The consolidated financial statements (CFS) present whole-of-government financial results inclusive of all Australian Government–controlled entities. Also presented are the financial statements of the general government sector (GGS) and disaggregated information on each of the sectors of government.

Consolidated financial statements — overview

The Australian Government comprises departments of state, parliamentary departments, other non-corporate Commonwealth entities, corporate Commonwealth entities and companies in which the Australian Government holds a controlling interest.

Entities are grouped into portfolios that are aligned to a minister’s area of responsibility as established though Administrative Arrangements Orders. Within each portfolio, there are three types of entities accountable to the Parliament — Commonwealth entities (non-corporate or corporate) and Commonwealth companies. These entities are classified into the following three sectors of government:

  • general government sector — all government-controlled entities that provide public services that are mainly non-market in nature, are mainly for the collective consumption of the community, and are financed mainly through taxes and other compulsory levies;
  • public financial corporations sector — government-controlled corporations and quasi-corporations mainly engaged in financial intermediation or provision of auxiliary financial services; and
  • public non-financial corporations sector — government-controlled corporations and quasi-corporations mainly engaged in the production of market goods and/or non-financial services.

The consolidated financial statements (CFS) of the Australian Government are required under section 48 of the Public Governance, Performance and Accountability Act 2013. The CFS are prepared in accordance with Australian accounting standard AASB 1049 Whole of Government and General Government Sector Financial Reporting. The CFS present whole-of-government financial results inclusive of all Australian Government–controlled entities. Also presented are the financial statements of the general government sector (GGS) and disaggregated information on each of the sectors of government.

The Finance Minister is required to prepare and deliver the CFS to the Auditor-General by 30 November each year. The Department of Finance has operational responsibility for preparing the CFS for the Finance Minister.

To assist in the preparation of the CFS, the Department of Finance classifies entities as material or non-material, based on their contribution to the GGS. In aggregate, material entities comprise 99 per cent of revenues, expenses, assets and liabilities of the total GGS. All departments of state are considered material in nature.

Budgeted expenditure for entities within the GGS is anticipated to total $503.18 billion for 2019–20.

Figure 1 shows the level of budgeted expenditure by portfolio for 2019–20. The size of each ‘bubble’ represents the level of expenditure relative to the total GGS. The placement of each bubble is dependent on the number of entities within the portfolio and the average staffing level of the respective portfolio.

Figure 1: Budgeted expenditure by portfolio, 2019–20

 

Source: ANAO analysis of 2019–20 Portfolio Budget Statements.

The financial statements audit planning process examines each entity’s environment and governance arrangements, its system of internal control, and prior-year financial and performance audit findings. These planning processes are undertaken on a whole-of-organisation basis with the aim of identifying key risks that may significantly impact on the integrity of the financial statements.

When planning the audits of entities’ 2019–20 financial statements, the ANAO identified 200 financial statement risks for those 61 Commonwealth entities classified as material. Of these risks, 79 were considered higher-rated risks and 121 were moderate-rated risks.

Figure 2 presents the total number of financial statement risks identified for the 2019–20 financial statements of material entities within each portfolio.

Figure 2: Risk profile by portfolio for 2019–20 financial statements

 

Note: blue = higher risks; red = moderate risks.

Source: ANAO analysis of 2019–20 audit strategy documents.

Audit focus

Government accountability and transparency are supported by the preparation and audit of the Australian Government’s consolidated financial statements (CFS). The CFS and the associated financial analysis provide information to assist users in assessing the annual financial performance and position of the Australian Government. The five key risks for the 2019–20 CFS that the ANAO has highlighted for specific audit coverage, all of which the ANAO considers key audit matters (KAMs), are the:

  • completeness and accuracy of taxation revenue, given the complexity in determining the revenues due under self-assessment and voluntary compliance regimes and the significant professional judgement required in the application of methodologies and assumptions (including the volatility of economic conditions, which increases the uncertainty of the estimates) (KAM – Completeness and accuracy of taxation revenue);
  • valuation of superannuation liabilities, due to the measurement of the liabilities being complex and requiring significant judgement and estimation in the selection of long-term assumptions, including the salary growth and discount rates, to which the valuation of the superannuation liability is highly sensitive (KAM – Valuation of superannuation liability);
  • valuation of collective investments, due to the size of the investments, the inherent subjectivity, and the significant judgements and estimates required where market data is not available to determine the fair value of these investments (KAM – Valuation of collective investment vehicles);
  • valuation of specialist military equipment and other plant, equipment and infrastructure, due to the inherent subjectivity and need for significant judgements in the valuation, including for items of a specialised nature (KAM – Valuation of non-financial assets); and
  • valuation of loans and receivables, due to the high level of judgement required as a result of the inherent uncertainty and complexity in estimating the recoverability, and the sensitivity of these balances to changes in assumptions (KAM – Valuation of loans and receivables).

In addition, the impact of COVID-19 and the Australian Government’s rapid implementation of response measures present potential new key risk areas for entities’ operations and their processes for preparing financial statements, which form part of the CFS. Given the evolving nature of the COVID-19 response, the ANAO will continue to assess and revise audit plans throughout the financial statements audit cycle as necessary.

Audit focus

Government accountability and transparency are supported by the preparation and audit of the Australian Government’s consolidated financial statements (CFS). The CFS and the associated financial analysis provide information to assist users in assessing the annual financial performance and position of the Australian Government. The five key risks for the 2019–20 CFS that the ANAO has highlighted for specific audit coverage, all of which the ANAO considers key audit matters (KAMs), are the:

  • completeness and accuracy of taxation revenue, given the complexity in determining the revenues due under self-assessment and voluntary compliance regimes and the significant professional judgement required in the application of methodologies and assumptions (including the volatility of economic conditions, which increases the uncertainty of the estimates) (KAM – Completeness and accuracy of taxation revenue);
  • valuation of superannuation liabilities, due to the measurement of the liabilities being complex and requiring significant judgement and estimation in the selection of long-term assumptions, including the salary growth and discount rates, to which the valuation of the superannuation liability is highly sensitive (KAM – Valuation of superannuation liability);
  • valuation of collective investments, due to the size of the investments, the inherent subjectivity, and the significant judgements and estimates required where market data is not available to determine the fair value of these investments (KAM – Valuation of collective investment vehicles);
  • valuation of specialist military equipment and other plant, equipment and infrastructure, due to the inherent subjectivity and need for significant judgements in the valuation, including for items of a specialised nature (KAM – Valuation of non-financial assets); and
  • valuation of loans and receivables, due to the high level of judgement required as a result of the inherent uncertainty and complexity in estimating the recoverability, and the sensitivity of these balances to changes in assumptions (KAM – Valuation of loans and receivables).

In addition, the impact of COVID-19 and the Australian Government’s rapid implementation of response measures present potential new key risk areas for entities’ operations and their processes for preparing financial statements, which form part of the CFS. Given the evolving nature of the COVID-19 response, the ANAO will continue to assess and revise audit plans throughout the financial statements audit cycle as necessary.