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6.1. The conversion of GFS from a predominantly cash to an accruals basis of recording and the adoption of Australian Accounting Standards by governments means that statistical reports compiled by the ABS and accounting reports prepared by jurisdictions under AAS 31 will now be in the public arena on a similar recording basis. However, GFS and ASNA are frameworks designed to facilitate macro-economic analysis whereas AAS 31 outlines a standard for general purpose financial reporting. Therefore, GFS and ASNA on the one hand and AAS 31 on the other serve different objectives and so differences in the treatment of certain items may be expected. The objective of this chapter is to identify and explain the major differences between the statistical and accounting reports so that they can be reconciled and ensure the integrity of, and user confidence in, both sets of data.

6.2. The ABS intends to use data compiled for AAS 31 reporting purposes and the underlying accounting and budgetary system information as the basis for GFS. Providing this can be done, it will be possible to reconcile between GFS and AAS 31 reports by institutional sector, by level of government, and by jurisdiction. GFS output may also be reconciled with ASNA output, but reconciliation will only be possible at more aggregated levels.

GFS NET OPERATING BALANCE AND AAS 31 OPERATING SURPLUS

6.3. The measure of Net Operating Balance in GFS differs from its corresponding or counterpart aggregate, Operating Surplus (Deficit) under AAS 31. Certain items included in the AAS 31 measure are excluded from the GFS measure. Conversely, certain items are excluded from the AAS 31 measure and included in the GFS measure. These differences are detailed below.

Provisions for doubtful debts

6.4. Provisions for doubtful debts (or more correctly, ‘allowances’ for doubtful debts in terms of recently introduced accounting terminology) relate to anticipated doubtful debts expensed during the period. These provisions or allowances are excluded from GFS Net Operating Balance as they do not meet the GFS definition of transactions, but are included in AAS 31 Operating Surplus (Deficit). In GFS, bad debts written off are treated as capital transfers (if mutually agreed between debtor and creditor) or as other changes in the volume of assets (if unilaterally written off by the creditor).

Bad debts written off from provisions and treated as capital transfers

6.5. An adjustment for those bad debts written off from provisions and treated as capital transfers in GFS is required when reconciling AAS 31 Operating Surplus (Deficit) with GFS Net Operating Balance.

6.6. Gains and losses on assets are excluded from GFS Net Operating Balance, but included in AAS 31 Operating Surplus (Deficit). Such gains and losses, treated as either revenue or expenses in the AAS 31 operating statement, include profit and loss on the sale of assets, realised and unrealised gains and losses on derivative financial instruments, and realised and unrealised gains and losses on securities valued at historic cost. These items are excluded from the GFS Net Operating Balance and treated as revaluations in GFS output.

Abnormal items

6.7. All abnormal items recorded in the period are included in the measure of AAS 31 Operating Surplus (Deficit) for that period. They are currently disclosed separately because of their unusual impact on the operating result but, due to changes to Australian Accounting Standards, such disclosure will not be required in respect of reporting periods beginning on or after 1 July 2000. In GFS, only abnormal items that represent revenue and expense transactions relevant to the period are included in the Net Operating Balance for that period. Those abnormal items that represent revaluations of assets or economic transactions relevant to other periods are not included in the Net Operating Balance for the period.

Distributions to owners (dividends)

6.8. In GFS, distributions to owners refers to transfers by public corporations to their parent entities and other shareholders in the form of dividends, transfers of profits or other similar distributions. These are regarded as expenses and included in GFS Net Operating Balance to generate, as closely as possible, the ASNA Savings plus Capital Transfers aggregate. Under accounting conventions, distributions to owners are not regarded as operating expenses.

Capitalised interest

6.9. In reports prepared under AAS 31, capitalised interest forms part of capital expenditure and is not included in the Operating Surplus (Deficit). In GFS, interest that is capitalised under AAS 31 is not considered to be conceptually part of capital formation. It is reflected as an interest expense in GFS output and is therefore included in the Net Operating Balance.

6.10. Table 6.1 outlines the adjustments required to reconcile GFS Net Operating Balance with AAS 31 Operating Surplus (Deficit).

	6.1. RECONCILIATION OF GFS NET OPERATING BALANCE WITH AAS 31 OPERATING SURPLUS (DEFICIT)
			GFS Net Operating Balance
	minus		Provisions for doubtful debts
	plus		Bad debts written off from provisions and treated as capital transfers
	plus/minus		Gains/losses on assets, including derivatives
	plus/minus		Adjustment for abnormal/extraordinary items (a)
	plus		Distributions to owners (dividends)
	plus		Capitalised interest
	plus/minus		Other adjustments (b)
	equals		AAS 31 Operating Surplus (Deficit)
	(a) Due to changes to Australian Accounting Standards, separate identification of abnormal items will not be required on the face of financial statements in respect of reporting periods beginning on or after 1 July 2000. (b) Calculated as a residual. May include adjustments for superannuation, coverage and unidentified differences.

6.11. In practice, the GFS Net Operating Balance will also differ from ASNA Savings plus Capital Transfers even though they are conceptually intended to be equivalent. The differences are outlined in the following text.

Interest

6.12. In GFS (and under AAS 31) interest is valued on an historical or contractual basis, whereas in ASNA it is valued on a market basis for traded securities. This represents a significant difference between the two series. An adjustment for interest calculated at market values is therefore required when reconciling GFS Net Operating Balance with ASNA Savings plus Capital Transfers.

Consumption of fixed capital

6.13. The accounting measure of depreciation does not align well in practice with the statistical measure of consumption of fixed capital. Thus, an adjustment for the difference in consumption of fixed capital is required when reconciling GFS Net Operating Balance with ASNA Savings plus Capital Transfers.

Ownership transfer costs

6.14. In ASNA, costs associated with transactions in real assets are capitalised, not expensed. However, they are then fully depreciated in the same period, as they have no balance sheet value. An adjustment for ownership transfer costs is therefore required when reconciling GFS Net Operating Balance with ASNA Savings plus Capital Transfers.

6.15. Table 6.2 outlines the adjustments required to reconcile GFS Net Operating Balance with ASNA Savings plus Capital Transfers.

	6.2. RECONCILIATION OF GFS NET OPERATING BALANCE WITH ASNA SAVINGS PLUS CAPITAL TRANSFERS
			GFS Net Operating Balance
	plus/minus		Adjustment for interest calculated at market values
	plus/minus		Adjustment for consumption of fixed capital
	plus/minus		Adjustment for ownership transfer costs
	plus/minus		Other adjustments (a)
	equals		ASNA Savings plus Capital Transfers
	(a) Calculated as a residual. May include timing and other unidentifiable differences.

6.16. GFS Net Worth, AAS 31 Net Assets and ASNA Balance Sheet Net Worth are equivalent for the large part. The GFS Net Worth measure represents total assets less liabilities less shares and other contributed capital. The AAS 31 Net Assets measure, in concept, represents Total Net Assets (total assets less total liabilities) less outside equity interests, though in the illustration in the standard outside equity interests are not deducted from Total Net Assets – rather they are separately disclosed.

6.17. Table 6.3 outlines the adjustments required to reconcile AAS 31 Net Assets with GFS Net Worth, and the latter with ASNA Balance Sheet Net Worth.

	6.3. RECONCILIATION OF GFS NET WORTH, AAS 31 NET ASSETS AND ASNA BALANCE SHEET NET WORTH
			GFS Net Worth
	plus/minus		Adjustments (a)
	equals		AAS 31 Net Assets
			GFS Net Worth
	plus/minus		Adjustments (b)
	equals		ASNA Balance Sheet Net Worth
	(a) Calculated as a residual. Includes adjustments for capitalised interest, provision for bad debts, superannuation, coverage, valuation and unidentified differences. An attempt will be made to separately identify the major components. (b) Calculated as a residual. Includes adjustments for possible coverage, valuation and unidentified differences. An attempt will be made to separately identify the major components.

6.18. The value of Net Lending/Borrowing derived in GFS will differ from that derived in ASNA due to the different treatment and valuation of some component items. These differences are detailed below.

Interest

6.19. In ASNA, the calculation of interest on marketable securities is based upon the market rate whereas in GFS it is based upon the historical or contractual rate. This represents a significant difference in the two series.

6.20. Table 6.4 outlines the adjustments required to reconcile GFS Net Lending/Borrowing with ASNA Net Lending/Borrowing.

	6.4. RECONCILIATION OF GFS NET LENDING(+)/BORROWING(–) WITH ASNA NET LENDING(+)/BORROWING(–)
			GFS Net Lending(+)/Borrowing(–)
	plus/minus		Adjustment for interest calculated at market values
	plus/minus		Other adjustments (a)
	equals		ASNA Net Lending/Borrowing
	(a) Calculated as a residual. May include unidentifiable differences.

6.21 .As indicated in chapter 5, it is the intention of the ABS to reconcile GFS measures with AAS 31 measures where these have been published by the respective jurisdiction as part of AAS 31 reports or budget documents. Given the April 2000 timing of the forthcoming GFE and the fact that in most cases the 1998–99 data will be preliminary and unaudited for which the corresponding AAS 31 statements will not have been published, reconciliations will not be included in this edition.

6.22. The reconciliation statements outlined above will be introduced progressively as data sources allow from the 1998–99 issue of Government Finance Statistics (Cat. no. 5512.0).