Consolidated financial statements
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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.
Overview of the consolidated financial statements
Government entities, portfolios and sectors
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 16 portfoliosthat are aligned to a minister’s area of responsibility as established though the Administrative Arrangements Order. 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 three sectors of government, being:
- general government sector — all government-controlled entities, including non-profit institutions, that provide public services which are mainly non-market in nature, and mainly for the collective consumption of the community, involving the transfer or redistribution of income, and 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.
Requirement for consolidated financial statements
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.
Preparation of the consolidated financial statements
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 the preparation of 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. Material entities are those entities that in aggregate 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 in the general government sector
Budgeted expenditure for entities within the GGS is anticipated to total $488.58 billion for 2018–19.
Figure 1 shows the level of expenditure by portfolio for 2018–19. 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.
Note: Defence average staffing level excludes the Australian Defence Force and the Reserves.
Source: ANAO analysis of Portfolio Budget Statements (PBS) 2018–19 Budget related papers.
Financial statements risk profiles
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 the 2017–18 financial statements, the ANAO identified 209 financial statements risks for those 66 Commonwealth entities classified as material. Of these, 72 were considered higher rated risks and 137 were moderate-rated risks for 2017–18.
Figure 2 presents the total number of financial statements risks identified for the financial statements of material entities within each portfolio.
Source: ANAO analysis of 2017–18 audit strategy documents.
Government accountability and transparency is 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 key risks that have been highlighted for specific audit coverage, all of which are considered key audit matters (KAMs) by the ANAO, are the:
- recognition of taxation revenue, given the estimation and allocation processes associated with the reporting of taxation revenue and the volume of transactions subject to estimation that involve the application of significant judgement and specialist knowledge (KAM — Completion and accuracy of taxation revenue);
- unfunded superannuation liabilities, due to the complexity of calculations and the nature of the economic and demographic assumptions involved (KAM – Valuation of superannuation liability);
- fair value measurement of investments, specialised military equipment and infrastructure, due to the inherent subjectivity and need for significant judgements in the valuation of illiquid investments and specialised items (KAMs – Valuation of financial assets; Valuation of non-financial assets); and
- recoverability of loans and receivables, due to inherent uncertainty in estimating future credit losses on amounts receivable (KAM – Recoverability of loans and receivables).