Section 3: Budgeted financial statements

Budgeted agency and administered financial statements and related notes for the Australian Office of Financial Management (AOFM) are presented in this section. The financial statements are produced for 2003-04 (estimated actual results), 2004-05 (Budget estimate) and three forward years. The financial statements should be read in conjunction with the accompanying notes.

Analysis of budgeted financial statements

Departmental

Statement of financial performance

Since inception as a separate agency in July 1999, the AOFM has been developing its resource base and functionality. Substantial progress has been made in achieving best practice in policy, systems and methodology in the areas of financial market operations and risk management. The growth of the AOFM over the past five years has been rapid with expenditure reflecting start up costs including significant investment in agency infrastructure (primarily Information Technology hardware and software), additional staffing and moving to new premises in December 2000. The budget and forward years reflect planned periods of consolidation when revenue and operating expenses are expected to be largely unchanged.

Statement of financial position

The AOFM’s net asset (or equity) position is forecast to remain constant over the Budget and forward years, reflecting that current funding levels are expected to be adequate to support the AOFM’s operations during this period.

The AOFM forecasts that during the forward estimates period it will need to make renewed capital investment in agency infrastructure. Some further capital expenditure, particularly in relation to systems, both for development and replacement, is expected in the forward estimates period. Sufficient funding has been provided for this future capital investment from accumulated unspent outputs appropriations and equity injections.

Administered

Following the Government’s decision, announced in the 2003-04 Budget, to maintain the market in Commonwealth Government Securities (CGS), the AOFM aims to contribute to financial market efficiency by maintaining sufficient Treasury bonds on issue to support the Treasury bond futures market. This will require ongoing issuance of bonds at the middle and long end of the yield curve. The Administered Budget and forward estimates reflect this Government decision.

The AOFM executes interest rate swap transactions to manage the cost and risk of the net debt portfolio according to a benchmark approved by the Treasurer. The Administered Budget and forward estimates incorporate the interest rate swap programme.

The Commonwealth holds surplus funds as term deposits with the Reserve Bank of Australia. These assets are used by the AOFM in managing the Commonwealth’s short-term funding requirement. Estimates of these asset holdings have been included in the Administered Budget and forward estimates. However for 2004-05 and the forward years transactions relating to debt management activities (for example, debt and investment activity) have been netted in the statement of financial position and the statement of cash flows due to uncertainty associated with the balance between CGS and financial assets.

Agency financial statements

Budgeted agency statement of financial performance

This statement provides a picture of the expected financial results for the AOFM by identifying full accrual expenses and revenues.

Budgeted agency statement of financial position

This statement shows the financial position of the AOFM. It enables decision-makers to track the management of the agency’s assets and liabilities.

Budgeted agency statement of cash flows

This statement provides information on the amount and nature of budgeted cash flows, categorised into expected cash flows from operating activities, investing activities and financing activities.

Budgeted capital budget statement

This statement shows all proposed capital expenditure on non-financial assets, whether funded through capital appropriations (equity or borrowings) or from internally sourced funds.

Agency non-financial assets — summary of movement

This statement shows the budgeted movement in the AOFM’s non-financial assets during the budget year 2004-05.

Note of administered activity

Details of transactions administered by the AOFM on behalf of the Australian Government are shown in the following notes to the financial statements.

Note of budgeted administered financial performance

This note identifies the revenues and expenses administered on behalf of the Australian Government.

Note of budgeted administered financial position

This note shows the assets and liabilities administered on behalf of the Australian Government.

Note of budgeted administered cash flows

This note shows cash flows administered on behalf of the Australian 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 2004-05)

Table 3.6: Note of Budgeted Financial Performance Administered on behalf of Government for the period ended 30 June

Table 3.7: Note of Budgeted Financial Position Administered on behalf of Government as at 30 June

Table 3.8: Note of Budgeted Administered Cash Flows
for the period ended 30 June

1. Includes investment activity.
2. Includes forward foreign exchange contracts.

Notes to the financial statements

Basis of accounting

The financial statements have been prepared on an accrual basis and are in accordance with the historical cost convention. No allowance is made for the effect of changing prices on the results or the financial position of the AOFM.

Administered internal transactions

Administered transactions between the AOFM and other agencies within the general government (administered internal transactions) are not reported in the note of budgeted administered financial performance or the note of administered financial position.

However, for the purposes of disclosing all cash flows through AOFM’s administered bank accounts, cash flows in the note of budgeted administered cash flows are reported inclusive of administered internal transactions.

Goods and services tax (GST)

All supplies provided by the AOFM are input taxed under A New Tax System (Goods and Services Tax) Act 1999.

Budgeted agency and administered financial statements

The budgeted financial statements contain estimates prepared in accordance with the requirements of the Government’s financial budgeting and reporting framework, including the principles of Australian Accounting Standards and Statements of Accounting Concepts, as well as specific guidelines issued by the Department of Finance and Administration.

Under the Commonwealth’s accrual budgeting framework, transactions that agencies control (agency transactions) are separately budgeted for and reported 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 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 to Government.
• Administered assets, liabilities, revenues and expenses are those which are managed on behalf of the Government according to set government directions. Administered expenses include interest incurred on Commonwealth debt and administered revenues include interest earned on housing agreement loans and interest from swaps.

Appropriations in the accrual budgeting framework

Under the Commonwealth’s accrual budgeting framework, separate annual appropriations are provided to the AOFM for:

• agency price of outputs appropriations: representing the Government’s purchase of outputs; and
• administered expense appropriations: for the repayment of interest on lapsed coupons not supported by special appropriation.

Special appropriations continue under the accrual budgeting framework and fund the majority of administered payments made by the AOFM, including debt redemption and financial investment activity.

Budgeted agency financial performance

Appropriations

Price of outputs appropriation estimates are not based on market price indicators. The agreed price of outputs appropriation is based on budgeted expenses.

The AOFM has prepared its estimates for the 2004-05 budget and forward years to achieve a breakeven operating result. Consequently the appropriation revenues from Government represent the funding required to meet all expenses.

Budgeted agency financial position

Cash

The estimated cash reserves will be maintained to ensure that the AOFM is well placed to:

• settle employee liabilities as they fall due;
• make asset replacements (from depreciation funding); and
• repay liabilities.

Budgeted financial statements have been prepared on the assumption that unspent monies will not be withdrawn by the Department of Finance and Administration.

Administered notes of budgeted financial statements

Revenues and expenses

Non-taxation revenue — interest

Interest from other sources includes interest from swaps and investments.

Expenses — grants

Expenses — interest and financing costs

Assets and Liabilities

Debt — Commonwealth securities

Commonwealth securities represent the book value of government securities on issue, net of investments (except for 2003-04 where they are reported on a gross basis).

Financial assets — receivables

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