance sheets. That part of change in net worth due to transaction flows
can also be seen in the operating statement as the net operating balance.
Net financial worth. This measures a government's net holdings of financial assets and is
calculated as financial assets less liabilities. Net financial worth is a broader measure than net
debt, in that it includes provisions made as well as holdings of equity. This measure includes all
financial assets and liabilities, only some of which are included in GFS net debt.

The cash flow statement in the GFS accruals framework


As a supplement to the accrual-based operating statements and balance sheets, the ABS also
publishes cash flow statements as part of its GFS. The cash flow statement shows a government's
cash receipts and payments and indicates how a government obtains and expends cash. The
statement is broken down into operating, investing, and financing activities. Operating activities
include transactions such as the collection of taxes, the distribution of grants, and the sale of goods
and services. Investing activities are those which relate to the use of financial and non-financial
assets. Financing activities are those which relate to changing the size and composition of a
government's financial structure. Unlike other accrual GFS statements, the signing convention for
the cash flow statement shows all inflows with a positive sign and all outflows with a negative sign
(regardless of whether the transactions are a gross or net cash flow).


The statement presents two main fiscal measures - GFS net increase/decrease in cash held and GFS
cash surplus/deficit. Net increase/decrease in cash held is the sum of net cash flows from all
operating, investing and financing activities. Cash surplus comprises only net cash received from
operating activities, and from sales and purchases of non-financial assets, less distributions paid
and/or finance leases and similar arrangements.


GFS cash surplus/deficit is broadly comparable with the previous cash-based GFS surplus/deficit,
allowing for comparisons between the two frameworks. This is an important consideration, as the
time series available under the accrual basis is only four years. Many analysts are interested in
assessing the economic activities of governments over a long period of time.


Implementation issues in Accruals GFS

Chronology and Breaks in Time Series

As early as 1994, the ABS listed the incorporation of accrual accounting into GFS as a key task to be
undertaken. During these early years, the ABS developed mockups of possible outputs from an
accruals approach, and contacted Australian governments to determine their plans for a shift to
accruals accounting. A number of meetings were held with all Australian Treasuries and other
stakeholders. These meetings progressed accruals GFS and development work within the ABS in
relation to revised classifications, computer systems and software requirements.


Following discussions between Treasuries and the ABS in 1995, the ABS prepared an Exposure
Draft on the proposed change to an accrual basis in GFS. The draft was released to all known
stakeholders to allow them to prepare a considered response.


The draft outlined the deficiencies in the cash GFS presentation, especially where GFS was used to
measure the financial position of governments. It also took account of the developments that were
occurring in government accounting standards at that time. These changes reflected the changed
expectations of users, who were increasingly looking for accrual as well as cash data to be provided
in government financial reports. The draft also indicated that sufficient accrual data were likely to
become available over the next several years to enable accrual GFS of reasonable quality to be
produced. The draft made clear that the ABS would continue to produce cash-based GFS for fiscal
policy purposes, but that the main focus of GFS, and the eventual provision of detailed statistics,
would be on an accrual basis.


The draft included a tentative implementation plan for the move to an accruals GFS. The move was
dependent on a number of assumptions about when accrual data were likely to become available for
all Australian jurisdictions, as well as the methods that might be used to integrate cash and accrual
data and how to estimate accrual adjustments where significant accrual data were not available.


By 1997, the ABS had carried out considerable work in the setting of accrual standards under which
GFS would operate, as well as getting agreements from stakeholders on the direction and speed of
accruals implementation. By the end of 1997, a revised accrual Economic Transactions Framework
(ETF) was circulated by the ABS.


The move to accruals for the ABS was not an easy or straightforward transition. The ABSs original
strategy was to bridge between the predominantly cash-based GFS series and the new accrual series
by presenting the historical series from 1961-62 on an approximate accrual basis. These series were
to have been based on the cash statistics with some adjustments to general government data mainly
relating to depreciation provisions, accrued superannuation expenses and other accrual adjustment
items where possible. However, in 1999, the ABS decided that an accruals converted historical
series for GFS was unlikely to meet ABS quality standards for publication as a GFS series. After
consultation with the Treasuries of all jurisdictions, the ABS decided not to release the derived
historical series. The accrual GFS time series therefore began in respect of data for 1998-99 for both
annual and quarterly GFS with a break in series between the cash and accruals data. The quarterly
GFS for that year were collected on a cash basis but were subsequently benchmarked to the first
accruals GFS for 1998-99.


For national accounting purposes, since the underlying GFS data prior to 1998-99 were not
converted, a similar conceptual break in series occurred in relevant annual series. There were
however, numerous SNA93 related adjustments that had been backcast historically in the 1997-98


release of the Australian System of National Accounts. The most significant of these was for accrued
superannuation expenses and imputed interest flows relating to the recognition of an unfunded
government liability. A model was developed to estimate relevant flows for the purpose of
backcasting compensation of employees (employers' social contributions), government final
consumption expenditure and property income flows. From 1998-99 onwards individual
governments' estimates of these flows are used.

Although no accrual adjustments were made to historical cash-based data it was recognised that the
quarterly pattern of some series would be affected by the move to an accrual basis of reporting.
Since little information was available the only adjustment made was to government final
consumption expenditure for pay-day variation (that is, variation that had been in the number of paydays within a reporting period). The adjustment was applied to quarters prior to 1999-2000 as
quarterly accruals based data became available at that time. The change from cash to accruals did not
lead to a smooth quarterly pattern in series such as final consumption expenditure as some had
anticipated. Indeed, perhaps the most significant implementation challenge has been the seasonal
adjustment of government final consumption expenditure. In part, it appears as though the change in
reporting arrangements and the implementation of new systems by Australian governments required
for accrual reporting caused changes beyond that of pure conceptual change. After three years the
quarterly data are now far more stable and we are able to see the emergence of seasonal patterns for
the quarterly accrual series.


The first ABS presentation of GFS on an accruals accounting basis was released on 3 April 2000
with accruals data for 1998-99 and 1999-00. The data published were experimental estimates only.
Australian States were at different stages in implementing accrual accounting in their public
accounts and budget management systems and in providing accrual data to the ABS in a form
suitable for GFS purposes. Consequently, the ABS was unable to release the full range of data that
were released in later years. This first ABS accruals release contained data for the general
government sector only.


A Net Debt series has remained available with no break in the time series. This series was previously
compiled outside of the GFS collection in the ABS. That partial balance sheet collection has been
discontinued as Net Debt now forms a subset of the full GFS balance sheet under accrual GFS. In
order to provide a measure of continuity in the switch-over to accruals, the Net Debt information is
still made available to users. The series will continue to be published until its intended replacement
(Net Financial Worth) has evolved into a sufficiently long time series which analysts find useful.

Consolidation methodology

The accrual GFS consolidation methodology nets out or consolidates all relevant flows and stocks
for the sector for which the statistics are prepared. Consolidation is particularly important at the
State government level where a significant proportion of total expenses/payments are financed by
Commonwealth government grants. Similarly, an appreciable part of the expenditure undertaken by
State Public non-financial corporations is financed by grants from State governments.


In total, data are compiled for some 155 consolidated output sectors. Each output sector is a
combination of one or more of the level of government (national, state or local), institutional sector
(general government, public non-financial corporation or public financial corporation) and
jurisdiction (Commonwealth, New South Wales, Victoria, etc) classifications. The use of such a
large number of output sectors increases the complexity of the compilation process, especially as


some of the detail required for consolidation is not ordinarily available in the underlying accounts of
the units concerned.

The consolidation process is resource intensive as considerable clerical efforts are required in
follow-up action. The majority of data deficiencies and errors are resolved in this manner but the
final 'balancing' is achieved by applying a set of 'business rules' which gives one transactor
precedence over the other, based on data quality judgements. This process does not impact the
derived balances such as the Net Operating Balance, Net Lending/Borrowing and the Net Worth as
they are inherently additive in nature.

Continued presentation of Surplus / Deficit


The Surplus / Deficit estimate published by the ABS on the Cash Flow statement is not structurally
or conceptually part of the Cash Flow Statement in an accruals framework. It is derived mainly from
data items on that statement and has been included as supplementary information for analytical
purposes. Australian governments still use this measure in their financial planning, and its inclusion
is in recognition of that requirement of users.


The continued compilation of the Surplus/Deficit was originally considered important, as it would
provide users with a summary link to the discontinued cash-based series on a comparable basis.
However, the move to the accrual basis of recording required changes in some jurisdictions data
sources and methodologies from 1998-99 onwards, resulting in a break, judged to be small and not
readily quantifiable. Additionally, a different sign convention was employed with a positive sign
now indicating a surplus.

Differences between economic statistics and financial reporting


The GFS data compiled and published by the ABS for individual jurisdictions at the federal and state
levels is reconciled, at an aggregate level, to accounting reports prepared by these jurisdictions under
AAS 31. Since GFS and AAS 31 serve different objectives, differences in the treatment of certain
items lead to different bottom-line measures that can be confusing. The reconciliations published by
the ABS identify the major differences between the statistical and accounting reports with a view to
ensuring the integrity of, and user confidence in, both sets of information in the public arena. More
recently, the accounting standards bodies in Australia have been investigating the possibility of
harmonising at least some aspects of the accounting standards with the economic-based reporting of
the GFS standard.

Promoting the new framework


The revised GFS conceptual framework was introduced to ABS staff as well as those of various
Treasuries through a series training seminars and workshops. These events were crucial in
promoting a good understanding of the revised conceptual basis of the statistics, its relationship to
the national accounts as well as the accounting standards under which most of the source data were
to be prepared.



GFS Implementation issues - taxes, time of recording


In the Australian GFS taxes are recorded when due, which is not necessarily the same period as in
which the underlying economic activity took place. This is due to the source data available to the
ABS. We would prefer in the national accounts to record taxes on the so-called 'economic
transactions' basis, and there is some prospect that at least the Commonwealth Government will
change its recording basis to this at some stage in the future.

Issues for Discussion


A concern for the government Treasuries in Australia is the need to prepare accounts on both and
accounting (AAS) and economic (GFS) basis. They are keen that the two systems be harmonised,
but this is far from a straightforward matter. What is the experience in other countries that are
shifting to accrual GFS?


Given that many analysts are interested in assessing government economic performance over a long
period of time, what is the best way to support this requirement with the introduction of accrual


In Australia, the move by governments to accrual occurred at the same time as a number of other
changes to government financial arrangements, which have complicated the transition. Furthermore,
identifying seasonal patterns in short-term time series has proven to be challenging. Both of these
issues have contributed to a degree of uncertainty in government estimates in the national accounts
in the period following the introduction. What can national accountants do to minimise the impact of
such things.



GFS Operating Statement

GFS Revenue
Taxation Revenue
Current grants and subsidies
Sales of goods and services
Interest income
GFS Expenses
Gross operating expenses
Employee expenses
Other operating expenses
Nominal superannuation expenses
Other interest expenses
Other property expenses
Current transfers
Grant expenses
Subsidy expenses
Other current transfers
Capital transfers
Grant expense
Other capital transfers
GFS Net Operating Balance
Net acquisition of non-financial assets
Gross fixed capital formation
less depreciation
plus change in inventories
plus other transactions in non-financial assets
GFS Net Lending(+)/Borrowing(-)



GFS Balance Sheet

Financial Assets
Cash and deposits
Advances paid
Investments, loans and placements
Other non-equity assets
Non-financial assets
Land and fixed assets
Other non-financial assets
Deposits held
Advances received
Unfunded superannuation
Other provisions
Other non-equity liabilities


GFS net worth

Net debt
Net financial worth






GFS Cash Flow Statement

Cash receipts from operating activities

Taxes received
Receipts from sales of goods and services
Grants and subsidies received
Other receipts
Cash payments from operating activities
Payments for goods and services
Grants and subsidies paid
Interest paid
Other payments
Net cash from operating activities
Net cash from investments in non-financial assets
Sales of non-financial assets
Purchases of new non-financial assets
Purchases of secondhand non-financial assets
Net cash flows from investments in financial assets for policy purposes
Net cash flows from investments in financial assets for liquidity purposes
Net cash from financing activities
Advances received (net)
Borrowing (net)
Deposits received (net)
Distributions paid
Other financing (net)
Net increase(+) /decrease(-) in cash held
Net cash flows from operating activities, net cash flows from investments in nonfinancial assets and distributions paid
Acquisition of assets under finance leases and similar arrangements