Appendix D: Accounting principles followed in the
Budget Papers
The Public Finance and Audit Act 1983 requires Budget Papers to include three primary financial
statements for the general government sector, prepared and presented in accordance with
Australian accounting standards:

operating statement

statement of financial position (referred to as the balance sheet in the Budget Papers)

cash flow statement.
Budget Paper No. 2 Budget Statement presents the general government sector in aggregate while
Budget Paper No. 3 Budget Estimates presents the budgets for individual agencies within the
general government sector.
Budget Paper No. 2 is presented in accordance with accounting standard AASB 1049
Whole of Government and General Government Sector Financial Reporting. AASB 1049 follows
Government Finance Statistics (GFS) principles where these do not conflict with Generally
Accepted Accounting Principles (GAAP). However, agency budgets in Budget Paper No. 3 are
presented purely on a GAAP basis.
The GFS-GAAP and pure GAAP presentations give the same operating result. However, GFSGAAP harmonised presentation for the general government sector dissects income and expenses
into transactions and other economic flows. The net result of income and expense transactions is the
net operating balance or Budget result reported in Chapter 3 of Budget Paper No. 2.
Presentational differences between the statements for the general government sector shown in
Budget Paper No. 2 and individual agency budgets in Budget Paper No. 3 are explained below.
General government sector Budget (Budget Paper No. 2)
Budget scope
The general government sector incorporates the activities of agencies as defined by the GFS
framework. Appendix E explains this framework, and also lists NSW Government agencies and
classifies them as general government sector, public trading enterprise (PTE) sector or public
financial enterprise (PFE) sector.
The general government sector also includes:

explicit grant payments to the PTE sector for the delivery of non-commercial programs with
social objectives, as required by the Government

dividends, tax equivalents and guarantee fees receivable from the PTEs and PFEs, which are
shown as revenues on the operating statement
Budget Statement 2012-13
D-1

equity in the PTE and PFE sector entities, which is classified as an investment on the
balance sheet.
The financial transactions of PFE and PTE sector agencies are not consolidated on a line-by-line
basis in the budget aggregates. However, the value of net PTE and PFE sector assets is reflected
in the general government sector’s equity investment.
AASB 1049 principles
The general government sector budget is presented on a GFS-GAAP harmonised basis using the
following general principles drawn from AASB 1049:

General government sector (and whole-of-government) financial statements are prepared in
accordance with the recognition, measurement and disclosure requirements of GAAP.

Where options exist in GAAP, the option that is consistent with GFS must be chosen, to
minimise convergence differences.

Where there is any conflict between GAAP and GFS, GAAP prevails.

The statement of comprehensive income (referred to as the operating statement in the
Budget Papers) dissects income and expenses into transactions and other economic flows, as
defined by the ABS GFS Manual.
The net result of income and expense transactions gives the net operating balance, which is also the
Budget result for the general government sector, as reported in Chapter 3 of Budget Paper No. 2.
Other economic flows are excluded from the net operating balance (Budget result) as they represent
changes in the volume or value of assets or liabilities that do not arise from transactions with
other entities, and they are often outside the control of government.
Differences between reporting frameworks
There are some differences between AASB 1049 GFS-GAAP harmonised aggregates shown in
the Budget Papers and pure GFS information reported by the Australian Bureau of Statistics.
These convergence differences are not departures from accounting standards, but merely
variations in measurement or treatments between the two frameworks. Details of the main
convergence differences between GFS and GAAP are explained in Chapter 9 of Budget Paper
No. 2.
Accounting Standards issued but not effective
AASB 119 Employee Benefits was revised in September 2011, and will come into effect for 2013-14.
The new standard will modify how the operating statement presents defined benefit
superannuation expenses.
Under the existing standard, a net interest expense is calculated after deducting the expected
return on superannuation assets. Under the new standard, expected investment returns must be
calculated using the same discount rate used to value liabilities (ie a long term Commonwealth
Government bond rate). This is likely to result in higher reported superannuation net interest
D-2
Budget Statement 2012-13
costs and lower financial distributions from PTEs to the general government sector. Both these
factors will worsen the budget result.
However, the worsening in the net operating balance or budget result will be offset by
corresponding increases in actuarial gains, which will be reflected in other comprehensive
income. The introduction of the new standard will therefore not impact on the comprehensive
result.
As the new standard is not in effect for the 2012-13 Budget year, it has not been applied in the
2012-13 Budget.
The following table summarises the estimated impact of the new standard on future general
government sector operating statements.
Table D.1: Financial Impact of changes to AASB 119 Employee Benefits
$ million
Budget Result
Year
Surplus/
(Deficit) as
Published in
2012-13
Budget
Papers
Estimated
increase in
interest
expense (a)
Other Comprehensive Income
Estimated
reduction in
revenue from
financial
distributions (a)
Surplus/
(Deficit) post
adoption of
revised
AASB 119
OCI as
published in
2012-13
Budget
Papers
Estimated
increase in
other
comprehen
sive income
Comprehensive
Result
OCI post
adoption
of revised
AASB 119
As published in
2012-13 Budget
Papers, and
post adoption
of revised AASB
119 (ie no
change)
2008-09
(862)
...
...
(862)
(9,867)
...
(9,867)
(10,729)
2009-10
988
...
...
988
9,757
...
9,757
10,745
2010-11
1,340
...
...
1,340
9,055
...
9,055
10,395
2011-12 est.
(337)
...
...
(337)
(16,033)
...
(16,033)
(16,370)
2012-13
(824)
...
...
(824)
11,206
...
11,206
10,382
2013-14
289
946
52
(709)
10,248
998
11,246
10,537
2014-15
562
738
42
(218)
6,262
780
7,042
6,824
1,172
659
40
473
4,772
699
5,471
5,944
2015-16
(a)
Assumes long term commonwealth bond rate of 4.8 per cent (2013-14), 5.6 per cent (2014-15),
and 5.8 per cent (2015-16).
Comparative information
Accounting standards require comparative information to 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 practicable to adjust the immediate prior period.
Agency budgets (Budget Paper No. 3)
Individual agency budgets are not presented on a GFS-GAAP harmonised basis. Therefore, they
do not distinguish between transactions and other economic flows and do not disclose a net operating
balance. Consequently, an agency’s budgeted operating result includes the following income and
Budget Statement 2012-13
D-3
expense items that are excluded from the Budget result (due to their classification as other economic
flows):

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.
Agency budgets in Budget Paper No. 3 Budget Estimates focus on operations, rather than
complying with all the presentation requirements of accounting standards.
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Budget Statement 2012-13