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’s (APRA) 2004-05 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.
The budgeted financial statements contain estimates prepared in accordance with the requirements of the Australian 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.
Analysis of budgeted financial statements
The Statement of Financial Performance (Table 3.1) shows an increase in appropriations from $70.0 million forecast for the current year to $77.5 million for 2004-05. The increase reflects the escalation in departmental costs forecast for the current year from $73.1 million to $85.7 million for 2004-05. This includes the new policy proposal aimed at strengthening APRA’s capability in supervision of regulated entities. It also reflects the additional resources needed to implement licensing of superannuation entities commencing in 2004-05 and continuing in 2005-06. While this activity will be funded by license fees flowing substantially in the second year, much of the preparation and initial activity will occur in 2004-05, requiring a cash injection of $3.0 million in the first year, to be repaid from license fees in 2005-06.
Other revenues in 2004-05 include an unspent appropriation of $1.2 million brought forward from prior years to cover ongoing legal and other activities arising out of the HIH Royal Commission. As a result, other revenue in 2004-05 is marginally higher than the normal trend.
Employee expenses will increase from $46.8 million to $56.6 million in 2004-05. This will support an increase in senior front-line supervisory, specialist technical advisors and additional staff to carry out the intentions of the new budget measure and the licensing of superannuation funds.
Suppliers’ costs in 2004-05 have been budgeted to increase by $2.6 million, again reflecting the additional costs associated with the new policy measure, including increases in the facilities to accommodate additional staff.
APRA has budgeted a $1.7 million operating deficit in 2004-05 resulting entirely from the timing differences arising out of the new superannuation licensing regime. As noted above, while much of the preparation and initial costs are reflected in the first year of the initiative (2004-05), the associated revenues will not flow until the second year. This timing difference results in a deficit in the first year and a compensating surplus in the following year (2005-06).
The Departmental Statement of Financial Position (Table 3.2) shows a decrease in financial assets between 2003-04 and 2004-05, brought about by a decrease in cash (to be used for operational needs in 2004-05), offset by a small increase in receivables. Over the past three years, APRA has reduced receivables to a manageable level and will maintain that momentum into the outer years. The marginal increase in receivables in 2004-05 reflects the effects of the superannuation licensing process.
Non-financial assets are expected to increase by $1.5 million in 2004-05, funded entirely by revenue from non-appropriation sources. It will be seen that while infrastructure, plant and equipment will increase marginally in 2004-05 due to additional staffing needs, it will then gradually decline in value over the outer years. Intangibles will increase by $1.1 million as a result of development and implementation of electronic data management systems.
Provisions consist of employee entitlements to annual and long service leave, making-good leased premises and equalising lease incentives.
The retained surpluses in equity reflect the aim of maintaining reserves at sufficient levels (five to ten per cent of levies) to meet unforseen business needs, in terms of supervision of at risk institutions and enforcement actions.
The Departmental Statement of Cash Flows (Table 3.3) reflects the increase in appropriations and other revenue and the once-only cash injection of $3.0 million required for superannuation licensing activities discussed earlier. That cash will be repaid in the following year when the license fees are received from superannuation licensees. A cash pool is also required at the end of June to overcome expected cash flow timing delays arising from the billing of non-superannuation entities during the month of June, to fund employee entitlements and because of the need to leave the initial cash collected in the Official Public Account for 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 2004-05. Except for the cash injection of $3.0 million for superannuation licensing timing delays, the additions are fully funded by APRA’s own resources and the bulk of the acquisitions will be for 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.
Note of administered activity
Details of transactions administered by the agency on behalf of the Australian Government are to be 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 Australian 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 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
- 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
- K3 shows the link back to Table 1.1.
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
Notes to the financial statements
Agency financial statements and notes to administered items
Under the Australian Government’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 Australian 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
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 other non-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 is transferred to the Official Public Account at the close of business each day.