APPENDIX B: STATEMENT OF ACCOUNTING
PRINCIPLES AND POLICIES
The Public Finance and Audit Act 1983 (the Act) details the contents, and the
rules governing the preparation and presentation of the Budget Papers for the
general government sector.
The Act prescribes the inclusion of three primary financial statements

Operating Statement

Statement of Financial Position, referred to as the Balance Sheet

Cash Flow Statement.
The statements are prepared in accordance with Australian Accounting Standards.
The presentation of consolidated general government sector statements in
Budget Paper No. 2 Budget Statement, differs from the presentation of agency
statements in Budget Paper No. 3 Budget Estimates.
The difference arises because there is a specific standard AASB 1049
Whole of Government and General Government Sector Financial Reporting for
the preparation of consolidated sector statements, which does not apply to
individual agencies that are required to apply all other accounting standards.
These differences are explained below.
CONSOLIDATED FINANCIAL STATEMENTS
The format of the consolidated general government financial statements including
budget aggregates is based on AASB 1049 Whole of Government and General
Government Sector Financial Reporting. AASB 1049 harmonises Government
Finance
Statistics
(GFS)
with
Generally
Accepted
Accounting
Principles/accounting standards (GAAP) to the extent that GFS does not conflict
with GAAP.
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The general rules adopted under AASB 1049 are:

Consolidated sector financial statements are prepared in accordance with
recognition, measurement and disclosure requirements as per GAAP.

Where options exist in GAAP, the option that is consistent with GFS must be
chosen to minimise convergence differences. However, where there is any
conflict between GAAP and GFS, GAAP prevails.

The operating statement dissects income and expenses into transactions and
other economic flows, as defined by the ABS GFS Manual.
GFS-GAAP differences
There are some differences between AASB 1049 harmonised aggregates in the
budget papers and the pure GFS information that the ABS reports. Convergence
differences are not departures from accounting standards, but merely differences
in measurement or treatments between the two frameworks. For example,
the ABS accrual treatment for a portion of Australian road transport grants paid in
June 2006 differs to the cash recognition treatment adopted under accounting
standards.
Details of the main convergence differences between GFS and GAAP are
explained in Chapter 9. In accordance with AASB 1049 requirements, full details
of convergence differences are disclosed in the annual consolidated financial
report of the general government and total state sectors (refer page 1-127 of the
2008-09 Report on State Finances).
Comparative information
Accounting standards require that comparative information be restated for changes
in accounting policies and corrections. Where practicable, any new accounting
policy is applied retrospectively from the earliest prior period presented as if the
new accounting policy had always been applied.
It is impracticable to analyse all historic transactions to ensure reporting consistent
with AASB 1049. Therefore, a vertical line has been inserted between 2007-08
and 2008-09 financial data presented in this Budget Paper. Nevertheless,
where practicable, the consolidated results published have been back cast on a
harmonised GFS-GAAP basis. Back casting has occurred for the periods
preceding 2008-09, which is the first year that AASB 1049 was adopted.
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Budget Statement 2010-11
AGENCY ACCOUNTING BASED REPORTS
GFS-GAAP harmonisation not applicable
Agency primary statements in Budget Paper No. 3 Budget Estimates have been
prepared in accordance with Australian Accounting Standards. However agency
statements are not prepared on a GFS-GAAP harmonised basis, as AASB 1049
is only applicable for consolidated whole of government and general government
sector reporting.
Agency operating statements include all expenses and income including gains and
losses recognised in the operating result. This differs from the budget result
for the general government sector (net operating balance) in Chapter 1 which
is prepared on a AASB 1049 harmonised basis.
The harmonised budget result has an economic focus and for this reason excludes
from the net operating balance any income and expenses related to the revaluation
of assets or liabilities. These types of revenues and expenses are largely outside
the control of governments.
Examples of these income or expenses included in the agency accounting
operating result but excluded from the budget result are:

leave expenses associated with changes to liability discount rates

gains or losses on the sale of assets and

gains or losses associated with debt management activities.
The harmonised AASB 1049 general government sector operating statement
discloses details of the above valuation adjustments as other economic flows,
reporting them below the budget result. The statement also includes the
accounting operating result, which is the same concept as the agency operating
result. However agency operating statements do not specifically distinguish
between transactions and other economic flows, therefore a net operating balance
is not disclosed in agency operating statements.
Government contributions
The presentation of agency operating statements in Budget Paper No. 3
Budget Estimates is less than that required under accounting standards.
This is because the budget paper presentation has been prepared to focus on
agency operations and their net cost of services. Therefore, operating statements
exclude government contributions that are normally required under accounting
standards.
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In addition there is no disclosure of agency non-operating equity movements,
as most agencies have minimal equity changes, aside from their operating results.
For similar reasons, although required by accounting standards, a separate
Statement of Changes in Equity is not included for agencies (a Statement of
Changes in Equity is not required by the Public Finance and Audit Act, 1983
for the general government sector).
DEPARTURES FROM AUSTRALIAN ACCOUNTING STANDARDS
Under the Public Finance and Audit Act 1983, the Treasurer is required to present
a statement that discusses the nature of and the reasons for any departure from
Australian Accounting Standards (AAS) principles in relation to general
government financial statements.
Crown reserves
The budget preparation departs from AAS in respect of the exclusion of certain
reserve trusts created under the Crown Lands Act 1989.
There are approximately 33,000 Crown reserves in New South Wales.
The NSW Government manages some of these reserves and local governments
and trusts manage others. A project is in progress to identify and value Crown
reserves ‘controlled’ by the NSW Government, and therefore should be recognised
as assets of the NSW Government in the total state sector accounts.
The likely value of the reserves controlled by the NSW Government cannot be
reliably measured. Based on a preliminary assessment the total value of these
reserves controlled by the NSW Government, but not currently recognised in the
Total State Sector Accounts is between $1 billion and $7 billion. However,
the total value may be outside this range, depending on the current valuation of the
controlled assets.
The Auditor-General has qualified his opinion on the 2008-09 Total State
Sector Accounts. In his opinion:
As disclosed in Note 1 Statement of Significant Accounting Policies, under
the heading Principles of Consolidation, the State is undertaking a project to
identify and value the Crown Reserves it controls under the Crown Lands
Act 1989. Until the project is completed, I am unable to obtain all
the information I require to form an opinion on the value of those
Crown Reserves that should be recognised as land in the financial report.
My audit report for the year ended 30 June 2008 referred to the same matter.
The NSW Government will recognise the value of Crown reserves it controls in
2010-11 once this project is complete and the value can be reliably estimated.
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Budget Statement 2010-11
Land under roads
The Auditor-General qualified his opinion on the 2008-09 Total State Sector
Accounts. In his opinion:
As disclosed in Note 1, Statement of Significant Accounting Policies and
Note 32 Contingent Assets, pre 1 July 2008, land under roads is not
recognised in the financial report on the basis that the pre 1 July 2008
land under roads is not currently reliably measurable. In my opinion,
land under roads can be reliably measured and therefore should be
recognised in the Total State Sector Accounts in accordance with
AASB 1049 Whole of Government and General Government Sector
Financial Reporting. The Roads and Traffic Authority recognises land
under roads at a value of $37.3 billion.
In the consolidated financial statements the State elected not to recognise
pre-1 July 2008 land under roads on the basis that it was not reliably measurable.
However, land has been estimated and recognised in the financial statements of the
Roads and Traffic Authority ($37.3 billion at 30 June 2009) based on average
rateable value.
A reliable methodology has recently been developed following resolutions by the
Australasian Valuers-General, which reflects the existing use fair value of land
under roads. The State is implementing this methodology with an intention to
recognise all land under roads for the 2009-10 Total State Sector Accounts.
The methodology adopted is expected to result in a materially lower asset value
than average rateable value. The value of pre-1 July 2008 land under roads has
not been recognised in the consolidated statements in this budget paper as the
measurement project is still being finalised.
BUDGET SCOPE
The Budget incorporates all general government sector agencies as defined by the
Australian Bureau of Statistics, subject to a materiality threshold. A list of
NSW agencies (classified according to sector) appears in Appendix C.
The general government sector covers all agencies that receive parliamentary
appropriations or are regulatory in nature.
Defining the budget sector as the general government sector improves
transparency and accountability by providing a comprehensive picture of the
non-commercial operations of the Government, based on an independent (ABS)
definition of the general government sector using GFS guidelines.
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The financial transactions of public financial enterprise (PFE) sector and public
trading enterprise (PTE) sector agencies are not consolidated on a line by line
basis in the budget aggregates.
However, the budget aggregates do include:

explicit payments to the PTE sector for social programs, which are
non-commercial functions required of PTEs by the Government

dividends, tax equivalent payments and guarantee fees payable by the PTEs
and PFEs which are shown as revenues in the general government sector and

general government sector investment in the PTE and PFE sectors entities.
Chapter 9 includes information on an ABS discussion paper that may result
in future changes to the GFS classification of certain public trading enterprises,
to treat them as general government agencies.
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Budget Statement 2010-11