Section 3: Budgeted financial statements
The budgeted financial statements will form the basis of the financial statements that will appear in the Australian Prudential Regulation Authority (APRA)'s 2003-04 Annual Report and form the basis for the input into the Whole of Government Accounts. The financial statements should be read in conjunction with the accompanying notes.
Analysis of budgeted agency financial statements
The Statement of Financial Performance (Table 3.1) shows an increase in appropriations from $59.4 million forecast for the current year to $68.6 million for 2003-04. The increase reflects the increase in departmental costs forecast for the current year from $67.1 million to $72.1 million for 2003-04. This includes the new policy proposal aimed at enhancing and strengthening APRA's capability in supervision of regulated entities. It also reflects the additional resources needed to implement additional statistical services and assistance provided to Authorised Deposits Institutions in implementing the Basel Capital Accord.
Other revenues in 2002-03 were higher than the normal trend due to recovery of expenses outlaid during the HIH Royal Commission from APRA's insurer. As a result, other revenue in 2003-04 will return to more normal levels.
Employee expenses will increase from $39.6 million to $44.5 million in 2003-04. This will support an increase in supervisory and specialist technical advisors and additional staff to carry out the intentions of the new budget measure.
Suppliers' costs in 2003-04 have been budgeted to be about $0.8 million less than the prior year due to the reduced cost of legal and other services, following on from conclusion of the HIH Royal Commission and reductions in discretionary expenditures through efficiency programmes. The savings are partly offset by increases in the floor area and cost of leased premises.
The higher than normal budgeted surplus for 2003-04 is needed to increase reserves. APRA is sometimes faced with the need to engage inspectors to supervise the activities of institutions that have been assessed to be at some risk, and the reserves enable this action to be taken quickly without the need to resort to special financial supplementation. Timely action of this nature may avert more serious outcomes.
The Departmental Statement of Financial Position (Table 3.2) shows a small increase in financial assets between 2002-03 and 2003-04, brought about by an increase in cash offset by a reduction in receivables. Over the past two years, APRA has made a concerted effort to reduce receivables to a manageable level and maintain that momentum into the outer years.
Non-financial assets are expected to increase by $0.9 million in 2003-04, funded entirely by revenue from non-appropriation sources. It will be seen that while infrastructure, plant and equipment will gradually decline in value over the current and outer years, this will be offset by increases in intangibles. APRAs supervision, risk assessment and assurance activities are substantially enhanced by access to extensive databases, represented in large part by capitalised in-house developed software. The bulk of the additional assets will be additions and enhancements to this software.
Provisions consist mainly of employee entitlements to annual and long service leave, together with some relatively minor amounts relating to making good leased premises. Payables are expected to reduce gradually over the outer years.
The retained surpluses in equity reflect the earlier stated aim of building these back up to levels determined as being the minimum required to meet unforseen business needs in terms of supervision of at risk institutions (5 per cent-10 per cent of levies).
The Departmental Statement of Cash Flows (Table 3.3) reflects the increase in appropriations and other revenue discussed earlier. A cash pool at the end of June is needed to overcome expected cash flow timing delays arising from the billing of non superannuation entities during the month of June, and the need to leave the initial cash collected in the Official Public Account to fund the activities of Australian Securities and Investments Commission (ASIC) and Australian Taxation Office (ATO).
Tables 3.4 and 3.5 show the amount budgeted for capital and the effect on non-financial assets in 2003-04. As observed above, the additions are fully funded internally by APRA's own resources, and the bulk of the acquisitions ($2.6 million) will be for in-house developed software.
The Administered Statements show the total amount collected and administered by APRA, on behalf of the Government, in supervisory levies from the finance industry. The cash collected is swept daily from the APRA account to the Official Public Account, from which APRA, in turn, draws down the amounts appropriated to it by the parliament.
Agency financial statements
Budgeted agency statement of financial performance
This statement provides a picture of the expected financial results for APRA by identifying full accrual expenses and revenues, which highlights whether APRA is operating at a sustainable level.
Budgeted agency statement of financial position
This statement shows the financial position of APRA. It enables decision-makers to track the management of APRA's assets and liabilities.
Budgeted agency statement of cash flows
This statement identifies expected cash flows from operating activities, investing activities and financing activities.
Agency capital budget statement
This statement shows all proposed capital expenditure funded through the Budget as appropriations or from internal sources.
Agency non-financial assets - summary of movement
This statement shows the movement in APRA's non-financial assets over the Budget year.
Notes of administered activity
Details of transactions administered by the agency on behalf of the Commonwealth are shown in the following notes to the financial statements.
Note of budgeted administered financial performance
This note identifies the main revenues and expenses administered on behalf of the Government. It also discloses administered revenues from government and transfers to the Official Public Account.
Note of budgeted administered financial position
This note shows the assets and liabilities administered on behalf of the Government.
Note of budgeted administered cash flows
This note shows cash flows administered on behalf of the Government.
Table 3.1: Budgeted Agency Statement of Financial Performance -
for the period ended 30 June
(1) K1 shows the link back to Table 1.1.
Table 3.2: Budgeted Agency Statement of Financial Position -
as at 30 June
Table 3.3: Budgeted Agency Statement of Cash Flows -
for the period ended 30 June
Table 3.4: Agency Capital Budget Statement
Table 3.5: Agency Non-financial Assets - Summary of Movement (Budget year 2003-04)
Table 3.6: Note of Budgeted Financial Performance Administered on behalf of the Government - for the period ended 30 June
Table 3.7: Note of Budgeted Financial Position Administered on behalf of the Government - as at 30 June
Table 3.8: Note of Budgeted Administered Cash Flows -
for the period ended 30 June
Notes to the financial statements
Agency Financial Statements and Notes to Administered Items
Under the Commonwealth's accrual budgeting framework, and consistent with Australian Accounting Standards, transactions that agencies control (agency transactions) are separately budgeted for and reported on from transactions agencies do not have control over (administered transactions). This ensures that agencies are only held fully accountable for the transactions over which they have control.
Agency assets, liabilities, revenues and expenses in relation to an agency or authority are those which are controlled by the agency. Agency expenses include employee and supplier expenses and other administrative costs, which are incurred by the agency in providing its goods and services.
Administered items are revenues, expenses, assets and liabilities which are managed by an agency or authority on behalf of the Government according to set Government directions. Administered expenses include subsidies, grants and personal benefit payments and administered revenues include taxes, fees, fines and excises.
Basis of accounting
The financial statements have been prepared on an accrual basis in accordance with the historical cost convention.
Budgeted agency statement of financial performance
Goods and services tax
The budgeted financial statements have been prepared in accordance with the goods and services tax (GST) accounting guidelines of the Urgent Issues Group (UIG) of the Australian Accounting Standards Board. The UIG consensus requires that expenses and assets be accounted for net of recoverable GST, revenues be accounted for net of GST payable, and that cash flows and accounts payable and receivable be reported gross. Appropriations are thus net of recoverable GST amounts.
Revenues from government
APRA is funded by a special appropriation for levies, late lodgement and late payment penalties collected under the Financial Institutions Supervisory Levies Collection Act 1998. The revenue reported by APRA is net of the levies retained in the Official Public Account to fund the Australian Securities and Investments Commission (ASIC) for consumer protection and market integrity functions, and to the Australian Taxation Office (ATO), for unclaimed monies and lost member functions.
Depreciation and amortisation
APRA's depreciation expense is increasing over time due to the development and implementation of infrastructure that will provide APRA staff with accurate and timely financial information about regulated entities and that will allow APRA to act as the central repository for this information. The introduction of this system has resulted in a shorter useful life and increased depreciation for some of APRA's legacy software systems.
Budgeted agency statement of financial position
Financial assets
These include cash, levies invoiced but still outstanding at the financial year end and other revenue receivables.
All accounts receivable are recorded at their estimated recoverable amount.
Non-financial assets
Non-financial assets include leasehold improvements, furniture and fittings, computer hardware and office equipment. Intangible assets comprise capitalised software, including work-in-progress. APRA does not own any land or buildings.
Other non-financial assets include prepayments.
Debt
Other debt includes lease incentives.
Provisions and payables
Provisions and payables represent liabilities for miscellaneous accruals and employee benefits, including accrued salary and leave entitlements.
Equity
The opening balance represents the net value of assets and liabilities transferred from the Reserve Bank of Australia and the Insurance and Superannuation Commission on the formation of APRA on 1 July 1998.
Budgeted agency statement of cash flows
Cash received from operating activities includes the appropriation for levies collected from industry less amounts collected on behalf of ATO and ASIC, cash from fees and charges, and interest earned on cash balances and investments held as government backed securities.
Cash used in investing activities includes cash spent on property, plant and equipment.
Note of budgeted administered financial performance
Revenues
The taxation revenues are the levies, late lodgement and late payment penalties collected under the Financial Institutions Supervisory Levies Collection Act 1998. The revenue reported in this statement is higher than that reported by APRA in the budgeted agency statement of financial position by the amount retained in the Official Public Account to fund ASIC for consumer protection and market integrity functions, and to the ATO, for unclaimed monies and lost member functions.
Note of budgeted administered financial position
Financial assets
The financial assets include levy debt invoiced and still outstanding at year end.
Accrued revenue is for levies on returns lodged but not invoiced at the end of the financial year.
Provisions and payables
The `Other' provisions and payables is revenue in advance for levies collected before the end of the financial year for supervision in the following financial year.
Note of budgeted administered cash flows
All cash collected by APRA for levies, late lodgement and late payment penalties under the Financial Institutions Supervisory Levies Collection Act 1998 and transferred to the Official Public Account at the close of business each day.