Accounting Guidance Note
No. 2007/2 (Revised)
Accounting guidance notes are intended for use by Australian Government reporting entities
covered by:

S49 of the Financial Management and Accountability Act 1997; or

Clause 2 of Schedule 1, of the Commonwealth Authorities and Companies Act 1997.
The aim of the accounting guidance notes is to provide non-mandatory explanation and examples
relating to the interpretation and application of Australian Accounting Standards and the Finance
Minister’s Orders to the above entities.
Identification of Executive Remuneration
Purpose
To provide guidance to assist entities in identifying what comprises ‘remuneration’
for reporting and disclosure for the purposes of Division 23 of the Finance Minister’s
Orders for Financial Reporting (FMOs). This guidance note sets out the key
principles to be used in determining what is included as executive remuneration.
Target audience
This guidance note applies to Australian Government entities for whom Division 23
of the FMOs are applicable.
Applicable accounting pronouncements

AASB 2 Share-based Payments

AASB 119 Employee Benefits

Division 23 of the FMOs
Definitions used

Executive remuneration - includes all employee benefits in the form of
consideration paid, payable, or provided for by the entity, or on behalf of the
entity, in exchange for services rendered to the entity (an employment
relationship) by senior executives.
Page 1 of 6
Accounting Guidance Note 2007/2
Department of Finance and Deregulation
(Revised December 2010)

Senior executive - as defined in Division 23 of the FMOs.

Employee benefits - as defined in AASB 119. They include:

(a)
short-term employee benefits: such as wages, salaries and social security
contributions, paid annual leave and paid sick leave, profit-sharing and
bonuses (if payable within twelve months of the end of the period) and
non-monetary benefits (such as medical care, housing, cars and free or
subsidised goods or services) ;
(b)
post-employment benefits: such as pensions, other retirement benefits,
post-employment life insurance and post-employment medical care;
(c)
other long-term employee benefits: including long-service leave or
sabbatical leave, jubilee or other long-service benefits, long-term disability
benefits and, if they are not payable wholly within twelve months after the
end of the period, profit-sharing, bonuses and deferred compensation; and
(d)
termination benefits.
AASB 2 Share-based payments includes share and equity participation
schemes within the scope of employee benefits. Where an entity has payments
covered under AASB 2 they should contact the Department of Finance and
Deregulation for advice.
Key points
1.
Remuneration for the purposes of the FMOs is not necessarily the same as
remuneration for taxation purposes.
2.
For the purposes of Division 23 of the FMOs, executive remuneration includes
all employee benefits such as wages and salaries, accrued leave, performance pay,
accrued superannuation, cost of motor vehicles, housing, other allowances, and FBT
amounts. For further detail see Attachment A.
3.
Allowances treated as assessable income by the Australian Taxation Office
(ATO) should be regarded as executive remuneration.
4.
In determining whether an allowance would be treated as assessable income an
entity should have regard to the following exceptions:
(a)
the allowance received is a bona fide overtime meal allowance or a bona
fide travel allowance;
(b)
the allowance received does not exceed the reasonable amount; and
(c)
the allowance has been fully expended on entity related expenses.
For further assistance refer to ATO Ruling 2004/6, and for details on reasonable
amounts refer to ATO Determination 2005/32.
Page 2 of 6
Accounting Guidance Note 2007/2
Department of Finance and Deregulation
(Revised December 2010)
5.
Amounts in payment or reimbursement of out-of-pocket expenses incurred for
the benefit of the entity should not be included as executive remuneration. A
reimbursement occurs when the payment is intended to compensate exactly for
an expense already incurred (even if actual disbursement has not taken place at
the time of reimbursement). If the recipient is an employee, a reimbursement is
not considered remuneration, as the employee is being compensated for a
business expense of the employer. For further guidance, refer to ATO
Ruling 92/15.
Contacts
Questions or comments about this Guidance Note should be addressed to Accounting
Policy Branch at accountingpolicy@finance.gov.au
Page 3 of 6
Accounting Guidance Note 2007/2
Department of Finance and Deregulation
(Revised December 2010)
ATTACHMENT A
Included in the definition of remuneration
Allowances
Payments made to an employee to relieve the worker of specified
expenses. Common allowances include:














Accommodation or living away from home allowance;
Call out allowance;
Clothing or footwear allowance;
Entertainment allowance;
First aid allowance;
Higher duties allowance;
Motor vehicle allowance;
Qualifications/Instructor’s allowance;
Remote area allowance;
Rental allowance;
Study allowance;
Telephone allowance;
Tool allowance; and
Uniform allowance.
When an allowance is paid to an employee, management of
expenses and substantiation (for tax purposes) is transferred from
the employer to the employee (for taxation purposes, allowances
are assessable in the hands of the employee, but they may be able to
claim deductions for actual expenses incurred subject to
substantiation requirements).
Back pay
Payments in arrears made to an employee or former employee for
work previously performed. Includes retrospective payments, along
with payments resulting from an award rate increase.
Bonuses
Payments of gratuities or rewards by the employer over and above
wage and salary amounts. These may relate to the meeting of predetermined performance targets.
Commissions
Payments, usually to sales or marketing personnel, made in addition
to any wage and salary amounts. This includes bonuses or
‘spotter’s fees’ paid to employees.
Director’s fees
Payments made to, or for the benefit of, a director in their capacity
as an employee (commonly referred to as Executive or Working
Directors), including payments in the form of director’s fees and
emoluments.
Employee
share incentive
plans
Payment of benefits in shares and options are included in the
definition of remuneration. AASB 2 Share-based Payment applies
to Employee Share Incentive Plans and sets out the required
treatment including valuation methods for such arrangements.
Page 4 of 6
Accounting Guidance Note 2007/2
Department of Finance and Deregulation
(Revised December 2010)
ATTACHMENT A
Fringe benefits
A non-cash benefit provided by an employer that is part of the
employee’s total remuneration package. Fringe benefits can
include rights, privileges or services and is provided to, or for, the
benefit of an employee in relation to their employment. Typical
fringe benefits include:





Use of a work car for private purposes by an employee;
Provision of a discounted or no-interest loan to an
employee;
Payment of an employee’s gym membership;
Provision of entertainment, for example tickets to a concert
or sporting event;
Benefits provided under a salary sacrifice arrangements.
Fringe Benefits Tax (FBT) is payable by the employer on the value
of the reportable fringe benefits provided to employees. The cost of
providing the benefit, plus the FBT component, is included in the
definition of remuneration.
Health
insurance
Payments made to a health fund by the employer, for the benefit of
an employee. This includes any ‘top-up’ payments by the
employer to cover the difference between an amount billed by a
medical provider and that paid by a Health Insurance Fund.
Remuneration does not include the proceeds of an insurance claim.
Holiday pay
See annual leave.
Incentives
Amounts paid to either attract or retain an employee, or in relation
to meeting a specified performance target.
Leave loading
Amounts paid in together with, or in addition to, any payments to
an employer for annual leave.
Long service
leave
Accrued leave entitlements for the period.
In practice an entity will often calculate the movement of the leave
accrual in days, as long service leave taken will be included in most
HR systems as salary and therefore will already be included in the
wages and salaries total.
In addition, payments of accrued leave entitlements from prior
periods on termination should also be excluded as they have been
previously been included in the officer/director’s remuneration.
Overtime
Payment made directly in relation to additional hours worked by an
employee, or where such circumstance is incidental to an
employee’s duties.
Performance
pay
See Bonuses.
Page 5 of 6
Accounting Guidance Note 2007/2
Department of Finance and Deregulation
(Revised December 2010)
ATTACHMENT A
Non-work
related
expenses
Payments that have the character of a fringe benefit, but are in
relation to expenses not associated with employment activities.
Examples include payments in respect of school or education
expenses for children, spouse, or dependants of the employee.
Salary sacrifice Employer provides non-cash benefits for an employee under an
benefits
agreement whereby the employee forgoes the equivalent value of
the provided benefit in before-tax salary amounts.
Severance pay
Payment made to an employee resulting from cessation of
employment due to the employee’s position being made redundant
(note the FMOs require amounts in relation to severance element to
be disclosed separately).
Sick leave
Payment of normal salary or wages to an employee to cover any
period the employee was absent from work due to accident or
sickness.
In most HR systems this will be included within the salaries total.
If this is the case no adjustment should be made for this item.
Where sick leave is vested, it should be treated as per annual leave.
This will be unusual for Commonwealth employees.
Superannuation Any payment including a premium or lump sum paid to a
contributions
superannuation fund or retirement annuity plan for the benefit of an
employee.
Wages and
salaries
Page 6 of 6
Regular payments to employees for work performed over a set
period.
Accounting Guidance Note 2007/2
Department of Finance and Deregulation
(Revised December 2010)