The consolidated financial statements (CFS) of the Australian Government present whole-of-government financial results inclusive of all Australian Government–controlled entities, as well as the financial statements of the General Government Sector (GGS).

Commonwealth entities and companies

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 portfolios that 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:

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

Australian Government entities are expected to administer approximately $464.3 billion in expenses for 2017–18. Figure 1 shows the level of expenses by portfolio for 2017–18. The size of each ‘bubble’ represents the level of expenses 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: Portfolios by number of entities, average staffing level and total expenses

Source: ANAO analysis of 2017–18 PBS Budget related papers.

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 GGS and disaggregated information on each of the three sectors of government.

The Minister for Finance 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 CFS for the Minister.

To assist in the preparation of the CFS, the Department of Finance classifies entities as material or non-material based upon 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.

Audit focus

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 to identify key risks that may significantly impact on the integrity of the financial statements.

During planning the 2016–17 financial statements audits, the ANAO identified 223 financial statements risks for those Commonwealth entities classified as material. Of these, 80 were considered higher-rated risks and 143 were moderate-rated risks. Figure 2 presents the total number of financial statements risks identified for the financial statements audits of material entities within each portfolio.

Figure 2: Portfolio financial statements risk profile

Government accountability and transparency is supported by the preparation and audit of the Australian Government’s consolidated financial statements. 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 to the CFS are:

  • implementation of a new system and related risks for the preparation of the CFS;
  • the assurance and consolidation processes, given the large number of entities, and the divergent business and reporting frameworks used;
  • measurement of assets at fair value, with different accounting policies applied to a number of entities within the Commonwealth that require adjustment for the consolidated financial statements;
  • 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;
  • unfunded superannuation liabilities due to the complexity of calculations and the nature of the economic and demographic assumptions involved;
  • accounting for, and valuation of, specialist military equipment, which includes defence weapons platforms, military support items, and assets under construction and associated prepayments. In addition to the complexity in measuring specialist military equipment at fair value, there are elements such as the annual assessment of impairment and asset useful lives that are subject to a high degree of judgement and subjectivity. The management of, and accounting for, assets under construction is dispersed across numerous projects that have complex multi-year contractual arrangements and project management requirements;
  • stewardship over grant payments to states and territories under the Federal Financial Relations Act 2009, due to reliance on other Australian Government entities and state and territory governments to administer the programs and provide information to support payments; and
  • investments by the Future Fund Management Agency due to the complex nature of the investment strategy, including the effective management of investments and liquidity requirements, and the valuation and reporting of different types of investments in national and global markets.