Save Search

Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
First accrual-based Budget in 1999



Download WordDownload Word

image

MEDIA RELEASE

 

Minister for Finance and Administration

THE HON JOHN FAHEY, MP

 

First accrual-based Budget in 1999

 

I am pleased to announce that the first accrual budget of the Commonwealth Government will be brought down in May 1999 for the 1999-2000 Bu dget.

 

The new framework uses accounting practices used by businesses worldwide. Accrual reforms are an essential complement to the cultural change required to achieve a more competitive, efficient and effective public sector focusing on outcomes.

 

This framework will build on earlier budget reforms of this Government such as presenting the Budget in terms of the underlying balance , rather than the headline balance, and which means one-off factors like the proceeds of asset sales and repayments from the States do not distort the actual budget position.

 

Presenting the Budget on an accrual basis will further deliver on the Government’s Charter of Budget Honesty commitment for transparency in the Commonwealth Budget process.

 

The accrual approach was a key recommendation of the June 1996 ‘Report to the Commonwealth Government’ of the National Commission of Audit.

 

The new accrual-based framework will change both how and what is measured for budgeting, accounting and reporting purposes. The major reason is to improve the information base underpinning all public sector activity and decisions.

 

The current measurement tools focus on inputs and broad objectives. With an accrual-based focus, there is a clear specification of the outputs (i.e: what is to be produced) and the outcomes (i.e: for what purposes).

 

The current cash management method of accounting for the Commonwealth Budget ignores assets and liabilities and cannot account for income earned or expenses incurred during the financial year. The result is that the financial health of an agency cannot be assessed or compared one financial year to the next.

 

By adopting an accrual-based measurement tool, we can better measure what is produced, what is achieved and what is consumed.

 

Briefly outlined below are some examples of changes that will take place:

 

·  Under the current cash-based framework, in order to fund asset replacement, agencies use cash from the running costs funding base or specific capital appropriation. With equipment purchases for example, cash-based framework financial statements shows only the cash paid for a photocopier in its year of purchase.

 

·  On an accrual basis, the photocopier is treated as an asset providing benefits over time, and appears as an asset (of declining value) on the balance sheet. This cost is allocated over time and appears as a depreciation expense in the operating statement. The fact that an asset is declining in value is recognised in the balance sheet at the end of each accounting period.

 

·  Under the old cash framework, the practice was to provide agencies with cash to fund their recurrent expenditure, including the replacement of assets. There was little focus on maintaining sufficient equity in individual agencies to replace assets and to pay liabilities over time.

 

·  Funding under the new accrual framework will entail examining current balance sheet structures. The aim is, over time, to identify agencies with liabilities exceeding their capacity to pay for them and to develop strategies to repair inappropriately structured balance sheets.

 

·  Currently, agencies prepare an annual Operating Statement, which is published in their annual reports tabled in Parliament.

 

·  Under the new accrual framework, large agencies will prepare monthly Operating Statements, which will be transmitted to the Department of Finance and Administration for consolidation in a Whole-of-Government report.

 

Other OECD countries such as the UK and Canada are looking at the Australian reforms with interest, in particular at the enhanced level of ac countability. Most Australian states and territories are also moving to accrual budgeting.

 

The new accrual framework is more comprehensively outlined on the Department of Finance and Administration website, at www.dofa.gov.au .

 

A comprehensive training program of training has been developed in consultation with agencies throughout the Commonwealth public sector to support the implementation of accrual budgeting.

 

I would like to pay tribute to the hard work of the Accrual Budgeting Project team in my Department, which has been working towards the success of this important reform for the past eighteen month.

 

Media contact: David McLachlan 02 6277 7400

 

24 November 1998

 

 

 

LK