Harmonisation of Accounting and Statistical Systems

1. Harmonisation of Accounting and Statistical Systems 1 • Tim Youngberry • First Assistant Secretary • Department of Finance and Deregulation • Australia

2. The background • Australian legislation requires all Budget reports – at the consolidated level - to be prepared on two bases. • First, based on accounting standards applicable to the public sector (GAAP or AAS) • Second, based on statistical systems used for national accounts (GFS)

3. Background (continued) • Australia uses accrual accounting in financial statement preparation, for both budget and actual. Additionally it uses cash indicators in budget reports. • Budget reports are not audited – so there can be departures from GFS as long as they are warranted • The Australian Government also produces consolidated whole of government financial statements on an AAS basis which are audited – any material departure from AAS standards would result in audit qualification. AAS are based on the standards prepared by the IASB (private sector)

4. The problem • Two sets of accounts were not a huge problem for the compilers • – expertise in GFS was concentrated in the centre and • - the chart of accounts in the central system was set up to identify points of difference • The bigger problem was confusion for the readers of having two statements. Which one was right ?

5. The solution • The Australian financial reporting oversight group directed the accounting standard setting body (AASB) to develop a standard for the harmonisation of the two systems: • Initially covering the General Government Sector • Then whole of government reporting and the other two sectors • Then individual entities • Then possibly considering sundry bodies such as universities and bodies owned by more than one government

6. Challenges along the way • The two systems started out very differently, with a large number of differences between the two • Accounting standards moved closer to GFS over time as they moved toward greater use of fair value (matching GFS market value) • Engagement with statistical people at both national and international level has resulted in a number of changes or potential changes to GFS which reduce the differences • There were approximately 16 major issues on which it was not possible to reconcile

7. The outcome • Accounting standard issued September 2006 (for GGS) and December 2007 (for whole of government and other sectors) • This goes a long way further than, say, IPSAS 22 (although is not inconsistent with IPSAS 22) • In summary, requires: • Use of GFS measurement rules where this is permissible under AAS • Otherwise requires use of AAS rules – with a reconciliation to GFS in the notes • Presentation in GFS format – uses terms consistent with GFS such as fiscal balance, net worth, net debt, and has a two part operating statement (in some ways not unlike the revised IAS 1)

8. The benefits • A single set of financial statements that satisfy budget and accounting needs • Less need to consider different accounting treatments when determining government accounting policies • A single set of budget aggregates – reducing confusion and reducing the ability to select the aggregates that support a particular view • Less time taken to produce reports as the two systems are less different from each other than they once were • Agencies are still able to prepare statements in AAS format (at present) meaning specialised systems and training are not required and accountants can be recruited from the private sector and be productive from “day one”

9. The Future • We are currently working out detailed disclosures for implementation at GGS and whole of government levels for 2008-09. • Some residual issues of detail such as which reports will be audited; timing of reports given different statutory timeframes; audit of variance explanations. • Agency level adoption is still to be considered (by 2010). • AASB will have to develop a process for maintaining the system to accommodate future changes to both AAS and GFS.