Appendix A: 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 must be 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.
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.
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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 1-133 of the 2009-10 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.
However, it is normally only the immediate prior period that is practicable to adjust.
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 period preceding 2008-09, which is the first year that AASB 1049 was adopted.
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 3 which is prepared on a AASB 1049
harmonised basis.
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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

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 to be presented in the statement of comprehensive income.
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).
Budget Scope
The Budget incorporates the activities of all general government sector agencies as defined by the
Government Finance Statistics Framework. This framework is explained, together with a list of
NSW Government entities (classified according to sector), in Appendix B.
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.
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However, the budget aggregates and general government sector financial statements do include:

explicit grant payments to the PTE sector for the delivery of programs with social objectives.
These 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 Operating Statement and

equity in the PTE and PFE sectors entities shown as investments in the Balance Sheet.
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